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The fight over business-interruption insurance from coronavirus claims is intensifying in both statehouses and the courts.
Legislators in Massachusetts, New Jersey, and Ohio have proposed bills that would compel insurers to pay for specific COVID-19 business-interruption claims.
The proposed law in Massachusetts would cover businesses with 150 or fewer employees and require insurance companies to pay out even if policies excluded losses from epidemics and disease outbreaks.
Standard business-interruption policies typically exclude coverage for epidemics and disease outbreaks.
Those legislative actions have the American Property Casualty Insurance Association (APCIA) pushing back. The APCIA estimates that business losses from small firms could total as much as $383 billion per month, which could threaten the stability of the insurance sector.
“If policy makers force insurers to pay for losses that are not covered under existing insurance policies, the stability of the sector could be impacted and that could affect the ability of consumers to address everyday risks that are covered by the property casualty industry,” David Sampson, president and chief executive officer of APCIA, told Bloomberg.
Meanwhile, businesses that have limited their operations or closed due to government orders to help stop the spread of the virus are beginning to take insurers to court.
A New Orleans restaurant, Oceana Grill, is believed to be the first in the U.S. to pursue legal action against an insurer. They want a declaratory judgment to force Lloyd’s of London to pay for business interruption losses from the pandemic.
Recently in Chicago, six bar and restaurant groups filed suit in federal court against their insurance company, Society Insurance. The restaurant owners allege the insurer is wrongfully denying payouts because the restaurants and bars did not suffer property damage or loss.
A Napa Valley restaurant owner and the Chickasaw Nation in Oklahoma, who run a casino, have also filed lawsuits against insurers.
Analysts at the credit rating agency Fitch say the legal challenges to contract terms for business interruption claims bears watching.
Late last month, Fitch revised its outlook for the Property/Casualty insurance sector from stable to negative due to increased concerns over COVID-19.
According to the Fitch report, liability claims in several insurance lines are likely to emerge. The extent of losses is challenging to project until the crisis subsides.
