The issue of the applicability of business interruption coverage has become one of the most hotly discussed insurance issues related to the COVID-19 pandemic. It is well-established that for virtually every commercial business interruption policy, there is no coverage for losses related to COVID-19. In response, both Congress and the New York State Legislature are currently considering legislation that would retroactively require insurers to cover losses related to COVID-19. We believe these proposals are misguided and would have catastrophic consequences.
On the Federal level, Rep. Brian Fitzpatrick (R, Pennsylvania) has sponsored the “Never Again Small Business Protection Act" that would require every commercial property-casualty policy which includes business interruption coverage to provide coverage for losses stemming from the closure of a business for practically any reason, which would include losses associated with a virus or pandemic. Recently, President Trump called on insurers to pay virus related claims if they are not excluded.
In New York State, Assemblyman Robert Carroll (D, Brooklyn) and Senator Andrew Gounardes (D, Brooklyn) have sponsored legislation to require COVID-19 related losses to be covered retroactively by business interruption insurance.
Why a Retroactive Coverage Mandate is Unwise - and Ineffective:
- First and foremost, pandemics are by nature uninsurable, and the losses associated with a pandemic are beyond what the existing insurance mechanism can afford to cover. Insurance policies contain exclusions for losses caused by events like war, nuclear and radiation accidents, and pandemics because the potential losses are so extreme and widespread that providing such coverage would threaten insurer solvency and force companies to charge premiums that would be cost-prohibitive.
- The magnitude of these losses is enormous and will threaten the financial health of many insurers, quickly send some domestic companies into insolvency, and destabilize an otherwise healthy economic sector. The insurance industry will be needed to support economic activity and help fuel our economic rebound when the restrictions are lifted, but it will not be positioned to do so if measures like this are enacted into law.
- Such proposals would require insurers to utilize the premiums collected for other specified risks and set aside to pay claims, and the outlays this would mandate will almost certainly exceed the amount of premium collected for all commercial property insurance.
- Legislatively rewriting existing insurance contracts by somehow nullifying the virus exclusion or the physical damage requirement would blatantly run afoul of the constitutional prohibition against the government impairing private contracts.
- Proposals that attempt to revise insurance contracts and compel insurers to pay for losses that were clearly excluded are misleading and offer false hope to businesses that are struggling through the crisis. Indeed, only 30% of small businesses have business interruption coverage. This proposal offers the majority of small businesses no relief.
- The insurance industry is working closely with the business community on a proposal that would enable those in need to receive compensation from the federal government. The federal fund that has been proposed would be open to all businesses adversely affected by the pandemic and not simply the small minority that bought business interruption coverage that excluded such risks.
Big I NY Has Your Back:
IIABA has joined a coalition of insurance trade associations in calling on congress to reject retroactive coverage mandates. Big I New York is working closely with our national Government Relations team to urge the state's congressional delegation to reject this misguided proposal.
On the state level, we are similarly opposing retroactive coverage legislation mandates. Keep an eye on your inbox for ways to contact your local legislators. We continue to advocate for a solution that will provide real, meaningful relief for our small business customers.