It has been over a month since many businesses were forced to close and citizens were ordered to stay at home. Governments at all levels have attempted to provide relief and aide by enacting laws, issuing executive orders and guidance from insurance commissioners. In addition, the federal government has issued 3 relief packages and infused more liquidity in the lending market, while some local authorities have created their own relief packages.
With all of this relief, the one question that remains is “will the government force the insurance companies to pay my business interruption claim?” Attempting to give people hope, various legislatures have issued letters urging insurance companies to pay and some have even introduced legislation seeking to void virus exclusions or requiring coverage for business interruption relief. Such legislation is focused at small employers varying from 100 to 150 employees and has not progressed beyond the introduction/committee phase.
At the federal level, there are numerous discussions on whether the federal government will provide additional relief and will that relief be in the form of a federal back-stop for the payments of business interruption. This concept was first discussed approximately a month ago and was defeated by the insurance companies’ strong opposition to it. The discussion was ignited again with President Trump’s response to a question on whether credit card companies should provide more forbearance:
“I would like to see the insurance companies pay if they need to pay if it’s fair, and they know what’s fair, and I know what’s fair. But business interruption insurance – that’s getting a lot of money to a lot of people. And they’ve been paying for years, sometimes they just started paying. But you have people that have never asked for business interruption and they’ve been paying a lot of money for a lot of years for the privilege of having it, and then when they finally need it, the insurance company says we’re not going to give it. We can’t have that happen.”
Moments after the President made his remarks, Sen. Tim Scott (R-SC) and six of his GOP colleagues sent this letter to the White House which contradicts the President’s assertion that “we can’t have that happen” with regard to insurers invoking business interruption exclusions for policyholders.
Based upon what we are hearing, even if there were sufficient votes to get legislation passed at the federal or state levels, carriers have strongly opposed it and have been vocal that they will not accept it laying down. According to public reports, carriers will most likely file declaratory judgment actions arguing that the legislation violates the Contracts Clause of the United States Constitution.
According to the Council of Insurance Agents and Brokers (“CIAB”), the United States’ insurance marketplace is not alone in their response to coverage for business interruption. London’s Financial Conduct Authority, the conduct regulator for 59,000 financial services firms and financial markets in the UK and the prudential regulator for over 18,000 of those firms, issued this letter to insurance CEOs to address the treatment of business interruption insurance amidst the COVID-19 pandemic. The FCA confirmed that most UK businesses are not eligible for insurance payouts under the pandemic exclusion and warned that it is not prepared to intervene on their behalf. Where the policies include pandemic risks, the regulator called on carriers to process claims expeditiously.
So where does that leave us? At Conner Strong & Buckelew, we have been working with the CIAB for Phase 4 recovery. Yesterday afternoon, all the key property & casualty insurance trades and the policyholder coalition finally concluded negotiations on the creation of a COVID-19 Business and Employee Continuation and Recovery Act, which we hope might form the framework for the next major “phase” of stimulus/recovery. Here is an outline of the proposal and FAQ. We’re pleased about this, but it is entirely unclear whether this approach will be embraced by the Administration and congressional leaders. For starters, Majority Leader McConnell wants the nation to digest the $2.2 trillion of CARES, plus the $250 billion in extra dollars, and the $2.3 trillion in liquidity interjected by the Fed last week. Secondly, all of the focus seems to be on the Paycheck Protection Program as the principal mechanism for relief to the economy, and we don’t know how much appetite there will be for an entirely new facility. What is clear is nothing will happen before May 4, as Senator McConnell has said he is not bringing the Senate back to town until then.
In addition to the COVID-19 Business and Employee Continuation and Recovery Act, we are working with the CIAB to push for assurance of the continuation of health coverage and access to affordable COBRA policies for employees to sustain their coverage. To do so, there is a push for Congress to subsidize a minimum of 90% of COBRA premiums for eligible individuals.
We know information is coming fast and furious. Here are some helpful documents to help you keep track:
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