Analysis

4 Coronavirus Developments Insurance Lawyers Should Know

Law360 (March 20, 2020, 5:31 PM EDT) -- The ever-evolving coronavirus crisis generated headlines in the insurance industry this past week, with insurers pushing back on legislative efforts to expand coverage for business closures and lawmakers seeking clarity from travel insurers on their denials of claims.

Here, Law360 looks at recent developments that insurance attorneys should know about.

Insurers Spurn Call to Expand Business Interruption Coverage

On Wednesday, a bipartisan group of 18 members of the U.S. House of Representatives sent a letter to four leading insurance industry trade organizations, urging insurers to provide business interruption coverage under existing commercial property policies for companies’ losses due to closures tied to the novel coronavirus, which causes the disease known as COVID-19.

The lawmakers argued the coronavirus pandemic fulfills policies’ requirement that an interruption in business be attributable to a “direct physical loss,” or damage, to a property. In addition, they asserted that state and local “shelter-in-place” and curfew orders should trigger coverage for businesses’ losses under the “civil authority” prong that is also often found in commercial property policies.

"During times of crisis, we must all work together,” the lawmakers wrote. “We urge you to work with your member companies and brokers to recognize financial loss due to COVID-19 as part of policyholders' business interruption coverage."

In response, executives of the four groups — the American Property Casualty Insurance Association, National Association of Mutual Insurance Companies, Independent Insurance Agents and Brokers of America, and Council of Insurance Agents and Brokers — sent a joint letter to one of the lawmakers, Rep. Nydia Velazquez, D-N.Y., saying that business interruption policies “do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.”

“The U.S. insurance industry remains committed to our consumers and will ensure that prompt payments are made in instances where coverage exists,” the groups said.

The trade groups added that their member companies have assisted in local charitable relief efforts and have begun to work with customers “on issues such as flexibility in premium payments.”

"The U.S. is in the midst of a national crisis that will require federal assistance that provides funding directly to those American individuals and businesses most in need,” the groups said. “Our organizations stand ready to work with Congress on solutions that provide the necessary relief as soon as possible.”

NJ Lawmakers Mull Business Interruption Coverage Bill

Lawmakers in the New Jersey General Assembly are in discussions with insurance carriers regarding potential changes to a bill, A3844, that would retroactively expand business interruption insurance to include losses attributed to the coronavirus pandemic.

The bill, which is primarily sponsored by Assemblymen Roy Freiman, D-District 16, and Louis D. Greenwald, D-District 6, and Assemblywoman Annette Chaparro, D-District 33, was reported out of the General Assembly’s Homeland Security and State Preparedness Committee last Monday and was set for a vote by the full chamber the same day before the sponsors pulled it at the last second.

Freiman’s chief of staff, Michelle Timoni, told Law360 the bill was pulled so lawmakers could further engage in discussions with insurers.

“After several conversations with various insurance companies, they came to the conclusion that they are going to give companies the opportunity to come forward with their own plans to proactively address the issue — and we want to allow them a few days to do so,” Timoni explained.

As of Friday, Timoni said talks were still ongoing.

As currently written, A3844 would apply to business interruption policies held by New Jersey businesses with fewer than 100 full-time employees, provided that the policies were issued by March 9, when Gov. Phil Murphy declared a state of emergency.

The bill would effectively rewrite such policies to explicitly include coverage for “business interruption due to global virus transmission or pandemic.” Insurers that pay out business interruption claims under these policies would potentially be eligible for reimbursement from the New Jersey Department of Banking and Insurance, pursuant to as-yet-undetermined standards that would have to be established by the department.

The measure was met with swift backlash by a host of New Jersey and national insurance industry trade groups, which cautioned against legislation that would retroactively create coverage for otherwise uncovered losses.

Those concerns were echoed by some insurance attorneys who spoke with Law360. White and Williams LLP partner Anthony Miscioscia, who represents insurers, pointed out that many policies with business interruption coverage contain a “virus” exclusion that was developed by the Insurance Services Office and approved by state regulators years ago.

If passed in its current form, the bill could be met with numerous constitutional challenges by insurers, Miscioscia predicted.

“If the [New Jersey] Legislature’s intent is to provide quick financial relief to small New Jersey employers to help them survive the financial hardship and loss of business caused by COVID-19, I question whether the bill would achieve that result,” said Miscioscia. “I expect there to be considerable litigation over the constitutionality of the bill given the presence of the ISO ‘virus’ exclusion in policies and the fundamental prerequisite for business interruption coverage, that there be direct physical loss of or damage to covered property.”

Clark & Fox partner Michael Savett, who also counsels insurers, said the prospect that the current bill could “undo what has been legal for so long is troubling.”

However, Anderson Kill PC shareholder Nicholas Insua, who represents policyholders, said the legislative effort marks a good first step in trying to address companies’ business interruption coverage needs as the coronavirus crisis unfolds.

“The bill raises a lot of issues, but it certainly brings to the fore the gravity of this pandemic and the sweeping damage it is causing to businesses,” Insua said.

House Lawmakers Press Travel Insurers on Claim Denials

A subcommittee of the House Committee on Oversight and Reform on Wednesday asked a trio of travel insurance carriers to produce documents and participate in interviews to address the scope of coverage provided by their policies for trip cancellations related to the coronavirus.

The chairman of the Economic and Consumer Policy subcommittee, Rep. Raja Krishnamoorthi, D-Ill., sent letters to Allianz Global Assistance USA, Generali Global Assistance Inc. and Travel Guard Group Inc., asking them to provide certain information by March 25. Among other things, the subcommittee is seeking data on the number of claims the carriers have received from policyholders for reimbursement of trip cancellations or medical expenses, as well how many of those claims have been paid or denied.

Krishnamoorthi also asked the three insurers’ executives to respond by March 23 to schedule interviews, noting that the subcommittee “can make arrangements for a remote interview.” The executives previously declined invitations to testify at a subcommittee hearing on travel insurance issues scheduled for March 11.

The inquiries are part of the subcommittee’s ongoing investigation into consumers’ complaints that their travel insurance claims have been improperly denied.

"The subcommittee is concerned that your policy to deny reimbursement to consumers who choose to refrain from travel to protect themselves, their families, and their communities may worsen the coronavirus pandemic," Krishnamoorthi wrote in each of the letters.

Representatives of Allianz, Generali and Travel Guard did not immediately respond to requests for comment on the letters.

However, the three insurers have all issued public statements indicating they now consider the coronavirus outbreak to be a “foreseeable event” and that cancellations for fear of travel generally will not be covered under most of their policies. The carriers have said their “cancel for any reason” policies may provide partial or full coverage for cancellations on these grounds, depending on the policies’ terms.

In addition, the three insurers have all indicated that some of their policies may cover claims for trip cancellation or interruption if a policyholder’s plans are disrupted by a confirmed diagnosis of COVID-19.

Calif. Regulator Seeks 'Grace Period' on Policy Cancellations

Citing the coronavirus outbreak, California Insurance Commissioner Ricardo Lara issued a notice Thursday requesting that all insurance carriers doing business in the state grant their policyholders a “grace period” of at least 60 days before canceling their policies due to a failure to pay premiums. During that period, policyholders would be able to catch up on payments.

Lara said he issued the notice, which applies to insurers offering life, health, auto, property, casualty and other types of coverage, to “ensure policies are not cancelled for nonpayment of premium due to the novel coronavirus (COVID-19) public health emergency.”

“Now is the time to come together to help consumers weather this unprecedented period of uncertainty, and that includes helping policyholders maintain their insurance coverage if they are unable to pay their premiums,” Lara said in a statement. “We must do everything we can to ensure that consumers and their families maintain insurance coverage protection during this public health pandemic.”

Lara further requested that all insurance agents, brokers and others “who accept premium payments on behalf of insurers” take steps to ensure that customers have the means to make payments, “if and where possible.”

“This includes alternate methods of payment, such as online payments, to eliminate the need for in-person payment methods in order to protect the health and safety of both workers and customers,” Lara explained in his statement.

--Editing by Emily Kokoll and Jack Karp.

For a reprint of this article, please contact reprints@law360.com.

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