Category Archives: Legal Environment

Business Insurance, Health & Safety, Insurers and the Economy, Legal Environment, Workers Compensation

Gauging Pandemic’s Impact on Insurers

June 30, 2020 Jeff Dunsavage Leave a comment

While COVID-19’s impact on the insurance industry will require time to fully understand, litigation, legislation, and concerns about pricing and policy language will be with us for some time to come.

“Significant” changes in policy language seen

The majority of respondents to an Artemis re/insurance market survey believe the COVID-19 pandemic will result in “significant changes” to business interruption (BI) policy wordings.

In fact, the U.K. Financial Conduct Authority (FCA) is conducting a review focused on obtaining legal clarity on policies connected to the pandemic and which claims are valid and which aren’t.

FCA’s Interim CEO Chris Woolard said recently that while some BI policies are paying out for virus-related issues, others remain “within dispute” due to ambiguities in their wordings.

Outside of the 67.6% who stated a belief that COVID-19 will drive “significant changes” in BI policy wordings, 21.6% expect a “moderate amount” of change, while the remaining 10.8% said the effect will be “limited.”

Loss estimates vary

The Artemis survey also shows 67% of respondents expect the industry to face between $80 billion and $100 billion of underwriting losses due to the pandemic. This is roughly in line with Lloyd’s of London’s earlier estimate of a $107 billion global industry impact.

But analysts from investment bank Berenberg said they believe global COVID-19 claims will be more manageable, estimating a range from $50 billion to $70 billion for the total bill. The analysts don’t specify whether this includes both life and non-life insurance claims from the pandemic, but they do point to the estimate from Lloyd’s of London as being too high.

“We estimate $50-70bn for global COVID-19 claims,” Berenberg’s analysts state. “Significantly less than the $107bn estimate reported by the Lloyd’s of London market estimate on 14 May.”

Las Vegas Hospitality Union Sues Employers

Las Vegas Culinary Workers Union Local 226 is suing several employers on the Las Vegas strip over unsafe working conditions during the coronavirus pandemic, Business Insurance reported.

The union, representing 60,000 workers, said in a statement it is asking for injunctive relief under the Labor-Management Relations Act based on the “hazardous working conditions” workers face.

The lawsuit alleges casino hotels have not protected workers, their families, and their community from the spread of COVID-19 and that current rules and procedures in place for responding to workers contracting COVID-19 have been “wholly and dangerously inadequate.”

The Culinary Union made a number of requests for policy changes, including daily cleaning of guest rooms, mandatory testing of all employees for COVID-19 before returning to work and regular testing thereafter, adequate personal protective equipment for workers, and a requirement that guests wear face masks in all public areas.

Best Warning on COVID-19 Workers’ Comp Laws

Insurance rating agency A.M. Best has warned that legal efforts in several U.S. states to expand workers’ compensation coverage to allow employees to claim for COVID-19 will have a negative impact on re/insurers, Reinsurance News reports.

The crisis has resulted in many employees now working from home, but a significant part of the workforce still needs to be present and public facing, and this is the group new state laws aim to support. For these workers, some states are looking to shift the burden to the insurer to prove that an employee contracting COVID-19 did not do so while on the job.

“This shift in the burden of proof could lead to significant additional losses to a segment already under pressure and result in increased reserve estimates and higher combined ratios,” A.M. Best said.

Given that assumptions used in pricing and actual loss emergence diverge significantly, these legislative changes will result in an increase in loss estimates and could affect earnings.

Businesses Ask Patrons to Waive Right to Sue

As businesses reopen across the U.S. after coronavirus shutdowns, many are requiring customers and workers to sign forms saying they won’t sue if they catch COVID-19, Associated Press reported.

Businesses fear they could be the target of litigation, even if they adhere to safety precautions from the Centers for Disease Control and Prevention and state health officials. But workers’ rights groups say the forms force employees to sign away their rights should they get sick.

So far, at least six states — Utah, North Carolina, Louisiana, Oklahoma, Arkansas and Alabama — have such limits through legislation or executive orders, and others are considering them. Business groups such as the U.S. Chamber of Commerce are lobbying for national liability protections.

Cyber Risk, Legal Environment, Regulation

Senate Panel Meets On COVID-19 Fraud

June 16, 2020 Jeff Dunsavage Leave a comment

The Senate Judiciary Committee last week held a  hearing  titled “COVID-19 Fraud: Law Enforcement’s Response to Those Exploiting the Pandemic.” 

The hearing included testimony by William Hughes, associate deputy attorney general, U.S. Department of Justice; Craig Carpenito, U.S. attorney, District of New Jersey; Calvin Shivers, assistant director, Criminal Investigative Division, Federal Bureau of Investigation; and Michael D’Ambrosio, assistant director, U.S. Secret Service, Department of Homeland Security.

Testimony focused on the response to fraud that has resulted from the COVID-19 pandemic. Examples included sale of fraudulent personal protective equipment (PPE) and cyber-enabled fraud; price gouging and hoarding; and fraud relating to the CARES Act’s Paycheck Protection Program (PPP).

As demand for PPE has been greater than the supply, the environment created has been “ripe for exploitation,” Shivers said.

In addition to sales of counterfeit PPE, he cited “advance fee” schemes – in which a victim prepays for goods like ventilators, masks, or sanitizer that are never received – and business email compromise (BEC) schemes, which involve spoofing an email address or using one that’s nearly identical to one trusted by the victim to instruct them to direct funds to bank accounts controlled by the fraudsters.

Shivers said the FBI is working to educate “the health care industry, financial institutions, other private sector partners, and the American public of an increased potential for fraudulent activity dealing with the purchase of COVID-19-related medical equipment.”

He added that millions of units of PPE have been recovered from price-gouging and hoarding operations and the FBI is working to determine next steps for how to redistribute or sell the PPE.

D’Ambrosio said that although “criminals throughout history have exploited emergencies for illicit gain, the fraud associated with the current COVID-19 pandemic presents a scale and scope of risks we have not seen before.”

He described four categories of threat:

COVID-19-related scams, including the sale of fraudulent medical equipment and nondelivery scams;

Cybercrime like BECs, exploiting increased telework;

Ransomware and other activities that could disrupt pandemic response; and

Defrauding government and financial institutions associated with response and recovery efforts.

Thus far, the Secret Service has initiated over 100 criminal investigations, prevented approximately $1 billion in fraud losses, and disrupted hundreds of online COVID-19-related scams, D’Ambrosio said.

Legal Environment

IRC Study: Social Inflation Is Real, And It Hurts Consumers, Businesses

June 2, 2020 Jeff Dunsavage Leave a comment

“Social inflation” is the name used to describe growth in liability risks and costs related to litigation trends. A new white paper by the Insurance Research Council (IRC) examines this phenomenon and shows that insurers’ losses across several business lines have accelerated rapidly in recent years – much more rapidly than economic inflation alone can explain.

Some have tried to downplay the importance of social inflation and even cast doubt on its existence. The IRC study draws from a range of industry and scholarly resources to show that it does exist and hurts individuals and businesses who rely on insurance.

Among the drivers the IRC examines are:

Shifts in public sentiment about litigation
Increasing numbers of very large jury verdicts
Tort reform rollbacks
Legislative actions to retroactively extend or repeal statutes of limitation
Increased attorney advertising and involvement in liability claims
Proliferation of class actions
Emergence and growth of third-party litigation financing

Using loss data published by the National Association of Insurance Commissioners (NAIC), the IRC documents loss trends in several key insurance lines, including commercial and personal auto insurance and product liability coverage. The report notes that loss trends reflected in the data “are consistent with anecdotal observations and concerns about the impact of social inflation on insurance claims costs.”

The IRC links these trends to rising claims and losses that in turn lead to more expensive insurance for businesses and consumers. While the analysis is based on data and trends that predate the COVID-19 pandemic, the IRC notes that state efforts to impose business interruption coverage for economic losses under insurance policies that specifically exclude bacteria and virus-related losses are a current example of the forces that drive social inflation.

Social Inflation: Evidence and Impact on Property-Casualty Insurance is a valuable resource that explains the causes and impacts of social inflation. It can be downloaded from the IRC website.

Further reading:

Florida’s AOB Crisis: A Social-Inflation Microcosm

Florida Dropped From 2020 “Judicial Hellholes” List

Business Insurance, Business Risk, Legal Environment

COVID-19 Wrap-Up:BI Coverage Continues to Make Headlines

May 21, 2020 Jeff Dunsavage Leave a comment

From new litigation to proposed legislation, debate over whether insurers should be required to pay for business losses related to the coronavirus pandemic remain in the news.

Restaurants Sue Insurers Over Business Interruption Claims

Proprietors of more than 10 restaurants, bars, and bakeries in Washington, D.C., joined a growing list of restaurateurs seeking coverage for pandemic-related damages, The Washington Post reports.

The Post interviewed Triple-I CEO Sean Kevelighan and Triple-I non-resident scholar Michael Menapace, who explained why the suits are unreasonable and threaten the insurance industry’s solvency.

“The insurance business works by spreading risk around so the industry isn’t hit all at once with claims,” Kevelighan says. “A pandemic disrupts business far and wide, with no end date in sight.”

About 40 percent of all companies have business interruption insurance, and most policies do not cover COVID-19. If lawmakers retroactively require carriers to pay these unplanned-for claims, it could cost the insurance industry $150 billion a month, which would quickly deplete its $800 billion surplus.

Policyholder Pulls COVID-19 Suit Against Broker, Insurer Business Insurance May 20, 2020

Insurance Speak: Business Interruption Claims and COVID-19 Property/Casualty 360, May 20, 2020

COVID-19 and Business Interruption Insurance – How to File a Claim the Right Way Franchising.com, May 19, 2020

Coronavirus Pandemic Threatens Run on Business Interruption Policies Sold by Captive Insurance Risk Pools Forbes.com, May 19. 2020

California Music Venues Sue Insurer over Business Interruption Related to COVID-19 Insurance Journal, May 15, 2020

La. Lawmakers Scrap Business Interruption Bill

Louisiana lawmakers scrapped a bill that would have forced insurers to cover retroactive business interruption claims due to COVID-19, Business Insurance reports.

However, state senators agreed to rewrite and amend Senate Bill 477 to allow a proposal requiring insurers to clarify exclusions on business interruption policies to move ahead.

The scrapping of the Louisiana proposal follows last week’s decision by the Council of the District of Columbia not to go ahead with a proposal to force insurers to provide retroactive business interruption coverage on small-business COVID-19 claims.

Coronavirus Updates in Louisiana: 35,038 COVID-19 Cases, 2,458 Deaths, WDSU 6, New Orleans, May 19, 2020

Dozens of Workers at 3 Louisiana Crawfish Farms Test Positive for COVID-19, 4 WWL, New Orleans, May 19, 2020

Red Flags Found at Louisiana Nursing Homes Ravaged by Coronavirus, NOLA.com, May 19, 2020

Pa. Bill Would Define COVID-19 as Property Damage

The Pennsylvania Senate is weighing a bill that would include losses spurred by the COVID-19 global pandemic under property and business interruption insurance coverage, Property/Casualty 360 reports.

Senate Bill 1127 doesn’t explicitly state that insurers must cover COVID-19 business interruption claims. The bill states that if a covered property is located within a municipality where “the presence of the COVID-19 coronavirus has otherwise been detected,” that property is “deemed to have experienced property damage.”

It also states that Gov. Tom Wolf’s March 19 emergency order to close businesses is to be considered an order of civil authority under a first-party insurance policy which limits, prohibits, or restricts access to non-life-sustaining business locations “as a direct result of physical damage at or in the immediate vicinity of those locations.”

Coronavirus: 63,666 cases of COVID-19 in Pennsylvania, WGAL News 8, May 20, 2020

Nursing Homes in Southeast Pa. Hit Hard By Coronavirus Deaths, New Data Shows, NBC 10 Philadelphia, May 20, 2020

Pa. Releases Names of Nursing Homes with Coronavirus Cases, Deaths, Philadelphia Inquirer, May 19, 2020

Pa. Supreme Court Rejects Emergent Application to Consolidate COVID-19 Business Interruption Claims JDSupra.com, May 19, 2020

Pa. Insurance Commissioner Warns Businesses of Increased Liability Risks If Defying Coronavirus Shutdow Orders KDKA 2, Pittsburgh, May 11, 2020

Publisher Appeals COVID-19 Ruling Denying Coverage

A magazine publisher is appealing a federal court ruling in favor of an insurer in a coronavirus-related business interruption dispute, Business Insurance reports.

In one of the first court rulings on the business interruption coverage issue, U.S. District Court Judge Valerie E. Caproni, in the Southern District of New York, said the policyholder’s attorney deserved “a gold star for creativity” but the loss was not covered under the policy issued by the unit of Hartford Financial Services Group Inc.