We are treading in unknown waters these days and we are all in the same boat.  We are all trying to preserve as much cash as we can since things seem so uncertain in these times.  I would like to address a whole host of issues for you and have been thinking through how to communicate with my clients, and the business community in general.  We certainly want to make sure that our mutual interests are aligned and that we are working in your best interests, regardless of how this plays out, so please continue reading.

The Ohio Department of Insurance issued a directive to all property, casualty and life insurers doing business in the state of Ohio, requiring that insurers must provide their insureds with at least a 60-day grace period to pay insurance premiums.  Please note that this is simply a deferment of premiums and any balances will be required to be paid once the moratorium lifts. I have attached a copy of this bulletin for your review. Other states where we operate are generally handling premiums deferments the same way, but if you have corporate offices in another state we recommend looking at that states Department of Insurance website for guidance.

I have been asked many questions about Business Interruption and Civil Authority, and how they apply to this situation. My answer has been to point clients to the policy language, which incidentally is the identical answer we have been given by all of our insurers, that there must be direct physical damage to property in order for Business Income or Civil Authority to apply.  For now, that is the proper response.  That said, the situation remains rather fluid.

These indeed are trying times for everyone. I also believe it will be gut-wrenching to see all the various competing factions seeking redress, while attempting to keep to their financial houses in order, their employees’ paychecks going, and pay their ongoing financial obligations.

This battle will be fought on several fronts ……….

First, we have the restaurant industry filing suit against Hartford Insurance, seeking coverage under their insurance policies for business income related to COVID-19. In other industries, lawyers are telling their clients to sign on with them and they will work on a contingency basis to sue their insurance company.  Prior to this our courts were already working at capacity, let alone piling on the added burden of these lawsuits. It has been estimated that if insurers are forced to pay these claims there would be 30 million claims filed at a staggering cost as high as $383 billion per month.  This is 10 times more than the most claims ever handled from a single event. Additionally, we certainly would see mass failures of insurance companies and overnight pricing increases like we have never experienced.

Second, at the time of this writing, there are four legislatures, New Jersey, New York, Louisiana, and Ohio, that are advancing bills to retro-actively rewrite insurance policies so they will cover business income losses. Certainly, the number of legislatures jumping on board will increase depending on the success of these four states and public opinion. This approach, however, is fraught with dangerous precedents for all manner and sorts of businesses. Furthermore, there is an argument being put forth that the Contracts Clause, found in Article 1 of the U.S. Constitution, places limitations on states’ ability to interfere with private contracts.

Third, our financial system is experiencing capacity issues never seen. Banks are attempting to cope with an influx of new customers trying to take advantage of the lower interest rates, while at the same time trying to work with government-mandated, or near mandated, moratorium on the collection of mortgage payments.  Pile on top of that the fact that our banks are, or will be, overwhelmed with SBA applications under the Paycheck Protection Act (PPA) and Economic Injury Disaster Loans (EID), which incidentally are on a first-come, first-served basis.

Going forward, I envision a cooperative pandemic solution involving both the insurance industry and the federal government. We already have cooperative efforts when it comes to other mass scale catastrophes that could threaten the solvency of the insurance industry. We see this cooperative effort, or joint effort when it comes to Flood Insurance, Terrorism Insurance, and on a regionalized basis in wind and hail for coastal areas.

The Insurance Commissioners in States of Washington and California have issued a special data call related to business interruption and related commercial insurance written in their states.

Each insurer operating in their state is required to submit the volume of business interruption coverage, civil authority coverage, contingent business interruption coverage and supply chain coverage that was in effect on March 15, 2020.

Data calls are fairly routine in the insurance industry. For example, in 2016 the insurance regulators in all states and the District of Columbia participated in a data call to collect information related to terrorism risk insurance. These data calls serve important regulatory functions, such as monitoring the affordability and availability of coverage for the line of coverage on which data is being collected. This is likely a precursor to Insurance Commissioners throughout the country seeking clarification on the feasibility of Pandemic Insurance coverage, either through insurers, or some type of joint cooperative effort between insurers and the federal government.

At present we do not know how all of this plays out. We will do our best to keep you informed as news becomes available.  We are your advocate and will do everything we can to keep you advised as things develop help you secure the legitimate benefits you have a right to receive.