27 April 2020

Insurance just got more interesting in a COVID-19 world

This article is written by Rebecca LeBherz and Oliver Collins.

Two relevant developments are worth watching on the insurance front. In this alert, we summarise recent litigation/actions in the US insurer market, and what inquiry Australian insurers are currently facing.

US reactions

There has been a swift reaction in the US on business interruption loss claims on policies.  Usually business interruption claims arise out of business downturns arising out of physical damage to the business property – think a flood or earthquake.  However, COVID-19 does not bring property damage.  Hence the issue.

Six insurers,  Aspen American Insurance, Auto-Owners Insurance, Lloyd’s of London, Society Insurance, Oregon Mutual Insurance, and Topa Insurance Company have been named in actions bought in the Federal jurisdiction in different States in the US.  Plaintiffs include businesses as varied as a restaurant/nightclub; a bridal retailer; a bakery; a chain of restaurants/bars; a based dental practice; a restaurant; and  a restaurant group and pizzeria. Each of the lawsuits claim that the business bought property insurance coverage to protect against business interruptions, or disruptions outside of their control. These policies included business income coverage. It is claimed that the coverages either included or did not expressly exclude losses caused by COVID-19.

Further, the US States of Louisiana, New York, Massachusetts, Ohio, New Jersey, Pennsylvania and South Carolina (Rhode Island is considering it) have all introduced quite far reaching legislation.  In essence, the Bills require insurers on identified types of business (usually less than a 100 employees) to cover COVID-19 claims even if the policy does not.  The wording in the Bills is similar and a variant of “Notwithstanding any provisions of law or rule to the contrary, every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption, in force in this state on the effective date of this section, shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic during the state of emergency.”

The Bills go onto say that insurers who pay out can claim from a special fund set up by the State which will be funded by all insurers offering property damage polices in the State.  This brings back memories of the Asbestosis Claims Facility in the mid 1980’s set up to counter the staggering impact of asbestosis claims on the US insurance market (and then the second version of the Facility after re-insurers were engaged).   The Bills have yet to be passed, as most are in House Committees,  but they will represent a Government enforced position on insurers – effectively a statutory force majeure.  Watch this one find its way to the US Supreme Court.

Australian Commonwealth HOR Standing Committee of Economics into the Insurance Sector

The second item of interest is the current Commonwealth Standing Committee review into the insurance sector.  The responses of insurers on COVID-19 cover varied from offering coverage to specific exclusions for pandemics, or for diseases notifiable under Biosecurity Act or Quarantine Act. Generally, some limited cover was available but certainly was a matter of close consideration of particular policy terms and conditions.

The Standing Committee will be conducting hearing on 28 and 29 April by video-conference in hourly blocks.  The hearings will be broadcast live at aph.gov.au/live.

 

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