Business Interruption by Insurance Companies Forced Into Approval

As the coronavirus pandemic continues to accelerate throughout America, insurance claims that were originally denied may be forced into approval through state legislation. Business interruption claims, insurers argue, do not cover viral outbreaks.

 

Small businesses are especially vulnerable to this lack of coverage during state-mandated shutdowns, as they can’t absorb the loss of business as easily. A prime example of insurance claims denial comes out of the state of Kentucky.

Aunt Kathy’s Childcare and Preschool

 

Kathy Donelan’s daycare center, Aunt Kathy’s Childcare and Preschool, has been denied on her business interruption claims despite having a state-mandated insurance policy that supposedly covers forced closures. Among the reasons for the rejection was the fact that they did not have any active cases of COVID-19 within their business before being forced to close down.

 

Everybody got denied, saying nobody had an active COVID-19 case.” According to Donelan. “We were shut down as a safety measure, and I totally agree with that. But to wait until we had an active case to have a widespread outbreak in a childcare center? I just can’t imagine that.”

 

Other daycare centers within the state are experiencing similar issues, as Kentucky Governor Andy Beshare currently has no plans to open till some time in June.

 

Donelan added, “Three centers that have said, ‘I’m closing my doors. I can’t do this. I don’t have enough money to pay anything.’”

 

States Mandating Insurance Payouts

In response to small businesses running into issues similar to Kathy’s situation, certain states have created legislation that forces insurance companies to approve business interruption claims.

 

New Jersey was the first in the nation to propose such a bill. But no more states are joining in. This includes New York and Pennsylvania as well as Louisiana, Ohio, South Carolina. And Massachusettes.

 

The biggest concern with such a proposal is the financial burden it will put on insurance companies who did not price in the cost of a pandemic into their plans. In fact, a lot of standard policies specifically exclude virus or bacteria-based coverage for business closures

 

“As a general matter, business interruption insurance will only pay when there has been a physical loss (such as a fire) to the premises of the building,” Jessica Altman, Pennsylvania Insurance Commissioner, stated. “The product generally was not designed or priced to cover communicable diseases. so such as COVID-19. And general policies that we have seen in mediating complaints contain clear exclusions.”.

 

Others like Doug Jones, managing director of JAG insurance group, were fairly vocal about this causing unforeseen consequences in the near future:

 

“At the end of the day, the ripple effect of what that would cause down the road. And I’m talking short-term, not long-term; I’m talking about months from. Now not years from now. It would be difficult for anybody to buy any type of insurance.”

 

If these proposals pass insurance companies would be on the hook to cover, retroactively in some cases. So small businesses that have lost the use of their businesses due to the coronavirus pandemic.

 

Trump Weighs In

During the midst of this uncertainty for small businesses and insurance companies alike, President Donald Trump commented on the issues during one of his coronavirus briefings saying that he “would like to see the insurance companies pay if they need to pay.”  And this came a long time after the first known deaths inside the US from Covid-19.

 

He followed this statement with, “You have people that have 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.’ So We can’t let that happen.”

 

Insurers had a mixed response to these comments. On the one hand, it is worrying to them that they may indeed be forced to pay up in certain cases. On the other, some think he is only referring to insurance companies who have a contractual obligation to pay.

 

Ian Katz of Capital Alpha responded to Trump’s address. “If the president is saying the language in the contracts should rule. The insurance industry is probably comfortable with that. The understanding is that most policies exclude pandemic coverage.”

 

Several Republican Senators have spoken out in support of insurance companies claiming that the stress of these business interruption claims could cause “significant economic strain and/or insolvencies. Given the magnitude of the current cumulative estimated claims”.

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