The state of New York has joined Ohio, Massachusetts and New Jersey by tabling a bill that would retroactively force all state insurers to pay for coronavirus-related business interruption (BI) claims made by companies with fewer than 100 employees, despite the exclusions contained within almost all BI policies
If passed, the bill would apply to all policies in force in the state on 7 March. The bill states that insurers that provide BI and loss-of-use coverage will have to honour “business interruption during a period of a declared state emergency due to the coronavirus disease 2019 (Covid-19) pandemic”.
The proposed act does say that insurers that pay these claims will be able to seek reimbursement from the New York superintendent of financial services. This would be funded by a “special purpose apportionment” collected by the superintendent from all insurers doing business in the state, whether they are hit with BI claims or not.
As with the bills tabled in the other three states, it is currently not clear whether the insurers will be able to simply cover the extra cost by ratcheting up premiums afterwards, thus effectively shifting the cost back onto policyholders.
“Every policy of insurance insuring against loss or damage to property, which includes loss of use and occupancy and business interruption, shall be construed to include among the covered perils under that policy, coverage for business interruption during a period of a declared state emergency due to the coronavirus disease 2019 (Covid-19) pandemic,” states the text.
The law would apply to policies issued to insureds with less than 100 eligible employees, in force on the effective date of the act (7 March). “Eligible employee” means a full-time employee who works a normal work week of 25 or more hours.
It states that an insurer that indemnifies an insured who has filed a claim under the act may apply to the superintendent of financial services “for relief and reimbursement by the department from funds collected and made available for this purpose as provided in section three of this act”.
Section three states: “The superintendent of financial services is authorised to impose upon, distribute among and collect from the companies engaged in business pursuant to the insurance law, such additional amounts as may be necessary to recover the amounts paid to insurers pursuant to section two of this act.”
“The additional special purpose apportionment… shall be distributed in the proportion that the net written premiums received by each company subject to the apportionment authorised by this section for insurance written or renewed on risks in this state during the calendar year immediately preceding, bears to the sum total of all such net written premiums received by all companies writing that insurance or coverage within the state during that calendar year, as reported,” continues the text.
The proposed act also suggests that the superintendent of financial services would establish procedures for the submission and qualification of claims by insurers that are eligible for reimbursement under the act.
“The superintendent of financial services shall incorporate in these procedures such standards as are neccessary to protect against the submission of fraudulent claims by insureds, and appropriate safeguards for insurers to employ in the review and payment of such claims,” states the text of the act.
The National Association of Insurance Commissioners (NAIC) has already led a strong industry defence of such efforts to retroactively extend BI policies to cover coronavirus-related losses, warning that it could lead to insolvencies and simply deepen the economic and financial crisis faced by the US and the rest of the world.
“Business interruption policies were generally not designed or priced to provide coverage against communicable diseases such as Covid-19, and therefore include exclusions for that risk. Insurance works well and remains affordable when a relatively small number of claims are spread across a broader group, and therefore it is not typically well suited for a global pandemic where virtually every policyholder suffers significant losses at the same time for an extended period. While the US insurance sector remains strong, if insurance companies are required to cover such claims, 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,” the NAIC stated last week.
As in the UK and France, however, the NAIC and other US insurance associations have said they are ready to discuss potential insurance-based solutions to deal with future similar health crises, presumably along the lines of the pool created under the Terrorism Risk Insurance Act.
“Moving forward, if Congress believes that the business interruption insurance sector can play a vital role in addressing the policy challenges of future pandemics, we stand ready to work with Congress on such solutions. However, swift action by Congress to directly address the needs of citizens and our economy is the most effective and expedient means to addressing the devastating impact of Covid-19,” added the NAIC in its statement last week.