House Democrats are planning legislation to force insurance companies to cover business interruption losses generated by the pandemic, an effort to have the federal government settle a roiling debate in favor of companies over insurers.
The bill could force insurers to make hundreds of billions of dollars in payouts to businesses that have closed down as a result of the coronavirus shutdown. Insurers oppose the legislation, saying that their policies weren’t designed to provide coverage for pandemics and that being forced to do so could bankrupt them.
The legislation, expected to be introduced later this week by Rep. Mike Thompson, a California Democrat, will make available insurance coverage for business interruption losses due to viral pandemics, forced closures of businesses, mandatory evacuations, and public safety power shut-offs. The insurance payouts would help business owners pay rent, make payroll obligations, pay taxes, and take care of other necessary costs.
“Some insurers are choosing to deny these business interruption claims and not uphold their responsibility to help cover these insured losses,” a number of Democratic legislators from California, led by Thompson, wrote in a letter to the state insurance commissioner on March 31.
They said that if action wasn’t taken to address the denial of business interruption insurance claims, many businesses in California “that are staples of our local communities will simply never resume service.”
Although a number of Democrats and President Trump have expressed frustration over insurance companies not paying their customers for business interruptions due to the coronavirus pandemic, Thompson’s legislation is expected to hit roadblocks. There is much opposition to it from the insurance industry, and many Republicans are expected to be against it as well.
Seven Republican senators sent a letter to Trump on Friday requesting that he promise to protect the insurance industry from proposals in state legislatures that would require insurance companies to cover small-business losses due to the coronavirus pandemic retroactively.
In opposition to the legislation, the insurance industry told Thompson in a Monday letter that forcing coverage by changing the contracts in place would be “unconstitutional” and would “end the very existence of the business interruption insurance market as we know it.” Insurance industry executives said they feared the language in the bill would make them responsible for covering losses retroactively. The executives, however, said Thompson had claimed that the legislation would only be applied to insurance claims and losses made after the passage of the bill.
Another part of the bill that appears controversial and unclear is a provision granting insurance companies the ability to increase the premiums charged for providing more business interruption coverage during a pandemic, for example. If insured businesses fail to pay the increased premium charges, which could be an increase of many thousands of dollars a month, then insurance companies would not be required to provide the coverage.
The industry is also pushing back against the notion that it’s shirking its responsibility. It claims that it never took on the risk for the pandemic and that if insurance companies were forced to pay for uncovered coronavirus-related business losses, they would be unable to pay for losses from disasters, such as tornadoes, hurricanes, and wildfires, that are covered under their standard interruption policies.
“It would be like a Category 3 hurricane in every major city occurring at the same time, or a wildfire burning all across America, and we had to cover that. You just can’t underwrite risk like that, it’s not affordable,” said Sean Kevelighan, CEO of the Insurance Information Institute, an association that represents the industry.
Industry executives also said that Thompson’s bill was too broad and would force them to provide business interruption coverage for losses from not just any viral pandemic but also any forced closure of businesses ordered by the government or due to any power shut-offs conducted for public safety purposes.
“If a meteor hits the earth and businesses have to stop, this bill would make insurance companies cover that,” an insurance industry executive said.
The American Property Casualty Insurance Association has estimated that business losses just for small businesses with 100 or fewer employees from the coronavirus shutdown would be many hundreds of billions of dollars a month.
The association said the total losses would mean that the $800 billion reserves that the industry has kept for all future losses would be insufficient for helping businesses and corporations through the economic struggles of the pandemic.
“The public impression that insurance companies have a pot of money that we should be handing out is simply money that we don’t have,” said an insurance industry executive. “There’s a lot of industry concern and activity related to this misconception.”
Only approximately 35% of all businesses have business interruption coverage, which insures them for a number of circumstances that could cause their business to come to a stop, but pandemics aren’t typically included within those circumstances. Multiple insurance associations said that very few, if any, businesses are covered for a pandemic.
