From Paris with Love:
Courts, Governments & Insurers Around the World Work on a COVID-19 Business Income Solution

As I wrote last month in a post entitled An Unprecedented Interruption, businesses around the world have consistently seen insurers decline to cover COVID-19 business interruption claims due to a nearly two decade old widely used exclusion built into most policies. As with certain other perils such as war, floods or losses from a nuclear disaster the standard property policy that most insurers offer has incorporated an exclusion for ‘virus and bacteria’ type losses since the SARS pandemic in 2002 and that exclusion, amongst others, is what insurers are mentioning in declination letters.

As I also noted in last month’s post, such exclusions are also being tested and questioned by courts and governments all over the world.  And with that in mind the headline in the Insurance Journal about French based insurer, AXA, and a French court ruling that the insurer should pay certain COVID-19 business income claims caught my attention:

French Court Orders AXA to Pay Restaurant’s COVID-19 Business Interruption Losses; AXA Vows to Appeal

You can read the full article and a number of comments about the court’s decision by visiting the Insurance Journal here, but the key portions of this news includes the following:

A Paris court ruled that insurer AXA must pay a restaurant owner two months’ worth of coronavirus-related revenue losses, the restaurateur’s lawyer said on Friday, potentially opening the door to a wave of similar litigation.

The ruling will be of interest to restaurants, cafes and nightclubs in Britain and the United States which are also threatening legal action against insurers who have not paid out on business interruption policies.

AXA said it would appeal.

The case was brought by Stephane Manigold, who owns four Paris restaurants. He filed a lawsuit demanding AXA cover his operating losses after a government order in mid-March to close bars and restaurants to slow the spread of the coronavirus.

When he learned of Friday’s verdict at his office, Manigold high-fived a colleague and his supporters applauded. “This is a collective victory,” he told Reuters. He later cried as he spoke to reporters in front of one of his shuttered restaurants.

The court said the administrative decision to close the restaurant qualified for insurance cover as a business interruption loss.

“This means that all companies with the same clause can appeal to their insurers,” Manigold’s lawyer, Anais Sauvagnac, said.

AXA said a small number of its clients in the French hospitality sector were covered for COVID 19-related losses because they bought a special policy. But most clients in the sector did not have that policy and did not quality for compensation, AXA said.

If all COVID-19 related losses were deemed covered by insurance, French insurers would have to compensate 20 billion euros ($21.8 billion) per month, industry estimates show.

And what does this mean to US based businesses with COVID-19 claims?  As I wrote last month, litigation seeking coverage began in March shortly after the virus began impacting American industry and is ongoing all over the USA. Also ongoing are efforts by some governments to try to either demand that insurer’s outright pay such claims despite exclusions to the contrary or that some sort of public/private partnership be created as a compromise to have losses somehow paid.

Interestingly, lawyers leading what’s become a national effort representing nearly 3,000 businesses designed to try to force insurers to pay such claims through litigation, what those lawyers are calling “the largest civil litigation battle in human history” are now calling for a compromise.

The efforts lawyers seem to now realize that such exclusions are standard and that legislation designed to force insurers to overlook those exclusions would likely not be constitutional. Instead the lawyers are now suggesting that a voluntary program be created that would require insurers to process and pay COVID-19 business interruption claims and to then be reimbursed by the federal government. Here is the link to a detailed article on the idea and last week’s meeting, a piece that begins with this news:

Business interruption group proposes voluntary ‘compromise’ for insurers

By Erin Ayers, Advisen

With policyholders and insurers at odds over pandemic-related business interruption claims, both sides face “the largest civil litigation battle in human history” and a compromise is needed to avoid bankruptcies for thousands of the nation’s businesses, according to John W. Houghtaling, the attorney leading many of the lawsuits over coverage.

Speaking during a virtual forum held on May 21 by the U.S. House of Representatives Small Business Committee, Houghtaling, general counsel for the Business Interruption Group (BIG), a coalition of nearly 3,000 businesses, nonprofits, and associations across the country, proposed a compromise: a voluntary federal program for insurers to pay out business interruption claims and then be reimbursed by the government.

“Today, we need a big compromise. We need a win-win,” said Houghtaling. “This will work. It will avoid the litigation costs. It will avoid people like me litigating over the ashes of these businesses. The program, he explained, would be for policies with clear virus exclusions. Houghtaling said plaintiffs and insurers agree on some of the key questions posed by the pandemic, including the fact that retroactively changing policies by legislation would not be “constitutionally workable.”

Mr. Houghtaling and others plan to draw attention to the plight so many businesses face from COVID-19 by working to have the lights in Times Square go dark for one minute tonight at 9 PM. Event organizers explain that their goal is to educate Americans of the “very real prospect that hundreds of thousands of American restaurants, non-profits and retailers – employing millions – are in danger of going dark” from a lack of insurance and federal assistance. 

And as evidence of just how fluid the idea of a private/public partnership is, today’s news includes word that the US House of Representatives have proposed a pandemic reinsurance bill modeled after the Terrorism Risk Insurance Act of 2002 that followed 911’s attacks and the National Flood Insurance Program within FEMA that’s been in place since the 1960’s.

US House lawmaker introduces pandemic reinsurance backstop bill Legislation calls for federal government to take on 95% of losses

By Erin Ayers, Advisen

Rep. Carolyn Maloney (D-NY) introduced her much-anticipated Pandemic Risk Insurance Act of 2020 (PRIA) legislation, calling upon Congress to pass the measure and create a public-private partnership as it did with the Terrorism Risk Insurance Act of 2002.

The bill (HB-7011) would create the Pandemic Risk Reinsurance Program (PRRP) within the U.S. Treasury Department. Once triggered at $250 million in losses due to any future public health emergency, the insurance industry would pay a 5% deductible and the federal government would take on 95% of the losses, up to an annual aggregate of $750 billion.

The proposed new law would call for the Federal government to fund 95% of future pandemic losses.  As Representative Carolyn Maloney explained when she introduced the bill:

We want to solve a market failure by allowing companies to purchase business interruption insurance that covers pandemics”

The bill would also lead to a study on insurance capacity, pricing and coverage limits for pandemic risks as well as the impact of such losses on insurers. Participation by insurers would be voluntary in such a program but those that do not chose to participate would be required to cover pandemic losses. The bill would also eliminate existing exclusions related to a pandemic from those insurers that participate in the program. While it does not appear that the bill would address our current COVID-19 crisis, its filing is just the first step in what I’d imagine will be debated and modified as it evolves. Whether it becomes law or not, it’s an important first step towards providing a stable solution to what is clearly a very serious issue.

Here at Morris & Reynolds we have already filed business income claims from COVID-19 for many clients and continue to suggest that if a business has been adversely impacted that you consider filing a claim. In each case, thus far, the claims have been declined or declined with a Reservation of Rights letter but declined none-the-less and, while that has been expected, our thinking has been that while such exclusions are certainly common these are uncommon times. Having the insurer’s detailed view of such a loss can be useful for many purposes and having a declination in hand might, just maybe, place a business nearer the ‘front of the line’ if a public/private program or some other solution is ever created for COVID-19.

As the world around us attempts to return to our ‘new temporary normal’ and the insurance industry, governments and courts seek solutions please know that will continue to closely follow COVID-19’s insurance evolution. Along the way, should you have any questions about these topics or any others please contact our professional Agent’s, Underwriters and Claims Managers at any time as we are most happy to help.

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