Pandemic Exclusions Challenged in Court

Lawsuits Filed for the Excluded

Source: Neilson Marketing Services | Published on April 23, 2020

COVID BI clams

Ever since the beginning of the coronavirus quarantine, businesses have been concerned to discover that their business insurance did not cover the damages sustained by the pandemic. Despite having to shut their doors entirely or transition to delivery at a substantial loss, their policies have are not designed to step in and provide coverage. After the SARS epidemic in the 2000’s, most insurance plans added pandemics to their list of standard exclusions, such as war and flood.

But some policy holders that did not include such exclusions in their original policies will not see a payout. Public outrage at the treatment of these policy holders seems palpable. Several attorneys filed class-action lawsuits in the United States, namely in New York, California, Wisconsin, Oregon and Texas. These high-profile cases receive much national attention with the potential to bring sweeping changes to the state of affairs under the quarantine.

Arguments Pro and Con

Insurers, however, have been pushing back. Some CEOs have even gone on television to try to explain their position. Pandemics, referred to as “uninsurable”, involve something so sweeping that no one could possibly afford the payouts that insurers claim. The insurance providers assert to have been hit just as hard and state they cannot meet their obligations. Those cases with pandemic exclusions are sticking to their guns with especial tenacity.

But the attorneys representing the policyholders try to cut through the legalese and make the simple point that these clients took out policies for exactly such a situation and are now left without help. One major argument is that the pandemic did not shut down the business, but government action did, which ought to be covered. Whatever the specific arguments, litigators speak loudly and certainly enjoy the weight of public opinion behind them.

Political Pressures

Pressures ignite from government entities upon these insurers. California legislators currently deliberate on a bill that requires insurers to pay out despite any virus-related hardships. This would override the pandemic exclusions and prohibit other insurers from using the quarantine as an excuse not to pay. Even President Trump expressed support for business owners who feel left out. The insurers find few willing to advocate for them.

The Likely Future

Especially if the quarantine continues for much longer, it seems very unlikely that these mounting pressures will amount to nothing. Even if only one of these lawsuits results in a decision for the plaintiff, it sets a precedent that forces all insurers to pay. While this may be a huge boon for these businesses, this equates to trouble for the insurers.

A more likely scenario, according to some, involves a settlement where the insurers pay some, if not all, of what is claimed, in a compromise that makes nobody truly happy. Once this crisis calms down, it remains to be seen if people will be so embittered against the insurance industry that they move on, or so afraid of a repeat of the same situation that they insure in greater numbers than ever before.

Sources:

https://www.cnbc.com/2020/04/20/insurers-are-denying-coronavirus-claims-restaurants-are-fighting-back.html

https://insurancenewsnet.com/innarticle/more-insurers-hit-with-covid-19-business-coverage-lawsuits#.Xp3nfS3MwWo