Business-continuity losses for small firms could total as much as $383 billion a month, says an estimate from the American Property Casualty Insurance Association. (Photo: Shutterstock)
(Bloomberg) — The battle over business-interruption losses is heating up.
Legislators in at least three states — New Jersey, Ohio and Massachusetts — have proposed bills to require that insurers pay out for certain claims related to COVID-19. The American Property Casualty Insurance Association is pushing back, arguing that the costs aren't covered under current policies and can threaten the stability of the sector. It estimates that business-continuity losses for small firms could total as much as $383 billion a month.
Businesses across the U.S., including many restaurants, have been forced to limit operations as cities and states try to fight the spread of the coronavirus. That's fueled a record number of jobless claims and led small business groups to urge the government to act. James Eldridge, a Massachusetts state senator, said the bill in his state is an attempt to protect small businesses, including restaurants.
Without "some form of financial relief — whether it's from the insurance industry, whether it's from the government — many of these restaurants are not going to come back," Eldridge said in a phone interview. "That's going to make all of us worse off, including the insurance industry, which will have fewer clients."
A New Orleans restaurant, Oceana Grill, is already pursuing legal action against underwriters at Lloyd's of London. It is seeking a declaratory judgment after a civil-authority order by Louisiana's governor and actions by the city's mayor to restrict gatherings at restaurants.
What Bloomberg Intelligence says
"P&C insurers may suffer losses in New Jersey, Ohio, Massachusetts and potentially other states if they are forced to pay uncovered business-interruption claims," says Matthew Palazola, senior industry analyst, and Elliott Stein, senior litigation analyst
A New Jersey bill, currently on hold, would require insurers to cover certain business interruption claims for companies with 100 or fewer in-state full-time employees. Ohio followed with a similar measure. And the proposal in Massachusetts would cover businesses with 150 or fewer employees and require insurers to pay out — even if policies included language to exclude losses from virus-related issues.
The National Association of Insurance Commissioners, a group of state regulators, said the policies were "generally not designed or priced to provide coverage against communicable diseases." Daniel Rabinowitz, a lawyer who runs Kramer Levin's insurance practice, said the move to force insurers to cover losses they had excluded would be extraordinary and might face challenges.
"It would be unprecedented for policymakers and lawmakers, on sort of a wholesale basis, to take a whole set of policies that have already been written and say, 'We're going to invalidate language in there, not even so much because it's abusive or unconscionable, but just because it doesn't suit the current needs,'" Rabinowitz said in an interview. "It would be harmful to just our whole understanding of contracts and predictability."
The American Property Casualty Insurance Association said many commercial policies exclude losses caused by viruses and should be honored.
"If policymakers force insurers to pay for losses that are not covered under existing insurance policies, the stability of the sector could be impacted and that could affect the ability of consumers to address everyday risks that are covered by the property-casualty industry," David Sampson, president and chief executive officer of APCIA, said in an emailed statement.
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