The invisible coronavirus’ crushing impact is being felt by businesses small and large – and on the insurance companies that insure those businesses. But for those organizations with business interruption policies, do they have a valid insurance claim because the government shut them down and/or their business was “interrupted”? There’s a lot of disagreement and finger-pointing, with Congress and individual states poised to get involved in what may be a multi-billion dollar solution.
Host Lisa Miller, a former deputy insurance commissioner, talks with insurance attorney and consultant John Burkholder and Kevin Miller, a seasoned independent property and casualty insurance adjuster, for answers and advice.
Insurance claims being filed on Business Interruption (BI) policies generally are focusing on two policy conditions: physical damage and/or civil authority. A typical BI policy requires direct physical damage to a covered property by a covered cause, except as excluded. About 90% of BI policies in the U.S. are reportedly on Insurance Service Office policy forms that specifically exclude viruses. For the remaining policies, it’s also problematic.
“In this case (with the coronavirus), we’re not really having something like a direct cause of loss, like a fire. It’s really unique, in that the allegations being made across the country are that it’s because we have a virus in the air,” said John Burkholder, a consultant with Municipal Partners, a firm specializing in risk management for local governments.
Other insurance claims are being filed based on the civil authority clause in many policies, where a government authority has ordered a business to be closed.
“But in the traditional sense, the civil authority closing someone down has a limiting factor in almost all the policies. Typically, you get up to three weeks and it’s where you cannot enter the property. Here in most cases, you can enter the property,” said Burkholder, who is also an insurance attorney. “The plaintiff’s bar, the claimants, are saying ‘Well we can’t enter because the civil authority says that there are dangerous conditions in the area and because of the latency of this virus, we can’t get into our property and therefore it triggers business interruption income coverage.’”
In the meantime, insurance carriers are noting an increase in BI claims filings and investigating individual claims. “That is part of the process of adjusting the claim,” said Kevin Miller, a Sarasota, Florida-based claims adjuster with Velocity Claims Administration, an independent adjusting firm. “It’s about getting recorded statements from the policyholder, gathering documents, collecting information, and sending out reservation of rights letters. Remember, you have to be concerned about avoiding unfair claims practices or bad faith.”
Federal lawmakers and an increasing number of states are trying to legislate forced coverage, whether it’s in the policy or not. The Business Interruption Insurance Coverage Act of 2020 in the U.S. House would make coverage available for BI losses “due to viral pandemics, forced closures of businesses, mandatory evacuations, and public safety power shut-offs,” per the draft bill. And it voids any exclusion currently in place in an insurance policy. At least eight states have their own bills – Florida is not one of them.
“Business owners are suffering horribly,” said podcast host Lisa Miller, an insurance industry consultant. “They are having difficulty accessing federal bailout funds in some cases, they’ve lost employees, and others are trying to get unemployment. Many of these small businesses are looking for relief from the federal government and they were hopeful, as I’ve spoken to many small business owners, that their insurance companies would ‘be there for them’ as they put it. There are things Congress can do to help ‘be there for them’ and help insurance companies ‘be there for them,’ too.”
Restaurants have been among the most vocal groups. “They’ll never be able to fully recover because the meal you didn’t have yesterday cannot be replaced by the meal you’re going to have tomorrow,” said Burkholder.
The podcast also discusses the other approach being contemplated in Congress, the proposed Pandemic Risk Insurance Act (PRIA). It would “create a reinsurance program similar to TRIA for pandemics, by capping the total insurance losses that insurance companies would face,” according to the draft, thereby helping insurance carriers pay the claims. But will these programs be enough?
“The short answer is no,” said Kevin Miller, who noted that PRIA, as currently drafted, would apply only to future pandemics, not the current crisis. “The insurance industry is the best place to put money into people’s hands and from that, they can be reimbursed by the federal government. This will offset any litigation and prevent the litigation, I feel, from happening, which we all know has already started happening. We see the commercials and see the carriers being served already.”
The podcast discusses how insurance companies are trying to get cases fully vetted, while the plaintiff bar representing claimants is seeking declaration actions by courts to expedite litigation. But these are individual policies usually handled on an individual basis, and governed by individual state insurance laws.
“Those policies that didn’t exclude (viruses) should be paid and they should be paid promptly,” said Burkholder, who is a former Kentucky deputy insurance commissioner and a certified insurance examiner. But beyond those policies, “it’s a huge, huge exposure and I don’t think it was priced or anticipated or included in what insurance was going to do. We have to come up with a solution that doesn’t kill the golden goose. We need insurance now, but we also need to make sure that whatever we do, that we’ll have insurance next year as well,” Burkholder said.
“What we can do on the insurance side in my opinion, and this may be counterintuitive, is hope for more claims, even if they’re being denied,” said adjuster Miller, who has 30 years of experience in claims disputes. “Because the more claims that carriers are getting on the aggregate, we can take that back to our congressional representatives and say ‘Look, this is how big this is getting. Your PRIA Act is not going to take care of it, because that’s for future events.’ We need to do something now because the insurance industry will be turned on its heels should these BI claims be required to be paid.”
The guests offered advice to insurance companies and to policyholders, including other federal programs. For her podcast listeners, host Lisa Miller had this advice. “We have to confront this new reality that the virus is not going away tomorrow. It is just so uncertain and uncertainty in the insurance industry or in the business sector is not a good thing. To our listeners, I hope that each of you can make peace with this unexpected uncertainty and that we can find a way to help our customers, and help policyholders, do what we can as we move through these very uncertain times,” Miller said.
Links and Resources Mentioned in this Episode
The Workplace Recovery Act: A Public-Private Partnership Solution White Paper (Texas Public Policy Foundation)
The Business Interruption Insurance Coverage Act of 2020 (U.S. House of Representatives)
Pandemic Risk Insurance Act (PRIA) (U.S. House of Representatives)
New York City Emergency Executive Order No. 100 (City of New York, NY)
Coronavirus & the Florida Market (Lisa Miller & Associates)
Florida Insurance Informational Memorandums (Florida Office of Insurance Regulation, March 2020 ongoing)
Coronavirus Resources & Insurance Consumer Information (Florida Department of Financial Services)
Estimates for COVID-19 (AIR Worldwide)
NAIC Coronavirus Resource Center (National Association of Insurance Commissioners)
Coronavirus Rumor Control (FEMA)
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