April 24, 2020

As businesses continue to streamline operations or shutter altogether, state insurance commissioners are publicly tamping down expectations regarding the prospects for business interruption coverage arising from COVID-19 closures.  On April 17, the Insurance Commissioner for Washington, Mike Kriedler, stated that the “vast majority” of insurance policies issued in the state that provide coverage for business interruption “specifically exclude coverage for economic loss due to a viral pandemic.”  A few days later, in a letter to commercial policyholders, the North Carolina Insurance Commissioner, Mike Causey, wrote that “standard business interruption policies are not designed to provide coverage for viruses, diseases, or pandemic-related losses because of the magnitude of potential losses.”  Commissioner Causey went on to cite estimates that business continuity losses from COVID-19 just for small businesses of 100 employees or fewer could amount to between $220 billion and $383 billion per month and noted that the total reserve funds for all U.S. home, auto, and business insurers combined to pay all future losses is only $800 billion.  Washington Commissioner Kriedler cited estimates that closure losses just for businesses with 100 or fewer employees are running between $255 billion and $431 billion a month. For small businesses, these losses are approximately 43 to 72 times their monthly commercial property insurance premiums.  As these statements make clear, the financial and policy considerations of this COVID-19 crisis are driving state insurance commissioners to avoid pushing carriers to cover COVID-19 related business interruption claims, and, in some cases, to discourage insureds from pursuing such claims.  Ultimately, the response of the insurance industry to these claims will be driven by civil litigation and possibly state or federal legislation, and not by the industry’s regulators.