Business interruption insurance has been a much-debated topic during the coronavirus crisis, with some businesses already pushing back against virus-related claim denials.
In several cities, groups of businesses have filed lawsuits challenging virus exclusions in their business interruption policies, such as recent claimants in Philadelphia and Chicago. Additionally, legislators in various states have proposed bills that, if passed, would mandate business interruption insurers cover COVID-19-related claims.
However, the insurance industry has held firm that business interruption insurance was not designed or priced to cover virus-related losses as they typically do not meet the requirement for physical damage in a business interruption policy, with most policies containing clear exclusions.
For agents aiming to address clients' concerns, transparency is key, according to panelists during Insurance Journal's April 8 webinar on business interruption and the coronavirus.
"It's all about setting expectations," Doug Jones, managing director at JAG Insurance Group, said. "If you lead somebody to believe that this is going to be a positive outcome, then that's what they're going to expect. And that may lead to retention issues on your part."
It's important to be honest with clients about the scope of their business interruption policy and the likelihood of their claim being denied, according to Chris Boggs, executive director of Risk Management and Education at Big I Virtual University. However, agents should still be willing to file a claim on the client's behalf if asked, he added.
"You need to explain the policy as you understand it," he said. "But if your insured says, 'I want to submit a claim...' submit the claim. Do not talk them out of submitting a claim."
Jones said his agency has received "hundreds of calls" regarding filing claims. Still, the agency aims to do business as transparently as possible.
"If a client calls us and says, 'I heard this is going on in Louisiana,' or, 'This is going on in California,' we give our side of the story, and ultimately, if the client wants to file a claim, they can file a claim," he said.
Don Hayden, co-founder and partner at Mark Migdal & Hayden, added that it's important for agents to do this to avoid any potential errors and omissions (E&O) claims as a result of the pandemic.
"There's no basis for an E&O claim against you if you filed a claim when you were asked to file the claim," he said. "You have to remember you're the broker. You're not the insurer. It's for the insurer to accept or deny the claim."
Claim Denial Litigation
While agents try to be transparent and work with clients, litigation has already occurred regarding business interruption claim denials. A Minnesota dentist, an Ohio bridal shop and a New York pizzeria are among six small businesses that are the latest to sue insurers seeking compensation for business interruption claims due to the coronavirus crisis, Insurance Journal previously reported. The lawsuits, which are class actions, have been filed against Aspen American Insurance, Auto-Owners Insurance, Lloyd's of London, Society Insurance, Oregon Mutual Insurance, and Topa Insurance Co.
And Hayden says there are likely more where those came from.
"Just because we're taking the position that this is not a covered claim does not mean that there will not be litigation," he said, adding that he believes there will be more attempts by lawyers to file bad faith claim or claims on the denial of coverage. "I could imagine someone saying that somehow the virus infiltrated [the] ventilation system in [their] building and that it caused physical damage to the property or something like that. But they have to prove that. And with this virus, there's no physical damage to the property."
'There's no basis for an E&O claim against you if you filed a claim when you were asked to file the claim.'
Other Areas of Concern
However, business interruption isn't the only concern for businesses during this crisis, panelists added.
"I think we're going to see a ton of workers' comp claims from people being sick on the job," Jones said. "I've already heard multiple reports about many, many, many people getting sick on the job."
He added that employment practices liability is another area of insurance to watch for claims cropping up as workers continue to experience layoffs.
"There have been six and a half million people let go from their jobs," he said. "We are going to have a lot of people that got maybe half the workforce laid off. Those other half can't find a job, and they're going to look back at their employer and say, 'Why them and not me?' Or, 'Why me and not them?' I think we're going to see a rash of employment practice liability claims for wrongful termination."
Hayden agreed, adding that as more employers are set to make difficult decisions about their workforce, there will likely be questions of whether workforce reductions or layoffs were appropriate or if there was sexual or age discrimination. All of this could lead to additional monetary concerns for an already financially challenged small business sector.
Client Retention Concerns
In fact, for agents worried about client retention during such a tumultuous time, the biggest cause for concern isn't clients who are unhappy with claim denials, panelists said.
"I think your biggest concern is going to be really the small businesses that you have as clients not making money," Jones said.
Boggs agreed. "I was talking to an agent in California as a matter of fact, and the majority of his book - I think it was 80% of his book - was hospitality and restaurants," he said. "He was talking about how he's looking at a loss of 40% of his insureds just going out of business."
Although business interruption insurance does not typically cover virus-related losses, Jones said he is still encouraging clients to keep track of losses in case there's an opportunity to recover any money down the road.
"We as a firm are encouraging all of our clients to keep track of their losses, keep track of the payroll that they're still paying, the lost revenue, the bills," he said. "That way, in the event that one day, near or far, there's an opportunity to recover money, they're still set up. So we're not closing the door absolutely."
Boggs emphasized that documentation is key.
"Document everything. Document the conversations. Document their decisions. Make sure it's in writing. Have them sign off on it, promise their firstborn, whatever," he said. "You can never have too much documentation, but you can have too little."
In the future, this data can be used to support a business interruption claim if there is any chance of finding coverage later, Hayden said.
"Who knows. Down the road, we may be all wrong, and there may be a kink in the armor of the insuring agreement and the exclusion, and there is found to be some way of getting coverage," he said.
'I think your biggest concern is going to be really the small businesses that you have as clients not making money.'
New Pandemic Coverage
That said, Hayden stated it's unlikely any new coverage will be developed in the future to cover some of the virus-related losses brought to light due to this pandemic, and if it is, the coverage will probably be too costly for most policyholders.
"Even if there are policies available, they're going to be cost prohibitive," he said. "Doing a cost benefit analysis, you're going to decide, 'I'd rather take the riff than pay this ridiculous premium for a narrow coverage that's going to be very narrowly defined.'"
Boggs explained that flood coverage can illustrate this.
"A lot of people buy flood coverage only because they're required to by the federal government when they buy a federally backed loan," he said.
He pointed to one example of an agent he knows whose client paid off his house and was no longer required to purchase flood insurance.
"This guy so much hated paying for flood coverage that the day he paid off his house, he walked to the agent's office, stood outside the agent's office, took the flood policy, took a lighter, lit it on fire and canceled his policy," he said.
The client canceled his policy because he believed it was cost-prohibitive since it only covered one thing, Boggs added.
"People would say after the loss, 'Yeah, I definitely would've paid for it,'" he said. "No they wouldn't."
Jones used terrorism insurance as another example.
"In 15 years, I haven't sold a terrorism policy that wasn't required by a lender," he said. "Not one. Not a single time. And I think the same will ring true with any future pandemic policies that come out."
Pay Attention to Exclusions
With this in mind, panelists added it is good practice for policyholders to pay attention to exclusions, as they can be an important indicator of what additional coverage may be worth the cost.
"If you see something excluded from your policy, that's because the insurance company and its actuaries and its team members are prepared and know that this is not in their best interest," Jones said. "And it might not be because, 'Hey, we're just the bad guy, and we don't want to help people.' It would be detrimental to their business..."
Often, products can be purchased on a mono-line basis to provide coverage for areas that are excluded, he said, and business owners should ensure that they are prepared for something that may not be covered by insurance.
"Be concerned about the things excluded from your policy," Jones said. "Because that is what the insurance company is concerned about."