Businesses suffering income losses related to COVID-19 are anxious about how they are going to get back on their feet when things return to normal. There is a lot of uncertainty around what will be offered for government assistance as well as insurance coverage. Right now, it is important to track what is happening to your business. This will put you in a better position to seek aid as soon as it becomes available.
Here are the trends and topics we are seeing in the world of insurance:
Multiple states are introducing legislation that could mandate insurance companies to cover business interruption losses due to COVID-19 closures. Most legal experts feel that coverage is unlikely. Standard business income coverage requires these three conditions:(1) physical damage (2) to covered property (3) from a covered cause of loss. Most policies clarify their intent with an exclusion for losses related to virus. Creative lawyers are already seeking loopholes, and we expect the courts to work out coverage positions over time.
New Jersey started this movement in mid-March with a draft of bill A-3844. As written, the draft would serve to force insurance companies to pay losses where no coverage may exist. The intent of the legislation is to protect the economic losses of small business for the duration of the Public Health Emergency declared by the governor, which forced many businesses to close or reduce their offerings. This proposal has not reached the floor of the NJ legislature as of March 25, 2020; a clear explanation of the implications of this bill can be found here: NJ holds bill compelling insurers to pay business claims
Massachusetts filed similar legislation aimed to assist businesses of 150 or fewer full time employees with S.D. 2888 - An Act Concerning Business Interruption Insurance, on March 24, 2020. As presented, the bill would force insurers to consider "the loss of use and occupancy and business interruption...business interruption directly or indirectly resulting from the global pandemic known as COVID-19." An overview of this bill can be found here: New Business Interruption Insurance Bill Filed in Massachusetts.
These are examples of state governments pushing insurers to cover economic losses, however they certainly will not be the last. If approved, this course of action would help small businesses in the short term, however, it has potential to wreak havoc down the road. Over the past several years, the insurance industry has paid unprecedented catastrophe losses, leading to reduced capacity and higher premiums. If regulators are successful in forcing insurance companies to pay uncovered business income losses, we will likely see further restrictions in the availability of insurance coverage and premium costs being driven up further for policyholders.
One thing is for sure: we can reasonably expect that coverage for COVID-19 related business interruption losses will be litigated in court over several years. In preparation, we recommend that all of our clients maintain detailed records of their income & expenses through this health and economic crisis in the same manner they would normally.
Your IMA team is here for you and will continue to keep you informed as changes unfold. If you would like to notify your insurance company of a claim related to COVID-19, please reach out to your service team or email email@example.com. In the meantime, stay safe.