As America and the world navigate the fallout caused by COVID-19, it’s important we focus on solutions that actually help communities and businesses recover. Recent calls for insurers to cover previously uninsured claims miss the mark. They would fail to pass legal muster, leave hundreds of thousands of policyholders vulnerable, and threaten the viability of the financial infrastructure upon which the economy rests.
Class-action attorneys, in attempting to sue for insurance payouts, are distracting policyholders from the need for real government-backed relief from the pandemic.
There still remains some confusion around whether viruses or bacteria cause the physical damages that are needed to trigger a business interruption insurance claim. The way to know is to look at what caused a business to be open or closed.
A business interruption insurance claim occurs when a business is forced to close due to physical damage to its structure or contents. In the current pandemic, physical damage isn’t causing businesses to close. We know this because essential businesses have been able to remain open, even though nonessential businesses around them have closed. This has been true in all parts of the nation, regardless of how prevalent the virus is.
Some businesses, such as restaurants, are partially open — the dining room might be closed, but the kitchen can be open for diners to enjoy takeout or delivery — and businesses that remain open are able to apply socially distant behavior policies and regular cleaning and sanitation. These cases demonstrate that the virus didn’t cause physical damage that resulted in a business shutdown.
This is true of businesses that are open, closed, and somewhere in between. They did not sustain physical damage forcing a closure, and that means that if they have standard business interruption coverage, they are not entitled to make a claim.
However, aggressive legal maneuvering is abusing the good faith, commonsense terms of the promise insurers made. Class-action attorneys are making unjustified claims where legal precedent has already been set. As usual, they won’t take no for an answer.
Their first attempt centered on the unconstitutional notion that contracts should be rewritten and retrofitted to pay claims they were not intended to pay. The insurance industry is built on a promise to cover hurricanes, wildfires, and physical damage. Requiring retroactive payments for business interruption coverage would threaten insurers’ ability to cover the claims for the hundreds of thousands of hardworking people in the United States who paid to have their claims insured.
But realizing that line of attack wouldn’t work, the attorneys shifted to argue that insurance should cover businesses closed by government declaration. They ignore the key question: Did any of the businesses sustain physical damage? Clearly, there is no physical damage if grocery stores are able to stay open and operate normally but hair salons must close.
Recent civil unrest has made this contrast even starker. Civil unrest, vandalism, and looting have caused direct physical damage to property or its contents. If such damage closes a business that purchased business interruption coverage, it will be covered. The insurer promised to protect the business in question, and it will.
And if a business isn’t eligible for a payout from a business interruption insurance policy, it is because no physical damage was incurred from the COVID-19 virus that forced it to close.
Disputing these facts is a costly and onerous distraction from what both policyholders and insurers need to focus on: creating solutions that are backed and applied by the federal government, the only entity that can truly provide the relief needed.
The insurance industry is stepping up when and where it can during this time. Already, auto insurance customers have seen more than $14 billion in premium relief. The industry has donated more than $280 million to charitable organizations during the pandemic. All the while, the industry is actively paying claims for covered catastrophes and stands ready to keep the promises made for those to come. In the last three years, the industry has paid more than $1.2 trillion in claims. Our policyholder funds are ready to pay for what they are meant to cover.
As we see encouraging signs of businesses getting back on track, it is important that we continue to inform insurance-related discussions around government-backed solutions. Customers, policymakers, and communities need to recognize the risk and costs of class actions and legal maneuvering. Spending months or even years in litigation over claims that contractually should not be covered flies in the face of commonsense, fair policies, and sustainable relief at a time when the industry, its customers, and the broader economy need a prompt federal policy solution.
Sean Kevelighan is the CEO of the Insurance Information Institute, an insurance industry trade association.
