U.S. insurers are stepping up language in policies that cover business losses to protect them from future claims related to the coronavirus pandemic or other widespread diseases disrupting operations, industry sources say.
New policies and renewals now define terms such as ‘communicable diseases’ or ‘micro-organisms’ – something that existing policies often lack, and which have led to a flood of lawsuits that insurers have so far largely won.
An exclusion drawn up by the Lloyd’s Market Association, for example, states that insurers will not cover any coverage that ‘directly or indirectly arises from, attributable to or simultaneously or in any order with a communicable disease. ‘
Another, used by Farmers Mutual Hail Insurance Company of Iowa, excludes losses from even the “fear or threat”, whether “real or considered” of a communicable disease, or “any action to control it” , to suppress “.
Some companies, such as The Cincinnati Insurance Cos., A unit of Cincinnati Financial Corp., have said they do not add exclusions because the current policy language makes it clear that pandemics are not covered.
“A COVID-19 or pandemic-related exclusion is like adding braces to a belt,” spokeswoman Betsy Ertel told Reuters.
Cincinnati has been sued in 149 lawsuits, which came in second behind Hartford Financial Services Group Inc., with 222 charges, and far ahead of Chubb Ltd. ‘s 64 and American International Group Inc., with 38, according to the data compiled. by the University of Pennsylvania Law School.
Plaintiffs’ attorneys insist coverage is applicable. If insurers were expected to cover losses from business customers affected by the pandemic, it would cost up to $ 431 billion a month, according to an industry group. Critics called the figure inflated.
Existing policies have sent shockwaves through the industry due to possible losses. The new language aims to eliminate ambiguity.
“Instead of these terms remaining undefined, insurers include definitions to explicitly refer to COVID-19 or other SARS-related viruses,” said Alan Lyons, chair of the insurance and reinsurance group at the law firm Herrick, Feinstein LLP in New York. .
U.S. businesses hit by a pandemic have filed nearly 1,500 lawsuits, challenging insurers who deny claims, according to the UPenn procedure.
Judges handed insurers victories by dismissing about 81% of the 205 state and federal lawsuits decided so far. But under state decisions alone, insurers lost 65% of cases when policies did not have virus exclusions and 43% even if there was an exclusion, Tom Baker, professor at UPenn Law, said.
“Because the law is state law, the earlier decisions of federal courts may not be as predictable for the final results as those in state courts,” Baker said.
Insurers have argued that industry disruption policies are intended to cover damage to property, which did not cause the pandemic, and that their language does not specifically relate to infectious diseases, and that it often contains exclusive phrases.
“The policyholders are not entitled to repair because the virus does not damage property,” said Michael Menapace, an insurance attorney at Wiggin and Dana LLP, who also works with the Insurance Information Institute, an industry association.
The court battles are not over yet, and some insurers have experienced legal setbacks.
Stronger language on communicable diseases added insurers, whose own businesses were hit by the economic downturn and interest rates almost zero.
Complainants’ lawyers remain hopeful. They point to victories in Ohio and in the UK, where courts find insurers liable for some claims, even on policies to exclude viruses. However, the decision in Ohio is likely to have long-standing appeals and UK decisions do not have much effect on the United States.
(Reported by Alwyn Scott; edited by Lauren Tara LaCapra and Dan Grebler)
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