Conflict over future BI policy wording
There are new developments to report on the Business Interruption (BI) insurance front – some positive and some discouraging for insurance interests – as well as efforts to protect businesses from being unduly sued by customers for coronavirus exposure.
A Washington D.C. court has ruled against several restaurants who sued Erie Insurance exchange, claiming the mayor’s order closing businesses constituted a “direct physical loss” and entitled them to recover lost income under their BI policies. The judge in Rose’s 1 LLC et al v. Erie Insurance Exchange ruled that the mayor’s order “did not affect any direct changes to the properties” nor “have any effect on the material or tangible structure of the insured properties.” It’s the third straight victory for insurance companies, following one in a Michigan court that we reported last month and one in May involving a New York magazine publishing house.
The other positive news is last week’s decision by the federal Judicial Panel on Multidistrict Litigation not to consolidate thousands of BI lawsuits nationwide into a single case. They include more than 100 lawsuits currently filed in the U.S. District Court in Miami. The panel ruled such a move would be “unmanageable” but left open the possibility of combining certain insurer-specific claims into four cases. The insurance companies impacted would be Cincinnati Insurance, Hartford Financial, Society Insurance, and certain Lloyd’s underwriters. The ruling was applauded by the insurance industry and some plaintiff attorneys – including from South Florida – who argued wording differences are legal questions better served in the state-specific laws and regulations governing insurance.
While this is a victory for insurance companies, it also preserves the markets for continued competition for this line of business. We have had spirited conversations with restaurant owners who are desperate for financial relief, looking to their BI policy for it; on the other side of the discussion are business owners who barely missed a beat and don’t want their premiums to soar because of unwarranted claim payouts to others. It is an emotional and tough discussion.
There is discouraging news to report on efforts by carriers to clarify coverage and protect themselves through policy form changes in new and renewal commercial policies. A report by the American Property Casualty Insurance Association says state insurance departments are rejecting those filings over strict wording of “communicable diseases.” As a result, primary insurance companies simply trying to align their policies with their reinsurance treaties will be exposed to greater risk, impacting their financial solvency.
“Regulators today have before them a unique opportunity to use their authority to preserve market stability for millions of policyholders while also fostering an environment in which insurers can thrive and work to innovate products that will reduce the pandemic and communicable disease exposures of the future,” the report concludes. We at LMA are awaiting definitive direction from the Florida Office of Insurance Regulation on its position. For those who want to discuss this or have input on this issue, please contact me.
Meanwhile, Nevada has passed first of its kind legislation in the country to shield its casinos and hospitality industry from liability lawsuits arising from coronavirus infections. The law requires those businesses to follow public health recommendations and provide free testing and paid time off to employees who test positive and are quarantined. In Florida, where tourism and hospitality is the state’s largest industry, state Senator Jeff Brandes (R-Pinellas) is continuing to work with colleagues and state cabinet members to draft a bill for the next legislative session to provide protection for a broad range of businesses. The goal is to eliminate incentives for lawyers to engage in predatory practices, while still allowing legitimate lawsuits with clear reckless disregard to proceed.
LMA Newsletter of 8-17-20