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Disaster Resilience, Technology, Webinars

Triple-I, ResilientH20 Partners Launch Resilience Innovation Hub

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The Gulf Coast & Southwest Resilience Innovation Hub’s creation was announced on June 18 by the Insurance Information Institute (Triple-I) and ResilientH20 Partners and will be a key part of the Triple-I’s Resilience Accelerator initiative.

The Resilience Innovation Hub will allow private and public sector entities to collaborate and bring-to-market resilience and flood mitigation technologies. Moreover, the Hub will connect investors with governments and academic institutions while also highlighting pre-disaster mitigation success stories through a resilience portfolio and technology showcase program. 

The Innovation Hub is opening effective June 18 at the Cannon’s downtown Houston Cannon Tower, a venue which already houses workspaces where entrepreneurs gather as their ventures develop. The locale, also the headquarters for ResilientH20 Partners, is at 1801 Main Street, Suite 1300, Houston, Texas 77002. The Triple-I’s Resilience Accelerator initiative is aimed at reducing the impact of extreme weather events and building more resilient communities through insurance.

“As households and businesses learn from past natural disasters, especially those which struck the U.S.’s Gulf Coast, the Resilience Innovation Hub can accelerate the deployment of products, services, and projects aimed at reducing disaster-caused losses in consultation with insurance carriers and brokers,” said Dr. Michel Léonard, CBE, Vice President, Senior Economist, Triple-I and the Triple-I’s Resilience Accelerator lead.

“There has been a widespread interest in, and demand for, best-in-class actionable, alternative disaster mitigation solutions since 2017’s Hurricane Harvey and subsequent storms caused extensive insured losses to autos, homes, businesses, and governmental properties,” said Richard Seline, Managing Partner, ResilientH2O Partners. “Society saves six dollars for every dollar spent through mitigation grants funded through federal agencies and even more progress can be made on this front through further investment in pre-disaster risk mitigation.”

Nine of the 10 costliest hurricanes in U.S. history have occurred since 2004, as defined by private-sector insured losses paid to auto, home, and business insurance policyholders and FEMA National Flood Insurance Program (NFIP) payouts.

“The Cannon Tower will provide a seamless onboarding for the Resilience Innovation Hub’s activities. Houston is already home to networks which focus on issues like sustainability, green infrastructure, and smart cities,” said Remington Tonar, Chief Revenue Officer, The Cannon Startup Platform.

The Resilience Innovation Hub’s creation was announced at the second in a series of virtual Town Halls co-hosted by the Triple-I and ResilientH2O Partners. The session on “Technology, Innovation, and Investment” focused on investing in pre-disaster risk mitigation and featured presentations by:

A panel discussion followed, and it included the Cannon’s Remington Tonar; Aaron Chan, Scouting Manager at State Farm’s @Labs; and Edward Craner, Senior Vice President of Strategy and Marketing at Holt Caterpillar.

Insurers and the Economy

P&C COVID-19 Wrap-upThe Path to Reopening

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Just as it has played a key role in responding to the COVID-19 pandemic crisis, the insurance industry will be integral to the economic recovery as businesses and communities reopen. 

Aon forms recovery coalition 

Re/insurance broker Aon has formed a coalition of companies and organizations to focus on aiding social and economic recovery in the wake of the COVID-19 pandemic, Reinsurance News reports. 

Starting in Chicago, the coalition will create a model and framework to inform criteria and guidelines to help restart the economy worldwide, with the aim of scaling the work to other key geographies, including London, New York, Singapore and Tokyo. The coalition will work closely with Illinois Governor J.B. Pritzker’s and Mayor Lightfoot’s offices to ensure alignment with public health and city/state official recommendations. 

The broker believes this will help to assess impact and measurement of efforts, evaluate the latest technologies, and develop guidelines to help navigate the challenges businesses face as society reopens. 

“We have used our expertise to assist clients in maintaining operations and mitigating risk during the pandemic—and believe we have a responsibility to play a larger role in helping the private and public sector navigate the recovery,” said Aon CEO Greg Case. 

Initial coalition members include: Abbott, Accenture, Allstate, Beam Suntory, BMO Harris, CDW, CNA, ComEd, ConAgra, Exelon, Fortuna Brands, Hyatt, JLL, McDonald’s, Mondelez, Morningstar, Motorola Solutions, Sterling Bay, Ulta Beauty, United Airlines, Walgreens, Whirlpool, and Zurich. 

S&P panelists wary of post-COVID-19 headwinds 

A panel of property and casualty insurers at the S&P Global Ratings’ Annual Insurance Conference  raised concerns about the lasting impact of the COVID-19 pandemic, Reinsurance News reports. 

S&P analysts currently believe COVID-19 related losses will total between $15 billion and $30 billion for the U.S. P&C market alone over the next two years. 

The panelists agreed that coverage for pandemic-induced business interruptions and losses will be a complicated issue for the industry to face, even though viruses are generally not a covered peril for commercial properties. 

“I never envisioned managing through a global pandemic,” said Christopher Swift of The Hartford.  

“Clearly the challenge is how you are operating both internally and externally,” said W. Robert Berkley, Jr., of WR Berkley. “It calls for flexibility, but also for the ability to plan amid uncertainty.” 

Panelists said workers’ compensation claims due to COVID-19 illnesses could be an inflection point, though, as states scrutinize policies given the rising number of these claims. If coverage is expanded, insurers will need to evaluate this risk and price accordingly. 

Moderator Kevin Ahern, managing director and analytical manager, S&P Global Ratings, noted that the U.S. P&C market faces many headwinds, not just those related to COVID-19. These include competitive pressures, the pricing/underwriting/reinsurance environment, and evolving regulatory and legislative developments. 

Iowa Legislature approves COVID-19 liability shield 

Legislation headed to Iowa Gov. Kim Reynolds’ desk would provide liability limitations on potential COVID-19 lawsuits for a broad range of businesses and organizations — among them restaurants, retail establishments, meatpacking plants, churches, medical providers and senior care facilities — provided they followed public health guidance, Business Record reported. 
 
Senate File 2338, the COVID-19 Response and Back-to-Business Limited Liability Act, would prohibit individuals from filing a civil lawsuit against a business or health care organization unless it relates to a minimum medical condition (a diagnosis of COVID-19 that requires in-patient hospitalization or results in death) or involves an act that was intended to cause harm or that constitutes actual malice. 
 
The legislation would protect tenants, lessees and occupants of any premises — including any commercial, residential, educational, religious, governmental, cultural, charitable or health care facility — in which a person is invited in and is exposed to COVID-19.   

However, liability would extend to anyone who “recklessly disregards a substantial and unnecessary risk that the individual would be exposed to COVID-19,” or exposes the individual to COVID-19 through an act that constitutes actual malice or intentionally exposes the individual to COVID-19. 

The provisions, which would be retroactive to Jan. 1, also shield health care providers from liability for civil damages “for causing or contributing, directly or indirectly, to the death or injury of an individual as a result of the health care provider’s acts or omissions while providing or arranging health care in support of the state’s response to COVID-19.” 

Ill. workers comp measure becomes law 

Legislation signed into law in Illinois will provide worker compensation benefits for front-line and essential workers who contract COVID-19 on the job under certain conditions, Business Insurance reports. 

Gov. J.B. Pritzker signed H.B. 2455, which will provide death benefits for first responders who were presumably infected with COVID-19 on duty and also revises state code to expand unemployment benefits and enhance sick pay and leave for workers who contract the virus. 

Under the law, employers can rebut claims under certain conditions, including if they can demonstrate the workplace was following current public health guidelines for two weeks before the employee claims to have contracted the virus; provide proof the employee was exposed by another source outside the workplace; or that the employee was working from home for at least 14 days before the claimed injury. 

The law also says first responders, including police officers and firefighter who die after testing positive for COVID-19 or its antibodies, are entitled to death benefits. However, the virus must have been determined to have been contracted between March 9 — the first day of Illinois’ governor-mandated stay-at-home order — and Dec. 31, 2020. Under the law, the date of contraction is either the date of diagnosis with COVID-19 or the date the first responder was unable to work due to symptoms that were later diagnosed as related to COVID-19 infection, whichever occurred first. 

Disaster Preparedness, Disaster Resilience

Modern Building Codes Would Prevent Billions In Catastrophe Losses

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A new study by the Federal Emergency Management Agency (FEMA) could be instrumental to its effort to persuade states and localities to adopt up-to-date building codes. 

The study, titled Building Codes Save: A Nationwide Study of Loss Prevention, quantifies the physical and economic losses associated with flooding, hurricanes, and earthquakes that have been avoided due to buildings being constructed according to modern, hazard-resistant building codes and standards.  

In California and Florida – two of the most catastrophe-prone U.S. states – the study found that “adopting and enforcing modern hazard-resistant building codes over the past 20 years indicate a long-term average future savings of $1 billion per year for those two states combined.” 

“The combined savings from these two states demonstrate the high value of adopting I-Codes for hazard mitigation as a return on investment,” FEMA wrote, referring to model construction codes published by the International Code Council. 

“This gives us the foundation to back up the recommendations that we’re making,” FEMA building engineer Jonathan Westcott said at a recent conference on flood prevention. 

The study is part of FEMA’s broader effort to reduce the growing cost of natural disasters by convincing states and municipalities to adopt post-2000 building codes. Two-thirds of the nation’s localities haven’t adopted recent model codes, Westcott said. 

Communities often don’t understand the long-term benefits of adopting stronger codes. 

“Instead of just hearing about how expensive it is to add a foot of freeboard,” Wescott said, “they’re going to understand the financial benefits of doing that so they can make a balanced decision on what’s best for their community.” 

Cyber Risk, Legal Environment, Regulation

Senate Panel Meets On COVID-19 Fraud

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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: 

  1. COVID-19-related scams, including the sale of fraudulent medical equipment and nondelivery scams;  
  1. Cybercrime like BECs, exploiting increased telework; 
  1. Ransomware and other activities that could disrupt pandemic response; and 
  1. 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. 

Corporate Social Responsibility, Insurance Industry

Insurers respond to COVID-19 (6/15/2020)

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Industrywide, philanthropic giving in response to the COVID-19 crisis continues to increase. Using information collected by Insurance Industry Charitable Foundation (IICF), the Insurance Information Institute upgraded its earlier estimate to $280 million donated through early June by U.S. insurers and their charitable foundations in response to the pandemic. In addition, international insurers and their foundations have donated more than $150 million.

On June 15 the IICF announced a $500,000 contribution from Lloyd’s to its Children’s Relief Fund. This donation will help deliver tens of thousands of meals to vulnerable children struggling with food insecurity and help to address educational disruption, family homelessness and other risks exacerbated by the pandemic. This gift from Lloyd’s brings the IICF’s Children’s Relief pandemic campaign total to $1.1 million raised to date.

 “As the industry’s leading charitable giving platform and convenor of brokers, insurers and service providers, the IICF’s value proposition rings more clearly now than ever,” said Hank Watkins, Regional Director and President, Americas at Lloyd’s, and former Chair of the IICF Northeast Division Board of Directors. “Lloyd’s is proud to join hands with our industry colleagues in supporting the IICF’s mission and efforts to meet the needs of those in our communities left vulnerable by the pandemic crisis.”

IICF reports seeing widespread and united industry support for its crisis relief campaign, including nearly 600 individual contributors. IICF anticipates providing one million meals throughout this campaign to children and their families in need.

To learn more about the IICF Children’s Relief Fund or donate, please visit here.

Insurers and the Economy

Taking Care with Economic Headlines

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By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute

Dr. Steven Weisbart

In normal times, economic news isn’t something many people pay attention to, other than—possibly—at the headline level. And the headlines generally sufficiently convey what’s happening with the economy. But we’re entering a period in which the usual measurements of economic activity might be grossly misleading.

Take real GDP, for example. This is the inflation-adjusted measure of the total output of goods and services for the economy. When real GDP is growing from one calendar quarter to the next, that’s a good sign. The growth is often pretty small, percentagewise, and so it is typically expressed as a SAAR (seasonally-adjusted annual rate). This means that the rate for a quarter is treated as if it would continue at the same rate for the next three quarters. This virtually never happens, but it has become the conventional way to express GDP changes, nevertheless.

To illustrate the effect of expressing real GDP changes as SAAR, look at Figure 1.

Figure 1

This chart uses data provided by Blue Chip Economic Indicators, a publisher of a monthly survey of 53 econometric forecasts. Blue Chip averages the 10 highest, the 10 lowest, as well as the median forecasts, and we’ve graphed them in Figure 1. Note that the median of the forecasts in 2020:Q2 is -35.7 percent. This is a staggering dropoff in the economy, but of course no one is actually predicting that the economy would sink by 8.9 percent per quarter each quarter through 2021:Q1 (which is what results from the SAAR adjustment).

So be prepared for gloom-and-doom headlines in the fall when the Bureau of Economic Analysis publishes its measure of the real growth (or shrinkage) of the U.S. economy in the second calendar quarter.

On the other hand, note from Figure 1 that the GDP growth rates for 2020:Q3 and onward are all positive numbers. This is a picture of an economy that is shrinking for only one quarter—the V-shaped recovery that some economists (not us at the Triple-I) have forecast. This too is a distorted impression. To see why, look at Figure 2.

Figure 2

In Figure 2 you see a small dropoff from 2019:Q4 to 2020:Q1 and the big dropoff from 2020:Q1 to 2020:Q2. You also see growth each quarter from 2020:Q3 onward through the end of 2021. However, despite this growth the economy doesn’t even reach the level of output in 2020:Q1—which includes the first month of the recession—at the end of the 2021 calendar year. On New Year’s Day 2022 we will perhaps be celebrating six consecutive calendar quarters of economic growth, but in relation to the prior non-recession years we will still be lacking (assuming that the Blue Chip median forecast is correct).

If you were to match the pattern of recovery to an alphabet letter, you wouldn’t call it a V; there really isn’t a direct correlate to the slow but steady return to the pre-recession level, but a U might suggest that the economy is taking a while to recover fully.

Business Risk, Disaster Preparedness, Disaster Resilience, Webinars

Get Your Business Ready for Severe Weather – How to Prepare, Respond & Recover

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A natural disaster will strike no matter where you live in the United States. It’s is not a question of if, but when. But if you’re prepared, the damaging impact of a tornado, flood, earthquake or hurricane can be managed.

A recent webinar conducted jointly by the Small Business Administration (SBA) , the Insurance Information Institute (Triple-I), and the Insurance Institute for Business and Home Safety (IBHS) offered business owners valuable advice on how to plan to withstand a disaster.

Communication is key

Alejandro Contreras, Director of Preparedness, Communication and Coordination at SBA’s Office of Disaster Assistance, advised that communications planning is key to a post-disaster recovery strategy. A list of frequently updated contacts should include local media outlets, utility companies and emergency responders. You should also sign up for alerts from FEMA and local public health officials.

Make sure your records are stored electronically off-site (in the cloud) and make sure you have financial records, insurance policy declaration pages, and important contacts.

When reviewing insurance coverage, don’t forget to explore flood insurance. Flooding is the most common and costly natural disaster in the United States, causing billions in economic losses each year. About 90 percent of all natural disasters in the U.S involve flooding. And just one inch of water can cause up to $25,000 in damage, said Contreras. Flood insurance is sold as a separate policy by the National Flood Insurance Program and a growing number of private companies.

It’s important for a business to create a culture of preparedness and make sure employees understand their roles by frequently testing their business continuity plans, concluded Contreras.

The SBA offers low interest long-term disaster loans to businesses. Since mid-March, the agency has distributed about $86 billion in loans for coronavirus-related losses.  To apply for a loan or to learn about the requirement visit disasterloan.sba.gov.

Get insured

Loretta Worters, Vice President Media Relations, Triple-I, spoke about being financially prepared for disasters with insurance. To be sure the claims process goes smoothly, take a business inventory listing all assets, she advised. It’s also important to have records of expenses and income.

Worters went over the different types of policies available to businesses and what they usually cover. Property insurance helps protect buildings, equipment, furniture, and fixtures. Business interruption insurance (BI) can help with operating expenses during the period of restoration and includes lost net income (based on financial records), mortgage, rent and lease payments, loan payments, taxes, and employee payroll.

A business may have the option to insure its business property at replacement value or actual cash value, she said, noting the difference is that replacement value coverage can help you replace your property at market prices, whereas actual cash value coverage takes depreciation into account. Replacement value coverage costs more, but it also pays out more in the event of a claim so it’s something business should really consider.

BI is also available for civil authority, such as curfews when businesses have to reduce hours due to government orders.

Utilities service endorsement is available to cover disruption in these services to a business premises.

Worters also noted that, as part of BI, extra expense coverage will cover anything beyond the normal day-to-day operating expenses that is necessary to keep a business solvent, such as renting a temporary place of business while your business is insured or leasing equipment.

In response to an attendee’s question, Worters explained that business income losses are determined based on the business’ profit and the cost of continuing normal operations.

Worters concluded that knowing your risks is an essential element of an overall business plan. While large businesses have risk managers to help make insurance decisions, small-business owners must be their own risk manager but can also get help by consulting with an insurance professional.

Make a recovery plan and test it once a year

Gail Moraton, Business Resiliency Manager, IBHS, cautioned that one out of four businesses that close due to a disaster never reopen, yet 57 percent have no disaster recovery plan. Some small businessowners say they don’t have time or money to come up with a business continuity plan or are in denial that a disaster could wipe them out. Easy-to-use plans and checklists are available from DisasterSafety.org.

Moraton also advised that businessowners get familiar with the likelihood and potential severity of the various risks that could threaten their operations. They range from natural disasters to man-made risks, such as cyber attacks, theft, sabotage, war, and loss of key employees, among many others. Owners also should know their operations and gather information by asking staff to list key functions.

She said employees – the most important asset of any business – should be asked to provide their contact information, emergency contacts, and evacuation destinations.

Businesses need to also have a inventory of their equipment and an understanding of their finances.

Moraton said that once you’ve gathered the key information and have a plan you should update and test that plan every year. Running emergency drills annually will make sure everyone is well prepared in case a real disaster strikes.

Know your hazards

Christopher Cioffi, Commercial Line Engineer, IBHS, provided tips on how to review the hazards in your area by checking on previous years’ severe weather events and reviewing FEMA flood maps. He went over the components of the EZ-PREP plan which includes actions to take before, during and after a disaster.

For example, 72 hours before a hurricane, some of the actions the PREP plan calls for include:

  • Remove or secure all debris on the property
  • Review message templates for business’ website, phone recording and employee communications
  • Take laptops home at the end of each day and confirm they can connect to the business’ server from home
Business Risk, Emerging Risks, Insurance Industry

World’s Insurance Markets Hit Hard by COVID-19: Triple-I

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The world’s 10 largest insurance markets are cumulatively expected to see gross domestic product (GDP) decrease by 4.9 percent in 2020 compared to 2019 because of COVID-19, according to a new Insurance Information Institute (Triple-I) report.

“Given the scope of the downturn so far in China, North America, and Western Europe, the virus’s continuing expansion in the Southern Hemisphere, and the possibility of further rebounds in the former this fall and winter, the likelihood of a V-Shaped recovery is extremely low,” writes Dr. Michel Léonard, Vice President & Senior Economist, Triple-I, in the Global Macro and Insurance Outlook: Q2 2020. “The most likely outcome for the rest of 2020 is a slow recovery, with multiple false starts and step backs, that does not stabilize until well into 2021.”

Disaster Preparedness, Flood Insurance

Hurricanes Don’t Just Affect Coasts; Experts Say: “Get Flood Insurance”

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With the 2020 Atlantic hurricane season activity expected to be “well above average” in intensity; three named storms having formed already; and Tropical Depression Cristobal bringing flooding rains and powerful winds from the South to the Midwest as it made landfall in Louisiana, preparedness should be on the minds of everyone who could be affected – and that means more than just people in coastal states.

Cristobal’s low pressure area is forecast to move from the lower Mississippi Valley to the Midwest – just ahead of a cold front that will eventually absorb Cristobal’s remnants as it moves into southeastern Canada, according to Weather.com: “The combination of deep, tropical moisture from Cristobal and the cold front will wring out heavy rain along a swath from the lower Mississippi Valley into the Midwest. Strong winds will also develop in the Midwest and Great Lakes from this setup.”

If Cristobal remains a tropical depression when it crosses into Wisconsin, it would be the first tropical depression on record in the state, according to the National Weather Service in Milwaukee.

“Inland flooding has resulted in more deaths in the past 30 years from hurricanes and tropical storms in the U.S. than any other threat,” said CNN meteorologist Brandon Miller. “Though wind speeds and storm surge are important, and get a lot of the headlines, flash flooding from intense rainfall associated with the storm’s rainbands impact far more people and stretch over a much larger area.”

About 90 percent of all natural disasters in the U.S involve flooding. This is why experts like Dan Kaniewski – managing director for public sector innovation at Marsh & McLennan and former deputy administrator for resilience at the Federal Emergency Management Agency (FEMA) – strenuously urge everyone to buy flood insurance.

If it can rain, it can flood

“Any home can flood,” Kaniewski said in a recent Triple-I webinar. “Even if you’re well outside a floodplain…. Get flood insurance. Whether you’re a homeowner or a renter or a business – get flood insurance. It’s not included in your homeowners policy, and most people don’t understand that.”

Dr. Rick Knabb – on-air hurricane expert for the Weather Channel, speaking at Triple-I’s 2019 Joint Industry Forum – was similarly emphatic:

“If it can rain where you live,” he said, “it can flood where you live.”

He recounted buying a new home, asking his agent about flood insurance, and being told, “You don’t need it.”

“I told him, ‘Get it for me anyway,’” Knabb said.

Flood insurance purchase rates too low

As the Triple-I blog previously reported, 2019 was the second-wettest year on record across the continental U.S., yet flood insurance purchase rates remain low. To illustrate the difference between having and not having flood insurance, Kaniewski described two scenarios related to 2017’s devastating Hurricane Harvey.

“The average [FEMA] payout for the uninsured homeowner in the Houston area was about $3,000,” Kaniewski said. “But if you were proactive and took out a relatively low-cost flood insurance policy…you would have received not $3,000 but $110,000. You’re not going to recover on $3,000, but with $110,000, you’d be well on the path to recovery.”

Unfortunately, he said, even inside designated floodplains, “two-thirds of homeowners do not have flood insurance.”

Business Insurance, Business Risk

Bad Faith and Business Income Interruption Policies During the Coronavirus Pandemic

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By Max Dorfman, Research Writer, Insurance Information Institute

A new and risky legal precedent could be set as the coronavirus pandemic continues to roil the U.S. economy. A growing number of policyholders say that insurers are acting in bad faith when they deny claims for losses sustained during shutdowns.

While business income interruption coverage typically covers physical damage to a property, some businesses believe the potential presence of the virus on their property or in their community is equivalent to physical damage.

Business income interruption exclusions for pandemics date back to the 2002-2003 SARS epidemic, when insurers realized that the risk of such a massive health crisis would be impossible to credibly quantify, and thus impossible to absorb.

In several recent articles, some plaintiffs’ attorneys have accused insurers of acting in bad faith by issuing quick denials without properly investigating their claims. “Quite frankly, the prevailing law on the insurance policies is that coverage is supposed to be interpreted broadly and exclusions are supposed to be interpreted narrowly,” said William Shernoff, a founding partner of California-based Shernoff Bidart Echeverria LLP, which specializes in representing policyholders in claims against insurance company denials. Shernoff also stated that any inconsistency in a policy means it’s ambiguous and would result in a decision favoring the plaintiffs.

Michael Menapace, an insurance lawyer and a Triple-I non-resident scholar, disagrees. “They’re trying to recast what the damage is from the policy trigger of “direct physical loss of or damage to property” to a broader concept of “loss of use,” which term does not appear in most policies. They’re also going to claim that somehow the entire insurance industry tricked policyholders by sneaking in the virus exclusion. There is a tension between the plain meaning rule [what the exclusion literally states], and the doctrine of reasonable expectations [the way someone who is not trained in the law would interpret them].” He continued, “When an insurance company denies a claim, they may get the decision wrong – but it doesn’t mean they denied it in bad faith.” Menapace adds that the virus exclusion has not been tested in the courts on any large scale since its adoption in 2006. “There’s so little case law on virus exclusions during pandemics, I have a hard time believing insurers are acting in bad faith.”

There are many reasons for the insurance industry not to act in bad faith under these circumstances. An insurer that is deemed to have acted in bad faith can be liable for damages that are greater than the policy limits, including but not limited to interest, emotional distress, consequential economic losses, attorneys’ fees and punitive damages.

Menapace also makes the point that business income interruption claims from a pandemic would rapidly deplete insurers’ reserves and surplus that are needed for covered losses such as those from hurricanes and other perils. “We can insure certain events because there is a spreading of risk,” saidMenapace. “If everyone has the same loss at the same time, like from a pandemic, we lose the fundamental aspect of insurance, which is risk spreading.”

Much depends on how the courts interpret the exclusions. “Insurers said they were not going to cover damage due to pandemics. There is going to be new law created. It depends whether the courts will read the plain meaning of the exclusion, or if they’ll interpret some of the creative arguments of the plaintiffs.” If these contracts will retroactively favor the insured, Menapace added, it could force insurers to stop covering business income interruption in any scenario, as the costs would simply be too great. And that would be truly bad for policyholders and insurers alike.

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