Albert Betts Jr., ICT Executive Director
The ongoing COVID-19 pandemic has tragically resulted in the deaths of 100,000 Americans, changed our day-to-day lives, hampered our economy, and forced us to reexamine how we live. As the country moves to reopening, after weeks of a shut down to avoid the spread of the virus, some have demanded that insurance companies pay for business interruption claims, even if the policies did not have coverage to include this type of situation. Members of Congress, state legislators, consumer advocates, businesses, and even the President, have made blanket statements that insurance companies should be required to pay for business interruption coverage because it’s” fair.” Fortunately, for insurers and their customers, policies do not say, “we’ll pay if we think it’s fair”.
Insurers make commitments to the policyholders through their insurance policy, which is a contract between the insurer and the policyholder. Those policies have certain terms outlining coverage and in return, the policyholder pays a premium to the insurer for the coverage outlined in the policy. Generally, the premium is based on the level of risk the insurer commits to cover in the policy. In short, each party makes certain promises to each other spelled out in the policy. Most business interruption policies have some form of language excluding coverage for virus, bacteria, and pandemic situations.
According to those who are demanding insurance companies pay for “business interruption” claims due to COVID-19, we should ignore the language of the policy and instead rely upon the always appealing but vague notion of “fairness”. If legislators and courts follow this line of reasoning, we destroy the purpose of the business interruption insurance contract containing the exclusion referenced earlier, and instead substitute “fairness” for policy language.
The result would mean insurers, instead of paying claims based on the policy and the company’s commitment for coverage, would end up paying for coverage they never contemplated or included in their insurance policies. These “extra benefits” would not come from some hidden source of funds but instead would come from companies’ funds, which would otherwise be used to pay claims for auto, homes, and other business coverages. Ultimately, companies could face the risk of not having sufficient funding to pay other legitimate claims.
If decision-makers want to be fair, then should only expect companies to honor the coverages outlined in policies. Admittedly, there may be disagreements over what certain policy language means, but that is when the legal system can help resolve those issues. Coverage cannot and should not be dictated through misguided attempts to remedy an unfortunate situation. These are difficult times, but that does not mean rewriting insurance contracts and forcing companies to pay for coverage not contemplated in their agreements with policyholders.
The Insurance Council of Texas is the largest state insurance trade association in the country consisting of over 400 property and casualty insurers writing business in Texas.