National Experts Examine Surging Business Insurance Crisis

Restaurants, health clubs, stores, and many other businesses large and small have been forced to shut down because of the COVID-19 pandemic.

Some of these businesses purchased business interruption insurance, which is designed to cover lost income from closures due to fires, floods, and other catastrophic events. But insurance companies have said that losses from the most catastrophic event imaginable--a global pandemic--are not covered by these insurance policies.

In response, legislatures in New Jersey, New York, and other states have introduced considering bills to require business interruption insurance to cover these losses, even retroactively.

Approximately 600 legislators, government officials, industry professionals, and others from around the nation discussed the proposed legislation during an April 24 webinar sponsored by the Rutgers Center for Risk and Responsibility at Rutgers Law School and the National Council of Insurance Legislators (NCOIL). The proceedings may be viewed online.

NCOIL President and Indiana Rep. Matt Lehman began by expressing NCOIL's opposition to retroactive legislation at the state level and urging Congress "to focus on those current, mounting, uninsured losses" that fall specifically outside coverage of current policies.

Majority Leader Louis Greenwald of the New Jersey Assembly, who sponsored the first bill addressing business interruption insurance, expressed legislators' aim in "trying to create a partnership with the insurance industry ... to figure out what we can do to help the business community."

He suggested a two-prong approach. First, addressing the current crisis by improving the perception of the industry in the face of widespread claim denials, as partners to the state and the business community. Second, working with the industry to determine "if there are policies that are even feasible we could craft to sell to consumers and businesses" if there is a next wave of this pandemic and in future crises.

Sean Kevelighan, CEO of the Insurance Information Institute, argued that global pandemic risks such as COVID-19 are uninsurable and that retroactive payouts would bankrupt insurers. If payment under business interruption policies was required, he stated, insurance industry capital needed to pay claims built up over centuries would be deteriorated in months.

Rutgers law professor Adam Scales, co-director of the Rutgers Center for Risk and Responsibility, discussed issues related to the proposed legislation. He noted that imposing coverage retroactively for everyone making a claim at the same time is questionable, because "it is a stretch" to suggest that businesses expected coverage, as people tend to discount this type of "end-of-the-world" event, which makes it challenging for policymakers who want to find a way to compel insurance company participation here.

Legal challenges to the bills would be likely under constitutional provisions that bar state legislation retroactively changing existing contracts. Those issues would include whether legislation "substantially impairs" a contractual relationship and whether the legislature had a sound reason for doing so.