Legal & Regulatory Implications of Business Interruption Claims

As the coronavirus pandemic continues to evolve and move throughout the United States, regulatory and legislative authorities are starting to take action in the form of orders and directives that could have significant impacts on business interruption coverage.


What is business interruption insurance?

This type of insurance protects businesses from certain liabilities that suspends or disrupts its usual revenue. But with the unique situation the American economy is in, COVID-19 business interruption claims are flooding in and causing a disruption in the insurance industry.


Congress is currently considering several drafts of legislation that address the issue of business interruption insurance coverage to limit financial losses. Congress is considering these drafts in the context of both the current crisis through the Workplace Recovery Act ("WRA") and for future pandemics through the Pandemic Risk Insurance Act of 2020 ("PRIA"), the Business Interruption Insurance Coverage Act of 2020, and Never Again Small Business Protection Act of 2020.


However, two main coverage problems have been a focus of business interruption claims for COVID-19 losses. One focuses on whether direct physical loss or damage to property occurred (the original purpose of this insurance), and the other focuses on whether virus or pollutant exclusions apply to preclude coverage. The recent regulatory and legal actions regarding these policy terms may impact the responsiveness of business interruption coverage.


States’ Responses to Business Interruption Coverage for COVID-19

The New York Department of Financial Services (DFS) issues two rulings to insurers regarding COVID-19 business interruption claims. In one ruling, DFS instructed insurers to provide explanations to their policyholders and DFS about how the coverage may respond to COVID-19. Careful analysis of the insurer's responses is vital to understanding the extent of business interruption coverage for policyholders who have properties in New York.


DFS sent out a letter in which it recognized that business interruption insurance holders have urgent questions and that insurers must explain how their business interruption coverage may respond to COVID-19. DFS continued, saying that given the potential impact of COVID-19 on business losses, it considers insurers' obligations to policyholders a significant priority. In particular, DFS directed insurance companies to include in their explanations whether contamination related to a pandemic may include physical damage or loss.


The Minnesota Department of Commerce issued a consumer alert on business interruption and COVID-19. The department states in the letter that the industry trend has been to exclude "business interruption coverage for viruses, but this may not be universal." The state went on to say that it provides that the State of Emergency declaration does not change the terms of business interruption insurance, but does point out the seriousness with which its government has directed state agencies to treat the pandemic.


Flexibility for COVID-19 Claims

Several state commissioners of insurance made statements encouraging insurer flexibility in response to COVID-19 claims. States including Alaska, Arkansas, Georgia, Mississippi, Oregon, and Washington all directed insurers in their states to grant policyholders certain grace periods to prevent cancellation of policies for non-payment of premiums.


On March 18, the California Insurance Commissioner requested that all insurance companies provide their insureds with “at least a 60-day grace period to pay insurance premiums so that insurance policies are not cancelled for non-payment of premium during this challenging time due to circumstances beyond the control of the insured.”


In Wisconsin, the Office of the Commissioner of Insurance issued a bulletin stating that insurers are encouraged to offer flexibility to policyholders who are going through economic hardship. This flexibility includes offering deferred payments on premiums, premium holidays, and acceleration or waiver of underwriting requirements.


About Axis Insurance
At Axis Insurance Services, we aim to help our customers identify their exposures and protect themselves. Founded in 1999, we offer insurance programs to a wide variety of professionals and industries including attorneys, real estate, healthcare, architects, and more, and also have a wholesale division. We pride ourselves on offering flexible insurance coverage tailored specifically to each customer’s needs. To learn more about our solutions, contact us at (877) 787-5258 to speak with one of our professionals.

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