Insurance Companies Cry Poor Facing COVID-19 Claims

Many industry groups and legislators have asked federal and state insurance regulators to require insurance companies to provide coverage for business losses incurred due to coronavirus-related closures.  These calls came in response to an overwhelming insurance industry trend of denying claims made under standard business interruption coverage for outbreak-related closures. 

According to insurance companies, COVID-19 does not cause physical property damage. Because business interruption coverage is intended to cover only losses due to physical damage to property, claims related to the current outbreak are not covered. 

This means that many business owners, who are now unable to continue operations, are left out in the cold with no way to recoup their losses.  What’s worse, many of these business owners believed the hefty premiums they had paid for business interruption coverage meant that they would be covered for an event like the COVID-19 outbreak. 

Several Insurance Groups Advise Against Paying COVID-19 Claims

On March 25, 2020, the National Association of Insurance Commissioners issued a statement cautioning against wide-sweeping mandates of coverage. It warned that if insurance companies are required to cover coronavirus-related claims under business interruption policies, “such an action would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.”  Ultimately the NAIC looks to congress for further direction.  

The Global Federation of Insurance Associations has also cautioned against mandating insurers to cover business interruption claims. It warned that forcing insurance companies to cover these claims “could seriously threaten the stability of the global insurance industry.” 

Maryland’s Insurance Administration has stated that global pandemics fall into a category of risks that are “so extreme that providing coverage would jeopardize the financial solvency of property insurers.” 

State insurance commissioners have also been generally unsupportive of policyholder claims for losses caused by outbreak-related closures. The commissioners of Arkansas, North Carolina, Washington D.C., Georgia, Kansas, Mississippi, West Virginia, and Maryland all expressed doubt that such claims should or will be covered under business interruption coverage.  

On their websites, the Hartford and Travelers now contain disclaimers stating their denial position on business interruption claims related to COVID-19 closures clear. 

Insurance is a trillion-dollar industry in the U.S. They can absorb the costs of these claims.

Meanwhile, legislators in Louisiana, Pennsylvania, New Jersey, Massachusetts, Ohio, and New York have introduced bills that would require certain losses related to coronavirus closures to be covered under business interruption policies.

However, Morgan Stanley analysts have doubts about the ominous predictions of insurers. They found concerns surrounding property and casualty insurers being forced to pay these types of claims to be “overblown.”  Morgan Stanley reports, “we expect any losses to be manageable.” 

If you find it difficult to feel sorry for the insurance industry, you probably are not alone.  According to S&P Global Market Intelligence’s Insurance Information Institute, U.S. insurance industry profits totaled $1.22 trillion in 2018. 

An industry that makes over a trillion dollars annually is in the best position to help absorb these losses, particularly given the insurance industry’s intended role as a security net for devastating situations like this one. 

Questions? Contact us today.

If you have a question about insurance coverage or if you have been the victim of wrongful conduct by an insurance company, you should contact the attorneys at Shannon Law Group. Call us at (312) 578-9501 or fill out the form at the bottom of this page.