Insurers could walk away from business interruption if forced to pay COVID claims

Commercial insurers could cease writing business interruption coverage altogether if legislators force them to pay out on COVID-19 claims that were clearly excluded from policies, according to John Dohn, national sales manager at Management Services International (MSI).

Global re/insurers have been under considerable pressure from policyholders and governments to pay out on business interruption policies against COVID-related losses. The Night Time Industries Association (NTIA) in the UK, for example, is coordinating claims against Hiscox Insurance and has hired Philip Kolvin QC to advise on its members’ rights under their insurance policies.

Kolvin said insurers “should not be running for cover” and “will never be forgiven” if they refused to pay out claims against business interruption policies. There are similar cases in the US, and some politicians have raised the possibility of stepping in and forcing insurers to pay if they do not make that decision themselves.

“If state legislators decree that insurance companies must pay business interruption claims related to COVID-19, this will result in devastation of the insurance industry,” Dohn warned.

He noted that most commercially written business interruption policies require physical damage to property in order to trigger a claim.  COVID-19 causes no physical damage and policies specifically exclude bacteria and virus related claims.

Dohn said: “If legislation forces insurance companies to pay claims for losses excluded in policies, premiums would increase dramatically.  Solvency of many insurance companies would be at risk and many companies would cease writing many policies in the affected states.”

Dohn said that physical damage to property is not required to pay losses in most Captive business interruption policies.  In addition, captives pay losses related to bacteria and virus.

“The exclusions for bacteria and virus found in commercial polices were wisely added in the early 2000s as a result of SARS,” said Dohn. “Most insurers felt that they could not charge enough premium to cover catastrophic pandemic risk. Business interruption insurance written by commercial insurers provides great value to businesses after suffering a physical loss such as a fire.”

Dohn advised businesses to consider writing business interruption policies through a captive in preparation for future such events.