The Treasury Department on Monday signaled that it was opposed to legislation that would retroactively rewrite business interruption insurance contracts to cover losses from the coronavirus, saying such proposals were unfair and harmful to the insurance industry.
“While insurers should pay valid claims, we share your concerns that these proposals fundamentally conflict with the contractual nature of insurance obligations and could introduce stability risks to the industry,” Treasury Principal Deputy Assistant Secretary Frederick Vaughan said last week in letters to lawmakers.
In the letter, the Treasury focused on criticizing state-level bills that have been introduced to change insurance contracts retroactively, after insurance companies rejected business interruption claims filed by organizations forced to close due to the government’s economic lockdown.
Multiple state legislatures, including those in New York, New Jersey, Ohio, and Massachusetts, have proposed legislation to force insurers to pay potentially billions of dollars for business losses related to the coronavirus economic shutdown. In addition, House Democrats introduced similar legislation in Congress in April, hoping that the insurance payouts would help business owners pay rent, make payroll obligations, pay taxes, and take care of other necessary costs.
At one point, even President Trump had expressed frustration over insurance companies not paying their customers for business interruptions attributable to the pandemic.
During a coronavirus briefing at the White House in April, Trump said many businesses have been “paying a lot of money for a lot of years for the privilege of having” business interruption insurance, but “when they finally need, the insurance company says we are not going to give it. We can’t let that happen.”
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 industry has pushed 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.
