US insurers are improving the language in contracts that cover business interruptions to protect against future claims related to the coronavirus pandemic or other widespread diseases disrupting operations, according to industry.
New guidelines and extensions now define terms like “communicable diseases” or “microorganisms” – something that was often missing from existing guidelines and has led to an avalanche of litigation that insurers have largely won so far.
For example, an exclusion drawn up by the Lloyd’s Market Association states that insurers will not cover claims that “arise directly or indirectly from, or are attributable to, or arise simultaneously or in any order” of a communicable disease.
Another, used by the Iowa Farmers Mutual Hail Insurance Company, excludes losses itself from “fear or threat,” “real or perceived,” communicable disease, or from “measures of control, prevention or repression.”
Some companies, such as The Cincinnati Insurance Cos, a unit of Cincinnati Financial Corp., have stated that they will not add exclusions as the current policy wording makes it clear that pandemics are not covered.
Cincinnati has been named in 149 denial of claims lawsuits and ranks second behind Hartford Financial Services Group Inc with 222 lawsuits and, according to the University of Pennsylvania, is way ahead of Chubb Ltd’s 64 and American International Group Inc with 38 law schools.
The plaintiffs’ lawyers are pushing for cover. If insurers had been required to cover losses from business customers affected by the pandemic, it would cost up to $ 431 billion per month, according to an industry group. Critics have called this number inflated.
Litigation related to Existing policies have sent shock waves across the industry due to potential losses. The new language aims to hide ambiguities.
“Instead of these terms remaining undefined, insurers are providing definitions that specifically refer to COVID-19 or other SARS-related viruses,” said Alan Lyons, chairman of the insurance and reinsurance group at Herrick, Feinstein LLP, New York.
However, stronger language about communicable diseases has added security for insurers whose own businesses are hit by economic decline and near-zero interest rates.
The plaintiffs’ lawyers remain hopeful. They point to victories in Ohio and the UK, where courts held insurers liable for some claims, even on virus-excluded contracts. However, the Ohio decision is likely to be long on appeal, and UK decisions will not have much of an impact on the United States.