The U.S. Treasury Department issued a letter to members of
Congress on May 8 which argued that proposals to force insurers to retroactively
change business interruption (BI) policies to pay losses arising from the
COVID-19 pandemic threaten the ability of the industry to serve policyholders
and might lead to the insolvency of the industry.
In the letter, Principal Deputy Assistant Secretary for Legislative Affairs Frederick Vaughan writes: “While insurers should pay valid claims, we share your concerns that these proposals fundamentally conflict with the contractual nature of insurance obligations and could introduce stability risks to the industry.”
He goes on to say that the Treasury will collaborate with insurer groups, federal lawmakers and states on “addressing losses attributable to the current and potential future pandemics.”
On May 8 the Labor Department reported that the U.S. labor market lost a historic 20.5 million
nonfarm jobs in April, sending the unemployment rate to 14.7 percent. The worst
affected sectors are leisure and hospitality, which lost 7.7 million workers.
Dr. Steven Weisbart,
Triple-I’s chief economist, points out that the employment data for March 2020*
for the insurance industry are startling largely because they are at odds with
employment changes in many other lines of work.
Employment
at property/casualty carriers held steady in March 2020 at 559,100–the same as
in January and only 800 fewer than February.
Employment
at life/annuity carriers held essentially
steady in March 2020 at 347,600–the same as in October 2019 and down a bit
from the 348,000-349,000 in November 2019 through February 2020.
Employment at health and medical insurance carriers rose in
March 2020 to 585,100–its highest-ever level, up 1,500 from February 2020.
Employment at agencies and brokerages rose in March 2020 to
852,400–its highest ever level, up 1,700 from February.
* The insurance industry/sector-specific data are not seasonally adjusted and are one month behind the national data.
Coronavirus-related insurance
litigation is likely to move beyond business interruption coverage and into
workers comp and general liability policy lines as states begin to lift
restrictions on economic activity.
“There’s just going to be a
bloodbath of litigation over the next 10 years,” former Mississippi Attorney
General and counsel at Weisbrod Matteis
& Copley Jim Hood told Bloomberg Law this week. “Even if the governor tells you to open up, that’s not
going to protect you from a lawsuit.”
The Trump administration and
Republican lawmakers are insisting that an employer liability shield be included in the next round of pandemic relief legislation, but
it’s unclear whether Democrats will go along with the idea.
California Facilitates Workers Comp for Virus Claims
California Gov. Gavin Newsom signed an executive order Wednesday that will make it easier for essential
workers who contract COVID-19 to obtain workers’ compensations benefits. The
governor said the order streamlines workers’ comp claims and establishes a
rebuttable presumption that any essential workers infected with COVID-19
contracted the virus on the job. In effect, the change shifts the burden of
proof that typically falls on workers and instead requires companies or
insurers to prove that the employees didn’t get sick at work.
The California Federation of
Labor, which asked for the change in a March 27 letter to the governor and
legislative leaders, applauded the order. Dozens of business groups, led by the
California Chamber of Commerce, pushed back last month on the labor
federation’s request, saying the changes would force businesses to be the
“safety net to mitigate the unprecedented outcomes of this natural disaster and
the government’s response.”
If only 10 percent of health care workers contract COVID-19 and all of their claims are deemed compensable, workers’ compensation loss costs for that sector could double or even triple in some states, according to an analysis by the National Council on Compensation Insurance (NCCI).
Claims Journalreports
that, in NCCI’s worst-case scenario, 50 percent of workers are infected and 60
percent of their claims are deemed compensable. That would result in $81.5
billion in increased costs —or two and half times current workers’ compensation
loss costs — for the 38 states and District of Columbia, where NCCI tracks
claims data. If
eligibility is limited to first responders and healthcare workers and only 5
percent of those workers are infected, Claims Journal says, the increase
in costs would be just $2 billion, assuming 60 percent of claims are paid.
Whether
business interruption coverage in property policies applies to COVID-19-related
losses has become one of the dominant insurance debates during this pandemic.
Lawsuits have been filed – some even before insurers have denied a claim –
seeking to establish that policyholders are entitled to coverage for losses
sustained during the current shutdowns.
The debate often focuses on a simple phrase in the insurance policy: “direct physical loss or damage.” Business interruption coverage can apply to losses stemming from direct physical loss or damage. Losses that didn’t come from direct physical damages aren’t covered.
Michael Menapace, Esq. Wiggin and Dana LLP
“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,” writes Michael Menapace, a professor of insurance law at
Quinnipiac University School of Law and a Triple-I
Non-Resident Scholar. “But here’s the rub. Are the business interruptions related to
COVID-19 caused by physical damage to property?”
Insurers say no, arguing that “damage to property” requires
structural alteration like one would find in a typical claim, where, say, a
fire destroyed the interior of a building or wind damaged windows and
furniture.
The virus, on the other hand, leaves no visible imprint. Left alone, it can’t survive long and, after it has perished, whatever it was attached to is as good as before. Even if some remediation is needed – like cleaning metal surfaces – insurers might argue that this is no different from cleaning dirt off a surface. They cite cases in which judges have ruled there’s no physical damage from mold if the mold can be cleaned off.
Departing from common sense
Others depart from this common-sense, legally recognized
definition. Some plaintiffs’
attorneys argue that if coronavirus
is not direct physical damage then insurers would not have created an exclusion
for viruses in the first place. Many insurers added exclusions for losses from
viruses and communicable diseases after the SARS outbreak in 2003.
Policy
language, Menapace says, controls whether COVID-19 interruptions are covered. Some policies
have standard terms and exclusions, some provide “all-risk” coverage –
covering loss arising from any fortuitous cause except those specifically
excluded – and others are variations on these types.
“The threshold issue will be whether the insureds can prove their
business losses are caused by ‘physical damage to property’,” he writes.
In
past cases, where there is direct physical loss to property – such as
contaminated food that couldn’t be sold or a building rendered useless by asbestos
contamination – courts have found business interruption coverage was
triggered. But when an earthquake caused a power loss in two factories, courts
found the only injury was a shutdown of manufacturing operations that didn’t
constitute “direct physical loss or damage.”
What About Current Claims?
Are
business interruptions related to COVID-19 the result of the government
restrictions, or are they due to the physical loss to their property?
Menapace writes that many of the current claims would seem not to trigger the standard
coverage in a commercial business interruption policy, but he cautions that this
might not always be the case.
A
true “all-risk policy,” he writes, “generally would 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.”
But
most commercial property policies aren’t true “all-risk policies”; instead,
they typically cover business interruption losses “caused by direct physical damage
to property” at or near the insured premises.
“That
will be difficult burden for policyholders to meet,” Menapace says.
Some
policies exclude coverage for losses resulting from mold, fungi, or
bacteria. Because COVID-19 is a virus, that exclusion might not
apply. Other policies exclude viruses, diseases, or pandemics.
“If
a policyholder believes it may have a claim,” Menapace advises, “it should
provide prompt notice to its insurer(s) so 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.”
U.S. auto insurers will return over $10 billion to their
customers nationwide, according to an Insurance Information Institute estimate, in response to reduced driving during the
pandemic.
We’ve listed many of the companies that are offering refunds here and here. These lists are not
exhaustive, so be sure to check with your insurer to see if they are offering
refunds or credits. All
premium and rate adjustments are subject to regulatory approval.
On May 5, Allstate
Corp. CEO Tom Wilson said the
insurer would probably grant another rebate to auto insurance customers. The second round of rebates would vary
according to region. On April 6, the insurer announced that it would return
more than $600 million in premiums to its policyholders because the nation’s
drivers were traveling 40 percent to 55 percent fewer miles following
stay-at-home orders. Wilson noted that American drivers are now traveling more
miles than in mid-April, but the total is still 30 percent to 40 percent lower
than before the pandemic. Wilson said the next refund would be more precise and
that Allstate is now distributing the initial payback, which represents 15
percent of monthly premiums in April and May.
Horace Mann, a provider of affordable insurance for educators,
is giving customers a credit of 15 percent of two months of auto premiums, as
well as a grace period through June on auto, property, supplemental and life
insurance payments; enhancing coverages, including extending personal auto
coverage to those delivering food, medicine, and other essential goods; and
including Identity Fraud Advocacy Services with its Educator Advantage Program
for all home, condo, and renters customers to protect against the increased
risk due to increased online activity.
Other customer support programs
Erie
Insurance is
adding gift card and gift certificate reimbursement coverage to the company’s
ErieSecure Home® policies, in response to the recent changes affecting
businesses across the United States. The additional feature, included at no
additional cost, would reimburse customers for remaining balances on eligible
gift cards that no longer can be used at independently owned and operated local
businesses due to business closures.
Supporting communities
Foremost Insurance and Bristol West Insurance, members of
the Farmers Insurance Group of Companies, announced they have
contributed $500,000 to the Trusted
Choice COVID-19 Relief Fund established by the Independent Insurance
Agents & Brokers of America, Inc. (IIABA – Big “I”). The Fund
provides economic aid to independent insurance agencies, brokerages, and their
owners and employees affected by the COVID-19 pandemic.
Horace Mann donated $100,000 to DonorsChoose “Keep Kids
Learning” fund, an initiative to help teachers equip the most vulnerable
students with educational materials at home. The company provides free online
teaching resources, to help teachers adapt to remote learning, and it supports
a number of foundations in its home state of Illinois.
Reach out to us in the Comments section and let us know what
your company is doing to help ease the impact of COVID-19.
Severe convective storms—tornadoes, hail, drenching thunderstorms with lightning, and damaging straight-line winds—are among the biggest threats to life and property in the United States. They were the costliest natural catastrophes for insurers in 2019, and this year’s tornado season is already shaping up to be the worst in nearly a decade.
A new
Triple-I paper describes how population
growth, economic development, and possible changes in the geography, frequency,
and intensity of these storms contribute to significant insurance payouts. It
also examines how insurers, risk managers, individuals, and communities are
responding to mitigate the risks and improve resilience through:
Improved
forecasting,
Better
building standards,
Early
damage detection and remediation, and
Increased
risk sharing through wind and hail deductibles and parametric insurance
offerings.
The 2020 tornado season coincided with most of the U.S. economy shutting down over the coronavirus pandemic. This could affect emergency response and resilience now and going into the 2020 hurricane season, which already is being forecast as “above normal” in terms of the number of anticipated named storms.
Business interruption insurance and liability issues remain
on the front burners as governments begin gradually “reopening the economy” amid scary new
projections about the pandemic.
A measure that would make it
easier for small businesses in Washington, D.C. to claim coronavirus-related damages
under business interruption insurance policies is on hold after six of the 12
D.C. Council members raised concerns about its legality and the costs it could
impose on insurers.
Council Chairman Phil Mendelson
struck the language from a broader pandemic emergency bill to allow for more
debate. Councilman Charles
Allen had spearheaded the measure after many small
businesses have seen their insurers deny such claims.
The American Property
Casualty Insurance Association estimates local businesses
could claim losses of hundreds of millions of dollars each month.
“These numbers dwarf the
premiums for all relevant commercial property risks in the key insurance lines
for D.C., which are estimated at $16 million a month,” David Sampson, the
association’s president and CEO, wrote in a statement. “We oppose
constitutionally flawed legislation that retroactively rewrites insurance
contracts and threatens the stability of the sector, to the detriment of all
policyholders.”
Faced with 20,000 coronavirus
deaths and counting, the nation’s nursing homes are pushing back against a
potential flood of lawsuits with a sweeping lobbying effort to get states to
grant them emergency protection from claims of inadequate care.
The Associated Press reports that
at least 15 states have enacted laws or governors’ orders that explicitly or
apparently provide nursing homes and long-term care facilities some protection
from lawsuits arising from the crisis. And in the case of New York, which leads
the nation in deaths in such facilities, a lobbying group wrote the first draft
of a measure that apparently makes it the only state with specific protection
from both civil lawsuits and criminal prosecution.
Since people are driving less in the midst of COVID-19
related stay-at-home orders, many auto insurers have responded with premium
refunds totaling about $10 billion.
How are consumers reacting to these refunds? A May 5 webinar
co-hosted by Cambridge Mobile Telematics’ (CMT) VP of Insurance &
Government Affairs, Ryan McMahon, and J.D. Power’s VP of Insurance
Intelligence, Kyle Schmitt, shed light on this question.
J.D. Power has been conducting consumer sentiment surveys since March 24. Schmitt said that one key takeaway is that in light of pandemic related layoffs, customers are thinking pragmatically about auto insurance, so the timing of the premium relief announcements was excellent. However, it’s important to note that auto insurance is not top of mind for many consumers struggling to keep the lights on or food on the table, and not everyone is aware of refunds.
Here are a few other key takeaways:
McMahon noted that while miles travelled are
down, speeding and distraction both peaked in April based on CMT’s analysis,
and fatalities are up.
Schmitt said that changes in price stability
driven by broad market conditions (such as accident frequency) are not well
received by consumers who will shop around in response; in contrast to price
increases driven by a life event or an accident which consumers tend to take in
stride.
When it comes to telematics, value is key.
Consumers expect to continue to not drive as much in the foreseeable future and
are thinking about the cost savings offered by telematics programs, therefore
interest in telematics has spiked according J.D. Power surveys.
Of those that think their driving rates will
remain low 40 percent are interested in telematics.
The panelists were also asked to speculate about possible
increases in fraud, and McMahon said that fraud activity always comes with
economic reductions, however it’s possible that fraudulent claims may be easier
to spot because there are fewer claims.
When
you think of winemaking, you picture grapes on the vine and a hearty glass of
red on your table. But you probably don’t think of all the steps involved in
the production of wine and the fact that those grapes – and later, the finished
product – travel long distances to reach our palates.
That’s
where marine insurance comes in: to protect businesses along the supply chain
from the unexpected.
The
American Institute of Marine Underwriters (AIMU) drew a robust
crowd to its recent webinar, “From Vine to Wine and the Fire In Between,” where
participants learned of the risks associated with wine production and the
coverages that are designed to mitigate losses. The two-hour session is part of
AIMU’s extensive and popular educational series, and drew a crowd of
underwriters, claims experts and brokers from the ranks of marine insurers and
beyond.
“One
of the biggest roles we perform is education, and it’s not limited to our
members,” says John Miklus, President of AIMU. “Marine touches so many aspects
of business that there’s a real thirst for knowledge in the broader insurance
community and we try to quench that thirst.”
Pamela Schultz, Jonathan Thames and Erik Kowalewsky of Hinshaw & Culbertson opened by discussing the effects of the
2017 wildfires on the Napa and Sonoma wine growers and wineries, where 10
percent of the harvest was still on the vine when the fires started.
There
are nearly 20 steps involved in wine production, including include growing,
harvesting, fermenting, storage, barreling, aging, blending, bottling, labeling
and distributing. Each presents opportunities for things to go wrong.
Thames
explained that Stock Throughput is a form of marine coverage that insures goods
in all their physical states along the supply chain with the exception of damage
caused by the processes of turning the raw materials into the finished
products. He said policies are generally very broadly worded and cover all
risks.
Schultz
pointed out how marine insurance comes into play during shipment. Stock
Throughput policies are designed to cover supply chains and anything that moves
inventory against loss due to:
Extreme weather and
natural disasters can cause supply chain interruptions and even loss of product.
Transportation:
Obviously, wine has to get from the vineyard to the table and that table may be
anywhere in the world.
Trade
problems/disruption: This affects imports and exports, especially delays due to
current COVID-19 crisis.
Lack of Control: Products
are sometimes shipped long distances, and it’s difficult to know everything
about every link of the supply or travel chain.
Invaders: Yes, pests
have been known to get into wine and cause damage and so can fumigation.
CTL: Constructive Total
Loss becomes an issue if the wine is stolen. Most policies exclude consumption
of wine, but Schultz said that hasn’t stopped some insureds from trying to
claim it on that basis.
The
2017 California wildfires brought into focus the issue of smoke taint. The smoke
that lingers for weeks after the fires are extinguished can taint the grapes,
rendering a wine unpalatable, or worse, undrinkable.
Thames
noted that smoke taint claims don’t arise until after fermentation, after the
wine has been tasted, and the grower must prove damage with scientific evidence
and serve notice of potential loss within 60 days. However, he said there are
cost effective processes winemakers can put in place beforehand to mitigate the
effect.
The
presenters discussed the difference between crop insurance and whole farm
revenue protection, both of which offer only limited protection to the grower. Crop
insurance is not a 100 percent indemnity product; it only covers the grapes
pre-harvest, so there will always be a gap. Limits are based on past yields so it’s
difficult to expand limits in the first few years.
As a result of the 2017 fires in Oregon, one winemaker now requires
its growers to carry crop insurance and pays half the premium.
Whole
farm revenue protection insures against lost revenue, but doesn’t protect
particular crops as it is not a property policy. To make a claim on this policy
the insured must establish that farm revenue is down as a result of the winery
rejecting the grapes.
Participants
were invited to vote on their favorite wine, and the overwhelming choice was
Red, at 70 percent. White garnered 17 percent of the vote and Rose 12 percent.
“As much as we are living today with the unimaginable impact of COVID-19, we must remind residents along the Atlantic and Gulf coasts to remember it takes only one hurricane or tropical storm to ravage communities and to shatter lives,” said Sean Kevelighan, CEO, Triple-I. “During National Hurricane Preparedness Week (May 3-9), we encourage residents to take a moment to ensure you have adequate financial protection for your property and possessions while also taking steps to make your home or business is more resilient to wind and water. Since we are all needing to stay home more, it’s even more important to make ourselves more resilient to natural catastrophes like hurricanes.”
The Atlantic hurricane season begins on June 1 and continues through Nov. 30.
Review Your Insurance Coverage Make sure you have the right type – and amount – of property insurance. The Triple-I recommends you conduct an annual insurance review of your policy(ies) with your insurance professional.
Standard homeowners insurance covers the structure of your house for disasters such as hurricanes and windstorms, along with a host of other disasters. It is important to understand the elements that might affect your insurance payout after a hurricane and adjust your policies accordingly.
At the very least, review the declarations page of your policy. This one-page information sheet offers details on how much coverage you have, your deductibles and insights into how a claim will be paid.
“You should ask your insurance professional if you have the right amount of insurance coverage to rebuild or repair your home, to replace its contents, and to cover temporary living expenses if your property is uninhabitable,” Kevelighan said. “You should also ask about flood insurance, which is separate and additional to traditional homeowners and small business insurance. Ninety percent of natural disasters involve flooding.”
Flood insurance, which is a separate policy from your property coverage, is offered through FEMA’s National Flood Insurance Program (NFIP) and several private insurers.
Another common exclusion from a standard homeowners policy is sewer backup (also not covered by flood insurance). Backed up sewers can cause thousands of dollars of damage to floors, electrical systems, walls, furniture and other belongings. Sewer backup insurance is especially beneficial in hurricane-prone areas.
Protect Your Vehicles
Comprehensive auto, which is an optional coverage, protects your vehicle against theft and damage caused by an incident other than a collision, including fire, flood, vandalism, hail, falling rocks or trees, and other hazards.
Make Sure Your Possessions are Adequately Protected Imagine the cost of repurchasing all your furniture, clothing and other personal possessions after a hurricane. Whether you have homeowners insurance or renters insurance, your policy provides protection against loss or damage due to a hurricane. Creating an inventory of your belongings and their value will make it easy to see if you are sufficiently insured for either replacement cost or cash value of the items. When you create a photo or video catalog of your home’s possessions, it will also help expedite the insurance claims process if you sustain damage from a storm.
Make Your Property More Resilient Invest in items that will harden your property against wind damage, such as a wind-rated garage door and storm shutters. Triple-I also recommends you have your roof inspected annually by a licensed and bonded contractor to make sure it will hold up to high winds and torrential rains.
Preparing a hurricane emergency kit with a minimum two-week supply of essential items such as non-perishable food, drinking water and medications for every family member.
Creating an evacuation plan well before the first storm warnings are issued.
