Covid-19: United States insurance summary
William D Torchiana
Sullivan & Cromwell, New York
Mark F Rosenberg
Sullivan & Cromwell, New York
Significant legislative, regulatory and litigation activity has occurred at both the United Sates federal and state levels in response to Covid-19 and associated business closures, unemployment and economic disruption.
In particular, over 1,250 cases have been filed to date across the US, seeking coverage under commercial insurance policies for Covid-19-related business interruption losses. Legislation has also been proposed in a number of states and the US House of Representatives to address business interruption claims relating to Covid-19.
The bills proposed to date can be divided into two categories:
- proposals that would require insurers to cover business interruption claims resulting from the Covid-19 pandemic, generally on a retroactive basis to early March 2020 and irrespective of virus-related policy exclusions or policy conditions that may otherwise preclude coverage for pandemic-related business interruption losses (bills of this nature have been introduced in the US House of Representatives, California, Louisiana, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and South Carolina); and
- proposals to establish some form of risk-sharing, reinsurance backstop, grant program or compensation fund structure for coverage of pandemic-related business interruption losses, whereby the government would backstop losses incurred by insurers due to pandemic risks, subject to defined limits and deductibles, or would provide full funding for such losses.
In particular, the Pandemic Risk Insurance Act of 2020 (HR 7011), modelled after the Terrorism Risk Insurance Act (TRIA) enacted in response to the 9/11 terror attacks, was introduced in the US House of Representatives on 26 May.
Under the draft bill, participating insurers would agree to make business interruption insurance and event cancellation coverage available for insured pandemic-related losses in return for a government backstop providing coverage for 95 per cent of the losses in excess of a participating insurer’s deductible (proposed to equal five per cent of the insurer’s total prior-year US property and casualty direct earned premiums).
As proposed, the federal reinsurance backstop would only be triggered once aggregate industry losses of participating insurers exceed $250m, and losses payable by participating insurers and the federal government under the program would be subject to a proposed aggregate cap of $750bn. Insured losses under the proposal would only be available for national pandemic public health emergencies that are declared on or after 1 January 2021, and therefore not cover losses arising from Covid-19.
None of the proposed bills have been passed and some have already been withdrawn. Each has been met with resistance by industry trade groups and other industry stakeholders. It is expected that none will move forward until at least 2021, and that the progress of any legislative proposals will depend on the outcome of the November US presidential election.
Numerous litigation proceedings have commenced across the US seeking coverage for Covid-19-related business interruption losses or alleging bad-faith denials of coverage for such losses, including multiple purported class action insurance coverage lawsuits against insurers that have written business interruption policies nationwide.
The plaintiffs in most of these coverage actions have been restaurants, bars, theatres, retailers, casinos, dentists, optometrists and other retail businesses, that have been adversely impacted by the pandemic and by governmental closure orders.
A key threshold issue presented in the cases filed is whether the ‘direct physical loss or damage’ requirement to trigger coverage under commercial property policies is satisfied by the presence or threat of Covid19 and/or acts of civil authority prohibiting access to business properties.
Many cases, however, also involve policies with virus exclusions, but seek coverage under various theories (eg, that the property damage/loss is due to the civil authority orders as opposed to the virus).
Courts have begun to issue decisions on merits, most of which to date have ruled in favor of insurers, generally granting the insurer’s motion to dismiss based on the absence of ‘direct physical damage or loss’ and/or due to a virus exclusion. However, a few cases thus far (about five out of 25) have denied the insurer’s motion to dismiss.
Another area impacted by the Covid-19 pandemic has been workers’ compensation insurance.
By law in every state, the injury or illness that triggers workers’ compensation benefits must be work-related and arise out of and in the course and scope of employment. An employee’s injury or illness may be presumed work-related if, based on factual medical evidence, the injury is of a type that was caused in the workplace.
A number of US states have passed legislation and/or issued regulations or executive orders that create a rebuttable presumption of coverage under workers’ compensation insurance for certain people impacted by Covid-19.
In most cases, the presumption applies to first responders and medical professionals, but some states, including California, Illinois and New Jersey, apply the scope of the presumption to a much larger set of workers, including grocery, pharmacy and postal workers, or, in some cases, virtually any worker performing labour or services outside their home during the Covid-19 emergency. These measures would allow certain workers who test positive for Covid-19 to no longer be required to prove that they were exposed on the job; the claims process would start with the presumption that the exposure was work-related and it would be left to employers or insurers to prove otherwise.
Proposed legislation in some states, including California and New York, would establish a conclusive (rather than rebuttable) presumption with respect to Covid-19 infections of covered employees.
In addition to measures respecting business interruption and workers’ compensation coverage, many state jurisdictions have issued regulations and guidance, advising or requiring insurers to offer accommodations to policyholders adversely impacted by Covid-19, including requirements to defer payment of, or refund, premiums, postpone policy lapses, and have sought information and data from insurers on a number of topics, including operational preparedness, policyholder data, and other matters.
State insurance regulators and US Congress members have also held discussions and sought information with respect to business interruption, travel, event cancellation and other insurance lines impacted by the Covid-19 crisis.
Nearly all state insurance departments have issued guidance or orders to health insurance carriers, generally requiring one or more of the following:
- waiver of cost-sharing for Covid-19 testing;
- prohibition of prior authorization requirements for Covid-19 testing;
- requirements to permit early prescription drug refills;
- directions to keep policyholders informed of Covid-19-related health insurance coverage; and
- requirements to expand telehealth and telemedicine platforms and to ensure network adequacy in light of increased demand for health services.
Several states have also issued guidelines or orders relating to utilisation review requirements, coverage for Covid-19 immunisations once available, inclusion of inpatient hospital, emergency and ambulatory services as ‘essential health benefits,’ and prohibitions on ‘surprise medical bills.’
On 18 March, President Trump signed the Families First Act into law, which mandates that all private group health insurance plans are required to provide coverage for Covid-19 testing to plan participants without cost-sharing (including deductibles, co-payments or coinsurance).
The federal CARES Act, which was enacted into law on 27 March, builds on the above provisions and includes a number of temporary policy changes relating to telehealth services in order to increase access to care during the Covid-19 crisis.
Nearly all state insurance departments have issued bulletins or directives that provide relief to insurance consumers, including (depending on the state):
- providing grace periods for premium payments (typically 60-day grace periods but this varies by state);
- flexibility around cancellations and non-renewals, including non-cancellation periods; acceleration or waiver of certain underwriting requirements; and
- the fair treatment of consumers during the Covid-19 crisis.
In addition, a handful of state insurance regulators have encouraged, or required, all auto insurers operating in their state to issue refunds, credits or discounts to policyholders.
In particular, both the California and New Jersey insurance departments have required insurers to make an initial premium refund for a certain time period to all adversely impacted state-resident policyholders for not only private and commercial auto policies, but also workers’ compensation, commercial multiple peril, commercial liability, medical malpractice and ‘any other line of coverage where the measures of risk have become substantially overstated as a result of the pandemic.’
Further, several states have issued bulletins or orders urging, or in some cases requiring, insurers to extend coverage under personal auto policies for drivers delivering food, prescriptions or other products for their employers, or to provide upon request commercial hired and non-owned auto insurance coverage to such delivery drivers under applicable commercial auto policies.
Finally, states have also issued guidance or directives temporarily relaxing or providing regulatory flexibility on filing deadlines, examinations, continuing education requirements for producers, and use of electronic submissions and signatures in lieu of physical filings.