By Alwyn Scott
NEW YORK () – U.S. insurance companies are strengthening the language in policies that cover business losses to protect them from future claims related to the coronavirus pandemic or other widespread diseases that disrupt surgery, industries say.
New policies and innovations now define terms such as “contagious disease” or “micro-organism” – something that existing policies often lacked and which led to a stream of lawsuits that insurers have so far largely won.
An exclusion drafted by the Lloyd’s Market Association states, for example, that insurance companies will not cover any claim “directly or indirectly arising from, attributable to or occurring concurrently or in any order with a contagious disease.”
Another used by the Farmers Mutual Hail Insurance Company in Iowa excludes loss from even “fear or threat”, whether it is “actual or perceived” for a contagious disease or “any action to control, prevent, suppress” it .
Some companies, such as The Cincinnati Insurance Cos, a unit of the Cincinnati Financial Corp., said they do not add exceptions because the current political language makes it clear that pandemics are not covered.
“A COVID-19 or pandemic-related exclusion would be like adding hangers to a belt,” said spokeswoman Betsy Ertel.
Cincinnati has been named in 149 lawsuits for denial of claims and ranked it number two after Hartford Financial Services Group Inc with 222 suits and far ahead of Chubb Ltd’s 64 and American International Group Inc with 38 according to data collected by the University of Pennsylvania Law School.
The plaintiffs’ attorneys are pushing for coverage. If insurance companies had been required to cover losses from business customers affected by the pandemic, it would cost them as much as $ 431 billion a month, according to a trade association. Critics have called this figure inflated.
Existing policy lawsuits sent shockwaves through the industry due to potential losses. The new language aims to sniff out ambiguity.
“Instead of these terms remaining undefined, insurance companies include definitions that explicitly refer to COVID-19 or other SARS-related viruses,” said Alan Lyons, chairman of the insurance and reinsurance group at law firm Herrick, Feinstein LLP in New York. .
Pandemic-hit U.S. companies have filed nearly 1,500 lawsuits challenging insurance companies that reject claims, according to the UPenn lawsuit.
Judges have given insurers victories by dismissing about 81% of the 205 state and federal lawsuits decided so far. But among state decisions alone, insurers have lost 65% of cases when policies lacked virus exclusions and 43% even when there was an exclusion, said Tom Baker, a professor at UPenn Law.
“Because the law in force is state law, the early decisions of federal courts may not be as predictable for the ultimate results as those of state courts,” Baker said.
Insurance companies have argued that business interruption policies are intended to cover property damage not caused by the pandemic and that their language does not specifically cover infectious diseases and often includes exclusionary phrases.
“Policyholders have no right to recover because the virus does not damage property,” said Michael Menace, an insurance lawyer at Wiggin and Dana LLP, who also works with the Insurance Information Institute, an industry association.
The court battles are not over and some insurance companies have had legal setbacks.
However, a stronger language on communicable diseases has added extra security for insurance companies whose own companies have been hit by the economic downturn and interest rates almost zero.
The plaintiffs’ attorneys remain hopeful. They point to victories in Ohio and the United Kingdom, where courts have found insurance companies liable for some claims, even on policies with virus exclusions. However, the Ohio decision is likely to undergo lengthy scratches, and British decisions do not have much impact on the United States.