Insurers Reject House Members’ Request to Cover Uninsured COVID Business Losses

March 20, 2020

A bipartisan group of U.S. House members has asked insurers to retroactively recognize financial losses relating to COVID-19 under commercial business interruption coverage for policyholders.

Eighteen House members made their case in a March 18 letter addressed to the leaders of the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, the Independent Insurance Agents & Brokers of America, and the Council of Insurance Agents and Brokers.

In response, the four industry groups said they’re working to provide relief to policyholders but not through the coverage in question.

“During times of crisis, we must all work together,” the letter from the congressional representatives states. “We urge you to work with your member companies and brokers to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage.”

Those signing the letters include the following House Democrats: Nydia Velazquez, N.Y.; Andy Kim, N.J. (who is self-quarantined due to contact with someone positive); Grace Napolitano, Calif.; Marc Veasey, Texas; Alcee Hastings, Fla.; Rashida Tlaib, Mich.; Gilbert Cisneros, Calif.; Scott Peters, Calif.; Max Rose, N.Y.; Kathleen Rice, N.Y.; Joe Cunningham, S.C.; and Andy Levin, Mich.

The following Republican House members also signed the letter: Brian Fitzpatrick, Pa.; Jim Hagedorn, Minn.; French Hill, Ark.; Rick Crawford, Ark.; Steve Womack, Ark; and Bruce Westerman, Ark.

The letter argues that American businesses are “understandably concerned about the potential financial impact the continued global spread of COVID-19 may have on their operations” in the wake of more than 118,000 declared cases of the disease in 114 countries globally, with more than 4,000 people having lost their lives so far. As a result, they argue that including COVID-19 related losses in business interruption coverage is key.

“In many commercial property insurance policies, business interruption coverage is triggered when the policyholder sustains ‘direct physical loss of or damage to’ insured property,” the letter notes. “In addition, many commercial property insurance policies provide coverage for business income losses sustained when a civil authority prohibits or impairs access to the policyholder’s premises.”

The members of Congress argue that shelter-in-place orders alone relating to the COVID-19 crisis, such as the one in place for the greater San Francisco Bay Area since March 16 and another under consideration for New York City, should be among the situations counted under that policy language. California now has issued a “stay at home” order statewide.

“These ‘shelter-in-place’ orders and curfews—combined with those individuals who have already chosen to stay in their home over fear of contracting the virus—will no doubt have an economic impact on America’s businesses, particularly its small businesses,” the letter argues. “Many of us have already been hearing from constituent businesses who have been forced to send employees home or shutter their doors due to a loss of economic activity.”

David Sampson, president and chief executive officer of the APCIA, Charles Chamness, president and CEO of NAMIC, Bob Rusbuldt, president and CEO of IIABA and Ken Crerar, president and CEO of CIAB, sent a joint letter to Rep. Velazquez, D-NY, the first signatory and chair of the House Committee on Small Business, in response.

“Standard commercial insurance policies offer coverage and protection against a wide range of risks and threats and are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19,” they wrote.

“The U.S. insurance industry remains committed to our consumers and will ensure that prompt payments are made in instances where coverage exists,” they added.

In their response, the trade group leaders noted that member insurers have been active in charitable efforts in their communities and have begun working with customers to offer flexibility on premium payments.

“We recognize the extraordinary challenges our country is facing—our member businesses, our employees, and our families are confronting the same trials,” the trade group letter said, concluding, however, that government action is needed to address growing problems.

“The U.S. is in the midst of a national crisis that will require federal assistance that provides funding directly to those American individuals and businesses most in need. Our organizations stand ready to work with Congress on solutions that provide the necessary relief as soon as possible,” the letter said.

Separately, Rep. Velazquez introduced legislation to provide other relief for small businesses during the COVID-19 outbreak. The COVID-19 Relief for Small Businesses Act of 2020 would provide zero-interest direct loans to small businesses, direct grants, loan debt relief and would seek to increase access to federal contracting opportunities, among other provisions.

In addition to responding to the letter from Congress, NAMIC said it worked to oppose legislation proposed in New Jersey that also sought to retroactively cover small businesses for COVID-related interruptions—specifically any business with less than 100 employees in New Jersey with a policy of business interruption insurance in force on March 9, 2020, regardless of whether the policy had a virus exclusion. NAMIC offered a statement strongly opposing N.J. Assembly Bill 3844.

“The proposed retroactive application legislation would fundamentally change the agreed upon transfer of prospective risk of loss exposure to coverage for a known and presently occurring loss, something the parties did not agree to, the insurer did not rate for, and the policyholder did not pay for,” wrote NAMIC Northeast Regional Vice President Christopher Stark. Stark also pointed out the potential unintended consequence of delaying Small Business Administration loans, as the SBA will likely ask applicants to disclose insurance payments before receiving funds.

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