The coronavirus crisis continues to generate data that can be valuable for understanding and decision making. Below are just a few resources that may be of interest to insurers and the people and businesses they serve.
Graphs from the University of Texas COVID-19 Modeling Consortium show reported and projected deaths per day across the United States and for individual states.
The Verisk COVID-19 Projection Tool has been made available to enhanceunderstanding of the potential number of worldwide COVID-19 infections and deaths. It provides an interactive dashboard that leverages the AIR Pandemic Model.
Small and medium-size businesses account for roughly 44% of the U.S. economy and provide employment to about 59 million people. McKinsey is tracking their sentiment to gauge how their views on economic activity, employment, and financial behavior—as well as their expectations about financial institutions and public authorities—change as a result of ongoing public and private interventions.
The coronavirus crisis is taking a toll on the U.S. legal system as courts are restricting access and altering procedures. Dentons, a global law firm, addressed the impact of COVID-19 on ongoing cases in a recent webinar led by Michael Duvall, Partner; David Quam, Counsel; and Kelly Graf, Managing Associate.
Litigators have ongoing responsibilities to their clients to keep up with key deadlines, during the “slowdown.” These responsibilities include keeping them informed of scheduling, continuing to meet filing deadlines, and advocating for the clients’ interests. Judges have significant discretion to keep their cases moving along.
The webinar covered some of the litigation risk facing businesses with “enterprising” plaintiff’s lawyers actively looking for clients. The risks include data breaches arising from remote workers using unsecured home computers to access confidential data; safety and compliance issues related to remote work; exposure to the virus by employees who are not working remotely; event cancellation; claims of false or misleading advertising against companies capitalizing on demand for products like hand sanitizer; and price gouging.
Dentons has put together a 50-state tracker
that it’s maintaining of coronavirus-related orders, directives, financial
assistance, health and business directives, and updates on court and
legislative sessions.
An article in Claims Journal: Anticipated
Coronavirus Claims Scenarios Across Major Coverage Lines discusses
the wide range of insurance lines in which claims could rise, whether as a direct result of the
pandemic or of social, institutional, and governmental reactions to it.
The Financial Times reports on two shareholder lawsuits
relating to coronavirus that have already been launched in the United States,
one against Norwegian Cruise Lines, the other against a pharmaceutical company
called Inovio.
An NBC6
(Miami) report highlights actions that some major
insurers are taking to provide relief to their customers who are facing
financial difficulties due to the coronavirus pandemic. Said Sean Kevelighan,
CEO of Triple-I, “In the insurance community, we refer to ourselves often as
financial first responders and you’re really starting to see that kick in right
now.” Some companies are allowing customers to delay payments without penalties
or initiate a personal payment plan. A few are offering relief in the form of
paybacks to customers.
Other recent articles related to coronavirus from a property and casualty insurance perspective:
Auto
A New York Daily News
article describes the rebates auto Insurers are offering to their customers due
to coronavirus-induced driving lull. Liberty Mutual, American Family and
Allstate are among the companies offering refunds.
A Winknews report
discusses the assistance available to customers during the coronavirus pandemic
and includes an anecdote from a policyholder who was told by his insurer that
he couldn’t get an extension. Triple-I’s Mark Friedlander says this customer’s experience
is not the norm.
Business Interruption
Triple-I CEO Sean Kevelighan was quoted in Washington
Examiner and Santa Rosa, Calif. Press
Democrat articles on business interruption coverage.
Artemis published this
interview with PCS’s Tom Johansmeyer on silent pandemic risk.
The Financial Times reported on the
growing controversy over how much companies can claim from their business
interruption insurance policies related to the coronavirus pandemic.
As local, state and federal agencies scramble to react to
the public health needs of COVID-19, cities and towns must also keep one eye on
the weather forecast and river levels, according to this
Chicago Tribune article.
Workers Compensation
The Minnesota Legislature passed a workers’ compensation
bill Tuesday to cover first responders, health care workers and daycare
workers. The legislation is effective April 8 and is in place until May 1. Minnesota to Ensure Workers Comp to Responders
With COVID-19
Triple-I’s Daily newsletter covered many of the preceding stories this morning. To subscribe to the Triple-I Daily contact daily@iii.org.
U.S. insurers are meeting the challenges faced by their customers, communities, and employees amid the COVID-19 crisis, according to a fact sheet released April 3 by the Insurance Information Institute (Triple-I).
“The nation’s insurers continue to work actively on immediate and forward-looking solutions that will assist its customers and communities in recovering from COVID-19,” said Sean Kevelighan, CEO, Triple-I.
The fact sheet, Insurers Offer Forward-Looking Solutions for COVID-19 Recovery, outlines how the industry is easing its customers’ financial burdens, working with government to create a COVID-19 Recovery Fund, and making sure it has the resources to pay future claims from events such as hurricanes, tornadoes, and wildfires.
Immediate Customer
Solutions: Insurers are offering payment relief and extending coverage to
customers who are in financial distress while at the same time keeping its employees
on the job to serve these same customers, the Triple-I notes.
Government-Backed
Solutions: Trade groups representing insurers have voiced support for the
proposed COVID-19 Business and Employee Continuity and Recovery Fund. It
would be financed by the federal government and provide essential funds to
impacted employers and employees.
Facing Challenges Head-On: Workers
compensation insurers in multiple states are covering the healthcare workers
and first responders who face exposure to COVID-19 while auto, home, and
business insurers are setting aside the resources needed to pay the claims
arising out of future natural disasters even as insurer investment portfolios
have faced their own headwinds. A Triple-I non-resident scholar predicted
yesterday the likelihood of an ‘above-normal’ Atlantic hurricane
season.
Insurers have also contributed financially to food
banks and organizations providing medical supplies.
While insurance policies might not cover the mitigation or
cleanup costs related to commercial facility exposure to the coronavirus, preserving
a healthy and safe place of business remains a critical risk management issue.
As the coronavirus (COVID-19) continues to spread rapidly around
the world, it’s important to know what to do if someone carrying the highly
contagious virus comes in contact with any of your facilities or those of your
customers. Even the potential of your business premises being exposed to
COVID-19 can create a possible need to engage risk mitigation efforts.
Understanding the importance of utilizing a professional, credentialed
decontamination contractor both before and after facility exposure is crucial
to protecting your business.
Larry Thomas
“COVID-19 has presented new challenges for businesses around the
world, and it’s necessary to understand the importance of ensuring the safety
of all employees and customers,” said Larry Thomas, global president of
Crawford Specialty Solutions, a division of Crawford & Company that
includes Contractor Connection. Contractor Connection, an industry
leader in managed repair services, provides insurance carriers, brokers and
consumers a global network of more than 6,000 contractors vetted and managed
for performance in residential and commercial work, including specialists in
technical areas like cleanup after a biological event.
“Experts have warned that we have just begun to feel the impact of the
virus in the U.S., and it is expected to continue to affect lives for the
foreseeable future.”
With that in mind, it’s essential you ensure you are
utilizing a decontamination contractor who is rigorously vetted, held to the
highest standards, and professionally equipped to restore affected sites
through proper remediation and containment procedures. Here are some best
practices for how to approach this critical work while reducing risk for you
and your customers.
Prevention protects you, your customers and others
Prevention is the first step toward reducing exposure to the
virus. Even before an incident occurs, a decontamination contractor can work
with your business to provide cleaning and disinfecting services designed to
reduce the opportunity for infection and keep facilities operating longer. When
administered by a trusted, licensed and insured provider, preventative cleaning
provides a cleaner, safer work environment and enhances employee and customer
satisfaction.
Decontamination services limit business interruption
If you or your customers’ facilities are exposed to
coronavirus, legitimate decontamination services using proper techniques,
equipment and materials, and following CDC, state and local protocols should be
employed to restore your places of business back to operation as quickly as
possible, limiting business interruption. Time is critical, so you should
engage with a service that provides 24/7 assignment processing and emergency
response.
Lance Malcolm
“Providing access to a rapid-response decontamination
service can help reduce the potential impact of contamination in the workplace
and return the environment to full operational status as quickly as possible,”
said Lance Malcolm, U.S. president of Contractor Connection. “The focus must be
on helping companies limit business interruptions and ensure that the affected
facilities are completely safe for those who use them.”
Safe biohazard waste disposal reduces future risk of
exposure
As part of decontamination services, it’s also important to
utilize contractors trained to handle and properly dispose of biohazard waste,
safely removing any affected materials from the facility. Services that provide
quality assurance review and project monitoring ensure speedy completion and
provide peace of mind knowing exposure to the virus has been properly reduced
or eliminated.
The COVID-19 pandemic is unprecedented in many ways. The human toll is first and foremost on our
minds (as it should be), but as an insurance professional, I’ll stay in my lane
and address one of the economic impacts – business interruption.
Businesses Looking to Mitigate Losses
Among the ways in which we are in uncharted territory is the
scale of how businesses are impacted. Unsurprisingly,
in reaction to slow-downs and shut-downs in many business sectors, businesses
are looking for ways to mitigate their losses or recover lost revenue. One avenue that businesses are exploring is
the availability of business interruption coverage under their property
insurance policies. Other potential
claims include communicable disease coverage found in some policies purchased
by hotels or event cancellation insurance, but those claims are beyond the
scope of this article.
Property insurance was designed originally to cover fire losses
and similar losses of physical property following the Great
London Fire of 1666. Of course,
property policies have evolved since then to cover additional risks including,
in many instances, business interruption losses caused by physical damage to property. A property policy may, for example, pay to
repair the damage caused by a fire and may cover the loss of business during
the reconstruction period. But here’s
the rub. Are the business interruptions related
to COVID-19 caused by physical damage to property?
Policy Language Will Control
The language of an insured’s policy will control whether
COVID-19 interruptions are covered. Unfortunately,
much of the media commentary on business interruption claims related to
COVID-19 has inappropriately treated all insurance policies as though they are identical. Policyholders have a wide array of different
policies they can purchase. For example,
some policyholders have purchased an ISO Businessowners Policy (BOP) with
standard terms and exclusions, others have purchased all-risk policies, and
others have purchased a variation of these types.
This commentary does not try to provide sweeping
pronouncements or give the impression that a single outcome will apply equally
to all situations. Instead, the
following is a starting point for a more detailed analysis under individual
circumstances. Details matter and the
analysis for a particular claim must start with the policy terms and facts
specific to that policyholder.
Is Coverage Triggered?
There have already been a handful of lawsuits filed related
to business interruption claims, some of which suits were filed before the
insurers even denied a claim. For
example, the Oceana suit filed by a restaurant in NOLA
and a suit filed by chef Thomas
Keller, owner of The French Laundry in California. Also, a group of tribal
nations that own casinos filed a lawsuit in Oklahoma and the owner of a
restaurant/movie chain filed suit in Illinois. Policyholders in these lawsuits are seeking a
ruling that they are entitled to coverage for losses sustained during their current
shutdowns. A review of the policies at
issues underscores the point made above – the outcomes in these suits and others
may not all be the same because different policies are at issue.
Nonetheless, there are some overall issues to consider. While the scope of business shutdowns is
unprecedented, we do have similar experiences as a guide, albeit on a smaller
scale, that may indicate how the current COVID-19 business interruption claims
may play out.
The threshold issue will be whether the insureds can prove
that their business losses are caused by “physical damage to property,” which
is the standard language in many business interruption policies. While the concept of causation focuses on
assigning blame for an accident in some legal contexts, it is important to
realize that in the insurance context the issue of causation is different.
In insurance, the concept of causation addresses whether
a particular loss triggers coverage, not who is responsible for causing the
loss. In this regard, we can replace
the word “causation” with “trigger.” So,
the question with the COVID-19 losses becomes, can these policyholders prove
that their business interruption losses were triggered by physical damage to
property akin to the fire loss damage mentioned above?
Past Experience
A series of cases from Minnesota demonstrates how the
COVID-19 business interruption claims might be resolved.
Where there is direct physical loss to property, such as
contaminated oats that could not be sold or a building rendered useless because
of asbestos contamination, the courts have found that business interruption coverage
was triggered. That is, these losses fit
the definition of direct physical loss to property. General Mills, Inc. v. Gold Medal Ins. Co.,
622 N.W. 2d 147 (Minn. Ct. App. 2001); Sentinel Mgmt. Co. v. New Hampshire Ins.
Co., 563 N.W. 2d 296, 300 (Minn. Ct. App. 1997).
But, where an earthquake caused a power loss in two
Taiwanese factories, and as a result, those factories could not supply products
to the Minnesota insured, the court found that the outages caused no injury to
the Taiwanese factories other than a shutdown of manufacturing operations, and
that this did not constitute “direct physical loss or damage.” Pentair, Inc. v. Am. Guar. & Liab. Ins.
Co., 400. F.3d 613 (8th Cir. 2005).
More recently, a federal appellate court considered a claim
related to mad cow disease. Source Food was
a company that sold products containing beef tallow. The USDA prohibited the importation of the
tallow from Canada in 2003 after a cow in Canada tested positive for mad cow
disease. The border was closed to Source Food’s sole supplier of beef product
in Canada. There was no evidence that the beef product specifically destined
for Source Foods was contaminated by mad cow disease, but after the border was
closed to the importation of beef products, Source Food was unable to fill
orders and lost business as a result. Source
Food submitted a business interruption claim.
It argued that the closing of the border caused direct physical loss to
its beef product because the beef product was treated as though it were
physically contaminated by mad cow disease and lost its function. But, the court held that to characterize
Source Food’s inability to transport its truckload of beef product across the
border and sell the beef product in the United States as direct physical loss
to property would render the word “physical” meaningless. Additionally, the
policy’s use of the word “to” in the term “direct physical loss to
property” was significant. The court explained
that the policy did not cover loss “of” property, it covered loss “to”
property. As a result, the cause of Source
Food’s business interruption was the government shutdown of the border, not
direct physical loss to its property. Source
Food Tech., Inc. v. U.S. Fid. & Guar. Co., 465 F.3d 834 (8th Cir. 2006).
What About the Current Claims?
Here, are the business interruptions related to COVID-19 the
direct result of the government restrictions on businesses or are they due to
the physical loss to their property?
Under the reasoning of the Source Food case, much of the current
business interruption claims would seem not to trigger the standard business
interruption coverage in a commercial business interruption policy or BOP. As cautioned above, this is not a universal
outcome under all policies. For example,
an all-risk policy would generally not distinguish between business
interruption losses due to government action or direct physical loss because
all-risk policies cover all losses except those specifically excluded. While it is possible that an all-risk policy
could specifically exclude losses due to civil authority orders, that is not a
standard exclusion in all-risk policies.
With regard to business interruption policy exclusions,
there are exclusions to consider even if a policyholder can meet its burden to
trigger coverage under the standard business interruption policy. For example, some policies have an exclusion
that precludes coverage for losses that result from mold, fungi or bacteria. However, because COVID-19 is a virus, that
exclusion may not apply. But, other
policies have exclusions for viruses, diseases or pandemics. That type of exclusion appears problematic
for policyholders, even those who satisfy the initial question of
causation/trigger.
The result may not be all-or-nothing. Might claims be partially covered? It is possible. For example, if a restaurant were shut down
because it had been contaminated by COVID-19 and needed to be cleaned and closed
for a two-week period to ensure no lingering virus remained, that period of
shutdown might be considered direct loss to property even though the shut-down
period after the cleaning period was not covered because the following shutdown
period was attributable to a government order.
Likewise, there may be a different analysis applied to some business
interruption claims that result from supply chain impacts. However, claims related to supply chain
disruptions are beyond the scope of this article.
Legislation and Duties of Insureds
It is notable that legislators in several states recently
proposed bills that would retroactively void the exclusions that would apply to
COVID-19 business interruption claims. Although
well-intentioned, these bills are deeply troubling because, among other things,
they could severely impact the financial stability of the insurance market,
which took in premiums based on such claims being excluded. And, because the legislation would not help
the 60 percent of businesses that do not purchase business interruption
coverage, the risk of crippling the insurance market is even more questionable.
Moreover, these bills would address only
the exclusions and do nothing to impact the initial question of whether
policyholders can trigger coverage.
Nevertheless, if a policyholder believes it may have a claim under its insurance policy(ies), it should provide prompt notice to its insurer(s) so that it does not risk a denial based on late notice. Likewise, once the claim has been made, it is essential that the insured cooperate with the insurer, including providing timely proof of loss.
Michael Menapace
Michael Menapace is a Triple-I Non-Resident Scholar, a partner at Wiggin and Dana LLP, and a professor of Insurance Law at the Quinnipiac University School of Law.
The Financial Times reports that
U.S. lawmakers and lawyers are considering efforts to force insurance companies
to pay claims related to the coronavirus pandemic. Congress also is debating
the need for legislation to require insurers to cover costs from business
interruption caused by the pandemic. U.S. insurers contend that their business
interruption policies exclude coverage for pandemics and that making such
coverage retroactive would cause the industry to collapse. Joseph Wayland,
general counsel for the U.S. insurer Chubb, said the losses would overwhelm
insurers’ ability to pay and that forcing these companies to take
responsibility for risks they never underwrote nor charged for represented an
existential threat. Bruce Carnegie-Brown, chair of Lloyd’s of London, agreed
that such a revision to insurance contracts would jeopardize the industry.
A Wall Street Journal editorial argues
that forcing costs of the economic disruption caused by the coronavirus
pandemic upon insurers would cause long-term economic damage unless a federal
backstop is put in place. The editorial says if business interruption insurance
“can be stretched and exclusions nullified during a crisis” insurers will conclude
that such coverage is not worth the risk and will drop the product.
Triple-I: Insurers are engaged in COVID-19 crisis
A Triple-I Fact Sheet, Insurers Are Engaged In the COVID-19 Crisis,
outlines how the industry’s financial stability allows insurers to keep the
promises made to policyholders in the event of tornadoes, hurricanes, or
wildfires. It also notes how insurers are contributing to COVID-19 related
charities, such as food banks and medical supplies.
“Pandemics are an extraordinary catastrophe that can impact nearly every economy in the world, so it is hard to predict and manage the risk,” said Sean Kevelighan, Triple-I CEO. “Pandemic-caused losses are excluded from standard business interruptionpolicies because they impact all businesses, all at the same time.”
APCIA on how insurers are helping customers
David A. Sampson,
president and CEO of the American Property Casualty Insurance Association
(APCIA), described in a statement how property/casualty insurers are working “to
proactively help consumers in this time of crisis.”
Examples include
temporary arrangements for:
Flexible payment solutions for families,
individuals, and businesses;
Suspending premium billing for small-business
insureds, such as restaurants and bars;
Waiving premium late fees;
Pausing cancellation of coverage for personal and
commercial lines due to non-payment and policy expiration;
Wage replacement benefits for first responders and
medical personnel who are quarantined;
Suspending personal auto exclusions for restaurant
employees who are transitioning to meal delivery services using their personal
auto policy as coverage;
Adding more online account and claims services for
policyholders;
Shifting more resources to anti-fraud and cyber
security units, in recognition that bad actors prey on victims during times of crisis; and
Suspending in-person loss control visits and
inspections.
On the subject of exclusions
for contagious diseases in business interruption policies, the statement said:
“If policymakers force insurers to pay for
losses that are not covered under existing insurance policies, the stability of
the sector could be impacted, and that could affect the ability of consumers to
address everyday risks that are covered by the property casualty industry.”
It went on to say:
“APCIA’s preliminary estimate is that business
continuity losses just for small businesses with 100 or fewer employees could
fall between $220-383 billion per month. The total surplus for all of the U.S. home,
auto, and business insurers combined to pay all future losses is roughly only
$800 billion, with the combined capital of the top business insurance
underwriters representing only a fraction of that amount.”
Business Insurance reports
that, according to sources inside the federal government, progress is being
made on legislation that would provide a federal backstop for pandemic risk
insurance and that a related bill could be introduced within the next 30 days.
According to the sources, the bill would set up a pandemic risk insurance
program that would be similar to the federal terrorism insurance program. They
also report that Rep. Maxine Waters (D-Calif.), chair of the House Financial
Services Committee, is circulating a draft bill including the proposal.
The Insurance Information Institute invited its members to a webinar titled “Covid-19’s Impact on Health, the Economy and Growth” on March 5 at 11:00 a.m. EST presented by Triple-I Vice President and Senior Economist Michel Léonard, PhD, CBE.
Dr. Lèonard will discuss the following key points:
• Economic impact likely to continue into Q3/Q4 2020 and 2021 • Could reduce global growth by as much as 1 percent and delay recovery by up to 12 months • Fiscal and monetary policy, rates cuts, unlikely to be effective • Insurance industry to see higher claims, reduced premium growth
He will also preview the Global Macro and Industry Outlook report before it is made available to the public.
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