The insurance industry appears to have beaten back state legislative efforts to force insurers retroactively to cover businesses hurt by the coronavirus pandemic.
Washington D.C. and New Jersey have kept language retroactively removing virus exclusions from business interruption policies out of Covid-19 relief packages. Efforts in several other states have also foundered while the Louisiana legislature has opted to push a disclosure bill rather than mandate coverage.
The insurance industry launched a counteroffensive against state legislatve efforts that began in March as the pandemic shut down businesses and carriers began to deny interruption claims. Insurers argued that forcing them to pay out claims for events they did not charge premiums to cover could lead to a wave of insolvencies in the industry. That argument appears to have won the day.
“The more time that passes without the bills going forward, the more cooler heads will prevail,” said Scott Seaman, the co-chair of Hinshaw & Culbertson LLP’s global insurance practice, which represents insurers.
Insurance companies began putting virus exclusions in business interruption coverage in the early 2000s following a series of avian influenza outbreaks that raised concerns about pandemics.
All insurance policies are uniquely underwritten for each policyholder, but the majority of business interruption policies include those exclusions. An April study from the Washington State’s Office of the Insurance Commissioner found that only two of the 84 insurers offering business interruption coverage offered virus or pandemic coverage.
Businesses began seeking coverage soon after state and local governments shut them down or limited restaurant operations to delivery and takeout options to combat the virus’s spread. Insurers rejected those claims, leading to hundreds of lawsuits around the country and anger among elected officials.
Lawmakers in New Jersey, Louisiana, Ohio, New York, Pennsylvania, Massachusetts and Washington D.C. introduced legislation that would eliminate virus and pandemic exclusions from policies purchased prior to the pandemic.
The bills focus largely on coverage for small businesses, but the definitions of small business and the specifics of the retroactive coverage differ.
The insurance industry began a fierce lobbying effort, with the Insurance Information Institute estimating that insurers being forced to cover claims for which they didn’t charge premiums would cost them as much as $380 billion each month.
There were also threats of lawsuits if the bills got enacted.
“Undoubtedly, the industry is putting a lot of pressure on the lobbying side on all of these legislatures,” said Colin Wrabley, a Reed Smith LLP partner. Reed Smith primarily covers policyholders.
New Jersey lawmakers kept an Assembly bill eliminating virus exclusions out of a Covid-19 relief package Gov. Phil Murphy (D) signed in March.
The Washington D.C. City Council elected to keep a similar bill out of its coronavirus response in May, garnering praise from the National Association of Mutual Insurance Companies and other trade groups.
In Louisiana, the state Senate passed a bill focused on improving disclosures for virus and other exclusions on future business interruption policies while a bill eliminating existing exclusions languishes in the state’s House of Representatives.
There are still some bills that could move, including legislation in New York.
‘Not So Quietly’
New York lawmakers introduced bills that would eliminate virus exclusions for Covid-19 related claims for businesses with 250 employees or less.
The bills were not part of a package of coronavirus relief bills New York’s legislature passed on May 28. Assemblyman Robert Carroll (D), the bill’s author, nevertheless remains hopeful.
He already has nearly 40 co-sponsors of the Assembly bill (A 10226) and 14 co-sponsors in the Senate (S 08211). The legislation faces an uphill fight.
“The insurance industry has put out a bunch of opposition memos on the bill. It has not so quietly talked to lots of members of the legislature and the governor’s staff,” he said.
That lobbying kept the bill out of the initial package, Carroll said.
The New York Department of Financial Services, the state’s insurance regulator, declined to comment on Carroll’s bill.
Other state regulators have opposed similar legislation.
The Brooklyn Democrat said he hopes to get his bill moving in the next coronavirus relief package, despite industry opposition. Obtaining insurance coverage for New York businesses is vital as Congress waits to hash out another federal relief package.
“I’m hoping, especially as it becomes less and less likely that the U.S .Congress is going to take bold steps, that it becomes imperative for New York to do some self-help,” he said.
If Carroll’s bill doesn’t move quickly, it may not move at all, Seaman said.
“The greatest risk is in the next three or four months. Once you start getting out beyond that, I think a lot of the impetus disappears,” he said.
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