Insurers balk at calls for ‘interruption’ coverage
They are the magic wand of the commercial insurance industry, policies that reimburse businesses for interrupted sales in addition to physical damage incurred from hurricanes and other catastrophic events.
But as some states look to force insurers to cover any business-interruption claims they receive stemming from the coronavirus closures — a scenario underwriters never envisioned — Connecticut is holding back for now, mindful of legal language on the side of carriers.
This week, state Sen. Matt Lesser, D-Middletown, and Rep. Sean Scanlon, D-Guilford, petitioned Congress to create a federal backstop for business interruption insurance claims. Lesser noted that Congress took a similar step after the September 2001 terrorist attacks, with state legislators in Pennsylvania having also pressed for any new federal relief package to include reimbursement for business interruption claims as a result of coronavirus.
Insurers have already taken several major steps to alleviate financial pressures for policyholders, with auto insurers issuing refunds or credits reflecting fewer accidents as drivers stay off the roads during “stay at home” orders by states nationally; and health insurers agreeing to waive deductibles for any coronavirus-related care, a major hit to their bottom line.
But insurers such as Chubb and The Travelers say they would draw the line at erasing any exclusions in business interruption coverage for pandemics, arguing a wave of claims would threaten their financial viability.
Nevertheless, New Jersey, New York and Massachusetts have legislation in the works that would create requirements for insurance carriers to cover losses from pandemic-related causes under business interruption policies.
New Jersey’s bill filed in mid-March would force underwriters to honor business interruption claims from policyholders that employ less than 100 people, but in a tandem step would allow those carriers to be reimbursed from a pool of capital created through assessments on the larger industry. A Massachusetts bill filed last month would allow insurers to make up losses through future fees on policies.
New York legislators filed their bill last week, with the language declaring “null and void” any clauses in business interruption policies based on viruses or bacteria for businesses with less than 250 people. Pennsylvania, Ohio and Louisiana are crafting bills as well.
‘Losses that policies weren’t written to cover’
The Travelers Cos. warned this week that any such requirements could have a significant impact on its reserves, with the company not having priced the possibility of an epidemic into the premiums it charges for business interruption coverage which rule out any such claims.
The Travelers is based in St. Paul, Minn. and is the largest of the property-and-casualty insurance carriers with major operations in Connecticut, employing more than 4,000 people in the Hartford area.
The company sponsors the annual Travelers Championship PGA tournament in Cromwell, the largest sporting event in the state.
Earlier this month, the American Property Casualty Insurance Association estimated that among businesses with less than 100 employees alone, losses due to closures are running anywhere between $255 billion and $431 billion monthly in the aggregate, dwarfing the annual premiums for all commercial property risks that run about $6 billion a month. APCIA added that the property and casualty industry’s current surplus to cover future losses is about $800 billion, with commercial coverage representing only a fraction of that amount.
On Tuesday, Travelers CEO Alan Schnitzer opined that any state actions to mandate business interruption claims awards could be subject to a “constitutional challenge,” without stating immediately whether Travelers would lead any such challenge. Schnitzer’s stance came on the heels of a similar declaration by the CEO of New Jersey-based Chubb.
“For every claim — without exception — we start by looking at the facts of the claim and the terms of the policy to determine whether the claim is covered or not,” Schnitzer said during a Tuesday conference call. “That said, our commercial property insurance policies that include business interruption — including as a result of civil authority — require losses to be caused by direct physical damage to property from a covered cause of loss . ... Our standard policy form specifically excludes loss or damage caused by or resulting from a virus.”
Schnitzler added that insurers are bracing for a wave of lawsuits as a result of the coronavirus pandemic which will add costs over time.
Odors, bacteria, wildfires
But attorneys in the Stamford and New Haven offices of Murtha Cullina say there is legal precedent that could support claims, calling the insurers’ stance “a position, not the law.”
“What this argument ignores is that many courts across the country have determined that ‘physical loss’ includes odors, bacteria, airborne contaminants, and other such intrusions into a property,” wrote Murtha Cullina attorneys Benjamin Nissim and Marilyn Fagelson, in a client brief last week.
For business owners lacking interruption insurance, the Connecticut Insurance Department is advising them to check any umbrella property and casualty policies for possible coverage. The department addresses the coronavirus implications for any existing policies online at portal.ct.gov/CID.
If it took a figurative “act of god” in the industry parlance to force a mass disruption to business never envisioned, it may take an act of Congress for proprietors to collect on any policies that might otherwise come into play when forced to shutter as a result of events beyond their control.
“Insurers don’t collect premiums to cover losses that policies weren’t written to cover,” Schnitzer said. “Requiring those losses to be covered retroactively on any broad scale would overwhelm the industry’s ‘claim staying ability’ for legitimate claims . ... The industry’s financial strength is especially important in a time of increased natural catastrophes. The spring tornado season is already active, hurricane season is fast approaching, and wildfires represent an ongoing threat.”