By Dominica Anderson, Philip Matthews and Daniel Heidtke
We previously wrote about the growing number of lawsuits by insureds seeking business interruption insurance coverage for business losses in response to the novel coronavirus and ways that state and federal governments were beginning to consider ways that they might compel such coverage.
The potential cost of business continuity losses is enormous. The Congressional Research Service issued a report to Congress on the financial impact to insurers for the cost of covering business interruption claims. The report explains that some industry sources estimate that the cost of covering business interruption claims ranges from $110 billion to $290 billion per month. In a more recent letter, insurance industry leaders explained, “recent estimates show that business continuity losses just for small businesses of 100 or fewer employees could amount to between $220 billion to $383 billion per month. Meanwhile, the total surplus for all of the U.S. home, auto, and business insurers combined to pay all future losses is only $800 billion.”
Seven states have taken steps to enact legislation compelling business interruption and contingent business interruption insurance for COVID-19 losses. Those states include Louisiana (SB477; HB858), Massachusetts (SD2888), New Jersey (AB3844), New York (AB10226), Ohio (HB589), Pennsylvania (HB2372), and South Carolina (SB1188).
The various bills proposed throughout the country contain strikingly similar language. In Louisiana, for example, SB477 provides that existing policies affording coverage for business interruption losses “shall be construed to include among the perils covered under that policy, coverage for business interruption due to imminent threat posed by COVID-19[.]” Massachusetts’s SD2888, New Jersey’s AB3844, New York’s AB10266, Ohio’s HB589, and Pennsylvania’s HB2372, are nearly identical. Another bill (Louisiana’s SB506), provides that property insurance policies “shall” cover the “cost of disinfecting fumigation of the building if a person who works or resides in the building has a positive diagnosis for COVID-19[.]”
South Carolina’s SB1188 goes further than the others. In addition to compelling coverage for COVID-19 losses, SB1188 also provides that no insurer may deny a business interruption or loss of use claim on account of “(1) COVID-19 being a virus, even if the relevant insurance policy excludes losses resulting from viruses; (2) there being no physical damage to the property of the insured or to any other relevant property; or (3) orders issued by any civil authority, or acts or decisions of a governmental entity.”
The proposed laws do not apply to all insureds. The proposed laws contain limits based upon the number of full-time employees working for the insured. New Jersey, Ohio and Pennsylvania’s proposed laws are limited to insureds with 100 or fewer employees; Massachusetts and South Carolina limit their proposed laws to insureds with 150 or fewer employees; and New York’s limit is 250 employees or fewer. As originally and currently proposed, Louisiana’s SB477 did not contain any such limit, but Louisiana’s HB858 contains a limit of 100 or fewer employees.
State departments of insurance have also been active. For example, both the California Department of Insurance and the Washington State Office of the Insurance Commissioner (OIC) asked insurers to provide information concerning the commercial property insurance policies issued in each respective state, and details about any business interruption coverage such policies might provide. Responses to the California Department of Insurance’s request were due April 9. And, despite efforts by state legislatures set forth above, Washington’s OIC website makes clear: “[t]he Office of the Insurance Commissioner does not have the authority to mandate insurers sell or retroactively cover pandemic coverage or policy endorsements.”
As an alternative to coverage by legislative fiat, insurance industry and commercial policyholder groups have asked the federal government to create a “recovery fund” designed to further assist businesses. The “COVID-19 Business and Employee Continuity and Recovery Fund,” as proposed in a letter to President Donald J. Trump, Treasury Secretary Steven T. Mnuchin and congressional leaders, would “supplement the efforts to expand lending in the CARES Act” and “would be designed to help businesses retain and rehire employees, maintain worker benefits, and meet operating expense obligations.”
Congress is wading in. Recently, seven U.S. Senators wrote to President Trump explaining, “[i]f the insurance industry were now forced retroactively to cover perils that were never accounted for, commercial insurers could experience significant economic strain and/or insolvencies, given the magnitude of the current cumulative estimated claims.” Meanwhile, a draft of the “Pandemic Risk Insurance Act of 2020,” is circulating. The draft Act seeks to establish “a Federal program that provides for a transparent system of shared public and private compensation for business interruption losses resulting from a pandemic or outbreak of communicable disease.” The Act’s “program” would be similar to the Terrorism Risk Insurance Act, creating a government “backstop” for insured losses.
There is certainly a lot of activity in the courts, administrative agencies and in the various state legislatures and Congress addressing the novel coronavirus. And, we continue to monitor this fast-developing situation. In the end, only time will tell how the economic problem from the novel coronavirus is addressed.