Although I try to forget the Texas mold-crisis of 2001-2003, I do remember what happened to the insurance market after the infamous Melinda Ballard case turned the industry upside down. What we were left were outrageous rates and a new policy excluding mold coverage. Attorney’s were the only winners back then, and if this unconstitutional legislation passes, it will be an attorney’s dream come true.
I’m not saying this is similar to the mold-crises (this is a real financial loss to businesses) and insurers should consider expanding coverage to help business owners in the future. Requiring insurance companies to cover losses for exposures like this is without premium is not only unconstitutional, but ridiculous to even consider.
We will soon have a flu-shot for COVID-19 and this will no longer be an issue (until the next one comes around)…but by adding this coverage for future losses, rates will adjust upward. Insurers will happily cover this exposure if consumers are willing to pay for the extended coverage. You just have to ask yourself, do you want to pay for the increase? I guess we will not know until the crisis is over and actuaries price it out accordingly.
We were never given the choice to protect ourselves because of the exclusion. I for one would have gladly paid a higher premium if given the choice. Bottom line is insurance companies love to collect premiums, but hate to pay claims.
Herman- you should say “some insurance companies”. I worked for one that didn’t like to pay, they didn’t really have “good hands”. I also worked with “jake” and his motto tended to be, pay what you owe and a little bit mo.
To say all insurance companies hate to pay claims is an exaggeration.
And to say that you would have “gladly paid a higher premium” when you don’t even know what the endorsement would cost might be an exaggeration as well.
Folks, let’s all understand what is happening here… when the carriers sought a bailout from taxpayers to share in the costs associated with the terms of their private contracts, essentially forcing taxpayers to bear their burden, that was ok for the insurance industry, right? But now, the same carriers don’t want to be forced to share the costs of a similar bailout function in order to protect small businesses and, as a practical matter, its workers’ jobs. Don’t let them fool you folks. Don’t let them fool you.
AIG didn’t get a bailout–the shareholders of AIG were wiped out. The policyholders of AIG didn’t get anything from the government money–they had insurance company assets to look to. The people bailed out by government money to AIG were the creditors of the holding company who had entered credit default swaps with AIG—those were primarily large international banks and investment houses like GS and MS who the government couldn’t afford to be seen giving money to directly.
So the government wants to make an insurer pay BI because there happens to be a contractual relationship between the insurer and the person who lost money?
Even though there’s nothing in the contract saying that money is owed?
Why stop at insurance companies. Make ANYONE who has a contract with the insured who has a BI loss pay.
Also, with regard to the quote, “This is because she sees the requirement in many business interruption policies for direct physical loss or damage to property as the primary impediment to insurance coverage,” if you are a business owner, please do not feel compelled to take the word of your insurance agent or broker on this. As pointed out in the article, an impediment is all it is; not the law. Fight for your coverage rights. While true that carriers will always throw up obstacles to otherwise valid coverage — especially where the exposure is large, such as COVID-19 — that is the game many of them play: force insureds to spend money litigating on valid coverage after having collecting millions… billions… in premiums (“Policyholders have arguments to make in that regard, but they will likely have to make them in court to get a favorable resolution of their claim.”). All this legislation effectively seeks to do is to make sure coverage falls on the insureds’ side of that somewhat ambiguous impediment, the virus exclusion.
ReyP – Carriers have not provided nor priced coverage for this exposure. Others, yes and the monies are there to provide restitution. Throwing this into a coverage requirement will eliminate monies for actual provided claims that are covered by contract.
In the past, and I’m sure in many ways today, an insurance company did not want to expose themselves in areas where there was a high likelihood of a property claim, such as a fire or windstorm. (Remember the, “don’t insure all the houses in one area?” thinking etc…)
Business interruption is meant to cover sudden and accidental claims, not 100% of the country’s BOP or commercial policies if they close their doors for any reason! This would be like terrorism coverage, no company would underwrite it to any great extent.
There’s an old saying, “Tough times don’t last forever but tough people do.” (In this case if
you don’t get or survive the virus and can keep some food on the table)
Only in New Jersey! This is nothing more than a cheap political giveaway, with no legal basis. I guess contract law means nothing in this state. Another reason people are leaving this state in droves!
I guess contracts mean nothing as well when government bans evictions for tenants not paying rent. If a landlord is abiding by government mandate, then that is a business interruption. A loss that should be paid to insureds if they have budiness interruption coverage.
“If a landlord is abiding by government mandate, then that is a business interruption. ” It has to be for a loss that is insured against, not just for any Gov’t mandated shutdown. That is the point. Without ADPL insured against, there is no coverage available.
So, if there was never any premium charged for this coverage, never rated, can the carrier go back and collect the premium based on what rate the carrier chooses along with a Waiting Period that the carrier chooses?
If this passes, the economy will be a lot worse than what it is now.
Delta Dawn… geez… you MUST be working for an insurer, or, are financially aligned with their agenda somehow. ;-) Look… all teasing aside, in the end, does it really matter? Your point is well put; as is mine. I’m not looking to change your mind, and I do respect your opinion. That being said, we all know that when the carriers sought help from the government, that was no different than the government seeking the same from the carriers under this bill. Put another way, dId the insurance company bailout catch taxpayers off guard? Of course. But, did helping them save some jobs? Arguably, yes. So, for the insurance industry to get on its high horse to cry about being caught off guard, and spout constitutional nonsense when they themselves benefited from government assistance, sorry… but that has to get called out for what it is: hypocrisy. Which is, frankly, unsurprising coming from them. So, I guess we’ll just have to agree to disagree…
its a contract between two parties. There is no ambiguity at all. there has to be a property loss to trigger the business interruption. If a covered loss does not occur there is no coverage. If you support the government coming in and changing the contract midterm then why stop there? Why not at any point in time make the insurance companies pay for somethin that the government wants them to cover.
And Delta Dawn is spot on. if the policy is indented to cover this exposure then the insurers should be able to rate for it. Go back to the inception of every business policy and charge adequate premium. The risk premium should be commensurate with the exposure…………..
Taking that decision away from the insurance companies is no different than taking the decision to be opened for business away from a small business owner. if it’s in the best interest of the general public’s health, then everyone suffers. At the very least, because they already have policies and systems in place, they should all cover their customers then they should carry the burden of getting “loans” and arguing with the government on getting paid back. it cuts the paperwork by a ton, shows good faith, and covers honest business more immediately than sba loans and other ideas that people could possibly take advantage of. insurers know their customers, the government does not.
In this case, the effort to confiscate capital from an insurer in order to address what has become a global emergency really questions whether or not some governments understand their role and the prudent manner of responding to such a crisis.
In commercial property forms a virus is not a covered cause of loss and will not trigger Business Income and / or Extra Expense. Not only will this unfairly penalize insurers, but if we consider that ordinary payroll is a part of business income, this compels and insurer to effectively provide Unemployment Benefits.
I sense decisions like this are rooted in political opportunity as opposed to good governing and leadership.
Consumers willing to pay? Certainly you jest. Why can’t they just get the coverage retroactively without the bother of additional premium? Just vote for me and I can make it happen. I am running for the NJ legislature and I approve this message! Vote for Hi Ho Silver!
In this case (as sometimes occur) our legislators get it in their heads that an insurance policy is another government fund that can be raided to pay for things ‘not intended’ and more importantly, not funded.
Just like when insurance departments require insurance companies to put money into guarantee funds, to compensate policyholders who are left high and dry when OTHER insurance companies that stole their business by underpricing go belly-up…..
And then the state legislatures raid the money in these funds for general purposes.
Actually, they require policyholders to pay into these guarantee funds. On work comp policies, these charges are separated on the quotes. The other carriers include them in their pricing.
DIFFERENT SOLUTION
We may star gaze to ponder solutions of philosophical complexity but are unlikely to find there much insight into clarification of insurance contracts. Even if passed in a moment of NJ passion, there is surely zero chance for it to be upheld only to unravel centuries of principles of both insurance and generalized contract law. Still, the bluster does make for conversation given the virus relief for business on its way via (federal) legislative fiat. Here, limited in space but not logic, I provide an outline for a different remedy.
There are two avenues to approach coverage for interruption of a small business. The 1st&3rd party Business Income (“BI”) and Terrorism endorsements. The insurance industry issues policies that conform to (a) industry approved standards (ISO) and (b) are manuscript with language for an insured’s unique requirement. Indeed, 99% of businesses with property insurance are covered by ISO facsimile wording as filed for pre/post approval with respective state insurance authorities. In this game theory, there are some basics to the three swings imagined to recover from the money piñata. ; An Ordinance or Law endorsement excludes forced compliance prior to a loss and force majeure endorsements usually relate to the impossibility/disruption of performance of a contract but without favorable context to small business insurance. [Note: Lack of proper integration of VB as a RM tool is saved for another forum.]
First, a cause of business income loss must satisfy the classic sudden and accidental direct loss or extended definition(s) for contingent loss to be a covered claim. Standard (ISO type) wording both encircles the definition of coverage within a definition of a covered peril but also fences-off coverage by specific exclusion. To be sure, BI (extended BI & extra expense) endorsements add additional unique restrictions to the definition of covered peril, deductible/retentions and sub-limits.
Second, BI extends to 3rd party losses that interrupt the (1st party) insured. Think of this as a coverage contingent on an interruption in a channel of product/service that reverberates back to the insured’s income. Further, a distinct caveat in this extended coverage in small business forms is that it be limited to (3rd party) domestic interruptions–e.g., no interruptions emanating from China. Therefore, on its face, it is difficult to stretch an ISO-based business interruption definition to come within six feet of isolating the Corona virus as a covered peril.
A last swing is found with the fat bat of the terrorism endorsement. After 9/11, insurers and the federal government agreed on language to address coverage for acts of terrorism–whether or not argued as initial acts of war. Like BI, this coverage is capped by sub-limits for each insured but, here, an aggregate industry cap also applies. The trigger is held by the Secretary of the Treasury’s (recently broadened) and squeezed by formal declaration of an “act of terrorism.” Therefore, after announcement, the insured is granted a peek at a swing for clear contact & reimbursement. [Note: Granted, this path comes with “external” geo-political & other ramifications certain to be challenging but solvable albeit best saved for another conversation.]
The federal government can, should and will be the predominant dispensary for aid to “smaller” businesses impacted by the Corona Virus. , in the case of the Terrorism endorsement, government attachment is found at a rather nominal industry sub-aggregate of $100billion. However, whether or not sounding in Terrorism, convoluted BI or otherwise, the private sector insurance companies are far better situated than a government agency to handle equitable cash disbursements. For businesses without a (formal) insurance policy or “substandard” coverage (i.e., w/o the above endorsements), assistance might come in a different form (e.g., grants or loans) but definitely should not be drawn from the same piñata. Admittedly, a weakness in this, but any approach, is the legal/political complexity of limiting this program to small business, or conventional ISO policy type insured. Further, to exclude in this proposal larger companies (or limit to values allocated by carriers to BOP/MOP/Pkge-type policies within the industry aggregate) that had alternatives but chose to cut corners in their RM strategy(s). [Note: The errors and omissions by (many) larger corporate enterprise risk management functions based on having foregone a thorough analysis of risk funding vehicles, or consciously self-insuring, and whether/how the gov’t should bailout these entities will be debated over the next decade, if not century.]
Insurers should be entrusted to administer small business income disruption-type claims and, if some insurer capital is to be sourced, I suggest that the legal trigger should be found in bending the Terrorism, rather than breaking the typical BI, endorsement. Notwithstanding the distaste of being forced to eat its terrorism sub-limits, the insurance industry is much better situated than a gov’t agency to administer both insurer & government (backstop) funded business claims. Solutions to economic recovery must be based in experienced reasoning and avoid half-cocked attempts to redefine retroactively BI coverage while repeating certain post 9/11, Sandy, and financial crisis errors of this century.
TB
This is a flashback to the mold issue. Why does the insurance industry end up on the hook because people do not read their contract? This is absurd! Insurance is a contract between the carrier and the customer. The government should not be allowed to change the contract when it clearly says it is NOT covered. People need to start taking responsibility for their choices, and choosing to NOT read their insurance policy is one of those choices.
I read where this bill was withdrawn yesterday. Perhaps withdrawn to make amendments. Agree it is a dangerous precedent.
Sad day for our industry if this passes! Other states will follow.
That sound you hear is every property carrier in NJ sending non-renewal notices
Michael- and carriers closing their doors on doing business in the state. NJ does this every chance they get. Contract law means nothing to them.
Although I try to forget the Texas mold-crisis of 2001-2003, I do remember what happened to the insurance market after the infamous Melinda Ballard case turned the industry upside down. What we were left were outrageous rates and a new policy excluding mold coverage. Attorney’s were the only winners back then, and if this unconstitutional legislation passes, it will be an attorney’s dream come true.
I’m not saying this is similar to the mold-crises (this is a real financial loss to businesses) and insurers should consider expanding coverage to help business owners in the future. Requiring insurance companies to cover losses for exposures like this is without premium is not only unconstitutional, but ridiculous to even consider.
We will soon have a flu-shot for COVID-19 and this will no longer be an issue (until the next one comes around)…but by adding this coverage for future losses, rates will adjust upward. Insurers will happily cover this exposure if consumers are willing to pay for the extended coverage. You just have to ask yourself, do you want to pay for the increase? I guess we will not know until the crisis is over and actuaries price it out accordingly.
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Herman- you should say “some insurance companies”. I worked for one that didn’t like to pay, they didn’t really have “good hands”. I also worked with “jake” and his motto tended to be, pay what you owe and a little bit mo.
To say all insurance companies hate to pay claims is an exaggeration.
And to say that you would have “gladly paid a higher premium” when you don’t even know what the endorsement would cost might be an exaggeration as well.
Not my experience with Jake, not at all. Accurate for the good hands, but State Farm is not what they used to be.
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ReyP- what specific insurance company or companies are you referring to?
ReyP- and before you mention AIG, it was a loan, paid back billions in interest and principal. It’s a bailout when you don’t pay it back…like GM.
AIG didn’t get a bailout–the shareholders of AIG were wiped out. The policyholders of AIG didn’t get anything from the government money–they had insurance company assets to look to. The people bailed out by government money to AIG were the creditors of the holding company who had entered credit default swaps with AIG—those were primarily large international banks and investment houses like GS and MS who the government couldn’t afford to be seen giving money to directly.
So the government wants to make an insurer pay BI because there happens to be a contractual relationship between the insurer and the person who lost money?
Even though there’s nothing in the contract saying that money is owed?
Why stop at insurance companies. Make ANYONE who has a contract with the insured who has a BI loss pay.
Hidden due to low comment rating. Click here to see.
ReyP – Carriers have not provided nor priced coverage for this exposure. Others, yes and the monies are there to provide restitution. Throwing this into a coverage requirement will eliminate monies for actual provided claims that are covered by contract.
You MUST be an attorney looking to gain in your pocketbook
Just 30 years of insurance experience, including sales, underwriting, training and policy development.
In the past, and I’m sure in many ways today, an insurance company did not want to expose themselves in areas where there was a high likelihood of a property claim, such as a fire or windstorm. (Remember the, “don’t insure all the houses in one area?” thinking etc…)
Business interruption is meant to cover sudden and accidental claims, not 100% of the country’s BOP or commercial policies if they close their doors for any reason! This would be like terrorism coverage, no company would underwrite it to any great extent.
There’s an old saying, “Tough times don’t last forever but tough people do.” (In this case if
you don’t get or survive the virus and can keep some food on the table)
Be safe out there!
Only in New Jersey! This is nothing more than a cheap political giveaway, with no legal basis. I guess contract law means nothing in this state. Another reason people are leaving this state in droves!
I guess contracts mean nothing as well when government bans evictions for tenants not paying rent. If a landlord is abiding by government mandate, then that is a business interruption. A loss that should be paid to insureds if they have budiness interruption coverage.
“If a landlord is abiding by government mandate, then that is a business interruption. ” It has to be for a loss that is insured against, not just for any Gov’t mandated shutdown. That is the point. Without ADPL insured against, there is no coverage available.
So, if there was never any premium charged for this coverage, never rated, can the carrier go back and collect the premium based on what rate the carrier chooses along with a Waiting Period that the carrier chooses?
If this passes, the economy will be a lot worse than what it is now.
Delta Dawn… geez… you MUST be working for an insurer, or, are financially aligned with their agenda somehow. ;-) Look… all teasing aside, in the end, does it really matter? Your point is well put; as is mine. I’m not looking to change your mind, and I do respect your opinion. That being said, we all know that when the carriers sought help from the government, that was no different than the government seeking the same from the carriers under this bill. Put another way, dId the insurance company bailout catch taxpayers off guard? Of course. But, did helping them save some jobs? Arguably, yes. So, for the insurance industry to get on its high horse to cry about being caught off guard, and spout constitutional nonsense when they themselves benefited from government assistance, sorry… but that has to get called out for what it is: hypocrisy. Which is, frankly, unsurprising coming from them. So, I guess we’ll just have to agree to disagree…
its a contract between two parties. There is no ambiguity at all. there has to be a property loss to trigger the business interruption. If a covered loss does not occur there is no coverage. If you support the government coming in and changing the contract midterm then why stop there? Why not at any point in time make the insurance companies pay for somethin that the government wants them to cover.
And Delta Dawn is spot on. if the policy is indented to cover this exposure then the insurers should be able to rate for it. Go back to the inception of every business policy and charge adequate premium. The risk premium should be commensurate with the exposure…………..
Taking that decision away from the insurance companies is no different than taking the decision to be opened for business away from a small business owner. if it’s in the best interest of the general public’s health, then everyone suffers. At the very least, because they already have policies and systems in place, they should all cover their customers then they should carry the burden of getting “loans” and arguing with the government on getting paid back. it cuts the paperwork by a ton, shows good faith, and covers honest business more immediately than sba loans and other ideas that people could possibly take advantage of. insurers know their customers, the government does not.
In this case, the effort to confiscate capital from an insurer in order to address what has become a global emergency really questions whether or not some governments understand their role and the prudent manner of responding to such a crisis.
In commercial property forms a virus is not a covered cause of loss and will not trigger Business Income and / or Extra Expense. Not only will this unfairly penalize insurers, but if we consider that ordinary payroll is a part of business income, this compels and insurer to effectively provide Unemployment Benefits.
I sense decisions like this are rooted in political opportunity as opposed to good governing and leadership.
Consumers willing to pay? Certainly you jest. Why can’t they just get the coverage retroactively without the bother of additional premium? Just vote for me and I can make it happen. I am running for the NJ legislature and I approve this message! Vote for Hi Ho Silver!
Needed a little humor today!!
In this case (as sometimes occur) our legislators get it in their heads that an insurance policy is another government fund that can be raided to pay for things ‘not intended’ and more importantly, not funded.
Just like when insurance departments require insurance companies to put money into guarantee funds, to compensate policyholders who are left high and dry when OTHER insurance companies that stole their business by underpricing go belly-up…..
And then the state legislatures raid the money in these funds for general purposes.
Actually, they require policyholders to pay into these guarantee funds. On work comp policies, these charges are separated on the quotes. The other carriers include them in their pricing.
DIFFERENT SOLUTION
We may star gaze to ponder solutions of philosophical complexity but are unlikely to find there much insight into clarification of insurance contracts. Even if passed in a moment of NJ passion, there is surely zero chance for it to be upheld only to unravel centuries of principles of both insurance and generalized contract law. Still, the bluster does make for conversation given the virus relief for business on its way via (federal) legislative fiat. Here, limited in space but not logic, I provide an outline for a different remedy.
There are two avenues to approach coverage for interruption of a small business. The 1st&3rd party Business Income (“BI”) and Terrorism endorsements. The insurance industry issues policies that conform to (a) industry approved standards (ISO) and (b) are manuscript with language for an insured’s unique requirement. Indeed, 99% of businesses with property insurance are covered by ISO facsimile wording as filed for pre/post approval with respective state insurance authorities. In this game theory, there are some basics to the three swings imagined to recover from the money piñata. ; An Ordinance or Law endorsement excludes forced compliance prior to a loss and force majeure endorsements usually relate to the impossibility/disruption of performance of a contract but without favorable context to small business insurance. [Note: Lack of proper integration of VB as a RM tool is saved for another forum.]
First, a cause of business income loss must satisfy the classic sudden and accidental direct loss or extended definition(s) for contingent loss to be a covered claim. Standard (ISO type) wording both encircles the definition of coverage within a definition of a covered peril but also fences-off coverage by specific exclusion. To be sure, BI (extended BI & extra expense) endorsements add additional unique restrictions to the definition of covered peril, deductible/retentions and sub-limits.
Second, BI extends to 3rd party losses that interrupt the (1st party) insured. Think of this as a coverage contingent on an interruption in a channel of product/service that reverberates back to the insured’s income. Further, a distinct caveat in this extended coverage in small business forms is that it be limited to (3rd party) domestic interruptions–e.g., no interruptions emanating from China. Therefore, on its face, it is difficult to stretch an ISO-based business interruption definition to come within six feet of isolating the Corona virus as a covered peril.
A last swing is found with the fat bat of the terrorism endorsement. After 9/11, insurers and the federal government agreed on language to address coverage for acts of terrorism–whether or not argued as initial acts of war. Like BI, this coverage is capped by sub-limits for each insured but, here, an aggregate industry cap also applies. The trigger is held by the Secretary of the Treasury’s (recently broadened) and squeezed by formal declaration of an “act of terrorism.” Therefore, after announcement, the insured is granted a peek at a swing for clear contact & reimbursement. [Note: Granted, this path comes with “external” geo-political & other ramifications certain to be challenging but solvable albeit best saved for another conversation.]
The federal government can, should and will be the predominant dispensary for aid to “smaller” businesses impacted by the Corona Virus. , in the case of the Terrorism endorsement, government attachment is found at a rather nominal industry sub-aggregate of $100billion. However, whether or not sounding in Terrorism, convoluted BI or otherwise, the private sector insurance companies are far better situated than a government agency to handle equitable cash disbursements. For businesses without a (formal) insurance policy or “substandard” coverage (i.e., w/o the above endorsements), assistance might come in a different form (e.g., grants or loans) but definitely should not be drawn from the same piñata. Admittedly, a weakness in this, but any approach, is the legal/political complexity of limiting this program to small business, or conventional ISO policy type insured. Further, to exclude in this proposal larger companies (or limit to values allocated by carriers to BOP/MOP/Pkge-type policies within the industry aggregate) that had alternatives but chose to cut corners in their RM strategy(s). [Note: The errors and omissions by (many) larger corporate enterprise risk management functions based on having foregone a thorough analysis of risk funding vehicles, or consciously self-insuring, and whether/how the gov’t should bailout these entities will be debated over the next decade, if not century.]
Insurers should be entrusted to administer small business income disruption-type claims and, if some insurer capital is to be sourced, I suggest that the legal trigger should be found in bending the Terrorism, rather than breaking the typical BI, endorsement. Notwithstanding the distaste of being forced to eat its terrorism sub-limits, the insurance industry is much better situated than a gov’t agency to administer both insurer & government (backstop) funded business claims. Solutions to economic recovery must be based in experienced reasoning and avoid half-cocked attempts to redefine retroactively BI coverage while repeating certain post 9/11, Sandy, and financial crisis errors of this century.
TB
This is a flashback to the mold issue. Why does the insurance industry end up on the hook because people do not read their contract? This is absurd! Insurance is a contract between the carrier and the customer. The government should not be allowed to change the contract when it clearly says it is NOT covered. People need to start taking responsibility for their choices, and choosing to NOT read their insurance policy is one of those choices.