The CEO of Insurance giant Chubb, Evan Greenberg, appeared on CNBC’s Squawk Box to argue that “the insurance industry’s ability to take pandemic risk is very limited.” He’s not backing down on his stance that insurance companies should not cover COVID-19-related losses to small and medium-sized businesses. Instead, he’s proposing plans for the next pandemic.
Insurance companies are catching a lot of heat — and facing breach of contract lawsuits — for denying business interruption claims. Business interruption insurance is a part of a business owner’s policy that provides coverage of operational expenses in the event a business has to temporarily close due to a disaster, like fires or hurricanes. Companies like restaurants and bars forced to close or severely restrict business due to government mandates to stop the spread of COVID-19 have turned to their insurers for help as they struggle to stay afloat during the economic fallout of the pandemic. Their insurers are denying those claims.
Some policies have virus exclusion clauses. But many do not specify that pandemics are excluded. Some insurers claim that since the businesses didn’t suffer physical damage, like in the event of a hurricane or fire, they are excluded from business interruption insurance. But the damage is easily seen in the eyes of business owners who have paid their insurance premiums for months and years. Many have had to spend money to disinfect their establishments and put equipment and measures in place to ensure safe social distancing.
Insurers are choosing to save their own skin and leaving businesses with losses estimated as much as $1 trillion, according to the American Property Casualty Insurance Association.
Greenberg said he has a plan for future pandemics, a two-pronged approach that would treat small businesses differently than medium and large businesses. It proposes giving smaller establishments a payout based on payroll in the event they had to close their doors due to a pandemic. Medium and large businesses would receive an indemnity-based payout. The insurance industry would shoulder $15 billion of the damages at the beginning of that term with the amount growing over the next two decades. The government would pick up any slack.
“The government takes the tail risk, and limits the amount of liability insurance the company would take,” Greenberg said. “Insurers could play a broader role in assuming coverage in the future, should we have future pandemics.”
Only time will tell if the insurance industry will move forward with the proposals and if lawmakers would be open to assuming some of the risk. There’s also no knowing when the next pandemic will shake the global economy.
All struggling businesses want is a helping hand right now. Unfortunately, their insurers aren’t willing to give it.
Beasley Allen lawyers are actively investigating and filing claims against various insurance companies for denial of business interruption coverage during the COVID-19 pandemic, and are involved in advocating for consolidation of these actions in an MDL. Dee Miles, head of our Consumer Fraud & Commercial Litigation Section, Rachel Boyd, and Paul Evans, lawyers in the Section, are spearheading this litigation for our firm and are monitoring all MDL developments as they arise.