A host of declaratory judgment actions have already been filed across the country, and several state legislators have proposed bills to compel insurers to provide business interruption coverage, no matter policy terms and exclusions, in the wake of COVID-19. The federal government has taken notice.
On March 18, 2020, Rep. Maxine Waters issued a memo to the Democratic House of Representatives calling for legislation that would "create a reinsurance program similar to [Terrorism Risk Insurance Act 2002 (TRIA)] for pandemics, by capping the total insurance losses that insurance companies would face." On April 10, 2020, President Trump weighed in on the issue of coverage for business interruption during his daily press briefing with an ominous warning to insurers stating, "You have people that never asked for business-interruption insurance, 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 let that happen."
Predictably, on April 14, 2020, Rep. Mike Thompson, of the U.S. House of Representatives, California District 5, announced the introduction of H.R. 6494, the "Business Interruption Insurance Coverage Act of 2020" ("BIICA 2020"). BIICA 2020 proposes to mandate "insurers," that offer or make available "business interruption coverage," include business interruption coverage for losses due to viral pandemics, forced closures of businesses, mandatory evacuations, and public safety power shut-offs, and for other purposes.
BIICA defines, "business interruption coverage" as property and casualty insurance coverage provided or made available for losses resulting from periods if suspended business operations, whether provided under broader coverage or separately.
The term "insurer" has the same meaning as Section 102 of the Terrorism Risk Insurance Act of 2002 (15 U.S.C. 6702), which states in pertinent part:
(6) INSURER- The term 'insurer' means any entity, including any affiliate thereof—
(A) That is –
(i) licensed or admitted to engage in the business of providing primary or excess coverage in any State;
(ii) not licensed or admitted as described in clause (i), if it is an eligible surplus line carrier listed on the Quarterly Listing of Alien Insurers of the NAIC, or any successor thereto;
(iii) approved for the purpose of offering property and casualty insurance by a Federal agency in connection with maritime, energy, or aviation activity;
(iv) a State residual market insurance entity or State workers' compensation fund; or
(v) any other entity described in section 103(f), to the extent provided in the rules of the Secretary issued under section 103 (f);
(B) that receives direct earned premium for any type of commercial property and casualty insurance coverage, other than in the case of entities described in sections 103(d) and 103 (f); and
(C) that meets any other criteria that the Secretary may reasonably prescribe.
The proposed legislation may be a work in progress, but what is evident is these express obligations will not be limited to admitted line carriers but extend to surplus lines as was the case with the Terrorism Risk Insurance Act of 2002.
In addition to proposing to make mandatory the offer of business interruption coverage for pandemics, the bill also voids any exclusion on a contract for business interruption insurance, to the extent it excludes losses specified. As well, the bill also would void any state approved exclusion for such losses in force on the date of the enactment of BIICA.
However, as proposed BIICA does permit the insurers to reinstate a preexisting exclusions under certain circumstances and allows insureds to opt out. Specifically, Section 3. (e) REINSTATEMENT OF EXCLUSIONS contains a provision that reinstates preexisting exclusions in the event that (1) the insurer receives a written statement from the insured that affirmatively authorizes such reinstatement, such as an opt out, or (2) if the insured fails to pay the increased premium charged by the insurer for such coverage. However, BIICA requires that the insurer provide notice 30 days prior to such reinstatement of the exclusion for failure to pay the increased premium and explain the rights of the insured with respect to such coverage, including that the exclusion would be reinstated is no payment of premium is received.
We are certainly living in unprecedented times, however, there is analogy to be made with the events of September 11, 2001, with respect to the lack of availability of insurance for such risk, at a reasonable and predictable price. It was this lack of affordable coverage that gave rise to the promulgation of the Terrorism Risk Insurance Act 2002 (TRIA). We are currently faced with a similar, though in many ways, a more complicated circumstance -- catastrophic economic loss, and the realization that business interruption loss is largely uncovered because the risk was incalculable, unaffordable and therefore, uninsurable.
Nevertheless, terrorism was once thought of in the same terms. The promulgation of TRIA resolved the uncertainty with regard to terrorism coverage and in the years since its passage, TRIA has be lauded as "a model of public-private partnership."1 In testimony before Congress in October 19, 2020, Mr. Doyle advocated for the reauthorization of The Terrorism Risk Insurance Program Reauthorization Act ahead of its expiration on December 31, 2020 stating that the backstop was critical to ensure a stable terror insurance market essential for the availability and affordability of terrorism coverage in high risk areas.2 As well, Mr. Doyle stated that the pricing of standalone terrorism coverage policies prevent them from serving as a replacement for the protections of the TRIPA for many organizations.3 So to, the National Association of Mutual Insurance Companies (NAMIC) supported the TRIAP and viewed it "as necessary today as it was in the wake of September 11, 2011." NAMIC also encouraged Congress to act swiftly to reauthorize TRIA.
Recognizing that mandated coverage would impact the viability of the carriers who keep reserves to pay claims for other issues ,such as tornadoes, earthquakes, hurricanes, floods and other climate related issues which rely on these reserves, and that mandated coverage for these claims could easily wipe out reserves, impact ratings of carriers and is assuredly going to be fought vigorously, the industry responded with an appeal to Congress for federal intervention.
On March 31, 2020, NAMIC, in conjunction with The Independent Insurance Agents and Brokers of America, American Property Casualty Insurance Association, Reinsurance Association of America, and The Council of Insurance Agent and Brokers, among others, urged Congress to establish a COVID-19 Recovery Fund funded by the federal government and under the authority of a special federal administrator to administer the Recovery Fund and facilitate the distribution to businesses and employees impacted. Rep. Thompson has expressed concern for the constituents and businesses of California that find themselves uninsured for COVID-19. BIICA provides the mechanism for procurement of pandemic business interruption insurance while acknowledging that the insurance must come at a price. It is not clear whether BIICA is an acknowledgment of the insurers' appeal for federal intervention or in response to NAMIC's request for a Recovery Fund. As of the time of this publication, NAMIC's position with regard to the proposed BIICA is currently unknown.
We will continue to monitor developments regarding the Business Interruption Insurance Coverage Act of 2020 legislation closely.
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1 John Doyle, President and CEO of Marsh in Testimony Before the United States House committee on Financial Services, Protecting America: The Reauthorization of the Terrorism Risk Insurance Program, October 16, 2019.
2 Id.
3 Id.