As virus-related shutdowns of nonessential businesses sweep the United States, some insurers have insisted that their policies exclude pandemic coverage. But the bid to avoid such payouts — which the insurance industry warns could pose an “existential threat” to their business — may be stopped in statehouses around the country.

U.S. state legislators and lawyers have threatened to force the payment of coronavirus-related insurance claims that the industry insists are excluded from its policies. Members of Congress are also debating the need for legislation requiring insurers, which are largely regulated at the state level, to pay for shutdowns caused by the virus. Bills that would have the same effect have been introduced in several states.

In recent weeks, a bipartisan group of members of Congress wrote to insurance trade associations urging them to “work with your member companies?…?to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage.” 

Nydia Velázquez, a New York Democrat, says she is glad the letter, which she led, “did not go unheeded” and that while lawmakers have not seen specific proposals, she appreciates the industry’s “desire to be part of the solution.”

Will Kiley, the spokesman for Republican Rep. Brian Fitzpatrick of Pennsylvania, who signed the letter, says their office is working with a bipartisan group from the House Small Business and Financial Services Committees on a bill that will include federal support for insurers.

“The business interruption provision we are drafting is prospective, not retroactive, and will be federally backstopped in a public-private partnership,” says Kiley. 

“The losses involved would simply swamp the ability to pay,” says Joseph Wayland, general counsel for Chubb insurance. “It is an existential threat to the industry if it had to take responsibility for a risk it never underwrote and never charged for.” The chair of Lloyd’s of London, Bruce Carnegie-Brown, says that such a change would put the industry “in jeopardy.”

Lawyers representing policyholders contest the claim that pandemic risk was never insured. Robin Cohen, of the McKool Smith law firm, says that “overwhelmingly, the coverage I am seeing does not have a virus exclusion.”

Instead, Cohen argues, the policies require that there be physical damage to the business and whether virus-related shutdowns meet that criteria are the key legal issue. As for the industry’s claim that it will be left bankrupt, she says: “They say that in every disaster, from Hurricane Sandy to 9/11.”

David Sampson, CEO of the American Property Casualty Insurance Association, says the industry is taking measures such as temporary suspension of premium payments, to ease the burden on business, and will work with lawmakers in coming weeks as they weigh the need for another stimulus. 


But Sampson estimates the cost to cover small businesses with 100 or fewer employees across the U.S. would run to $110 billion to $290 billion a month, rising to $900 billion a month if the threshold is raised to 500 employees. Given that the industry held only $800 billion in surplus capital, “you would be basically creating a solvency crisis,” he says. 

The legislative process to force insurers to cover businesses is more advanced at the state level. Bills have been proposed in New Jersey, Massachusetts, and Ohio.

New Jersey State Assemblyman Roy Freiman, a Democrat, says there are enough votes in the assembly to pass a bill requiring insurers to pay out to businesses with fewer than 100 employees, but he is delaying a vote while negotiations with industry groups continue.

“Businesspeople envisioned a situation like this when they bought the insurance,” Freiman says. “They didn’t opt-in or opt-out. They didn’t have a choice.”

Freiman says that having worked in insurance for decades, he knows the industry provides a social good, “but if they continue to take a hard stance, continue to quote chapter and verse, they will make Darth Vader look like Mother Teresa.”