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AM BEST'S MONTHLY INSURANCE MAGAZINE



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COVID-19 and Y2K

A reader shares experiences of dealing with a different ‘novel’ event years ago and looks at today’s challenges.
  • September 2020
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My work with liability and legal issues associated with Y2K began in 1996. At the time, it was estimated to be a $600 billion global remediation project with the American Bar Association estimating $1 trillion in litigation costs—worthy of some examination. In my opinion, it was the greatest global remediation effort ever successfully undertaken.

Leading up to the year 2000, Y2K legal specialists were attempting to broaden arcane coverage terms, most commonly “sue and labor,” originally a marine property insurance coverage designed to cover deliberately jettisoned cargo for the purpose of saving the ship and its remaining cargo during severe weather. However, most of the coverage terms clearly excluded Y2K remediation expenses. This was an example of creative reinterpretation of long-standing contract provisions.

Y2K in 2000, like COVID-19 in 2020, was novel with respect to not anyone having prior experience with the issue. While the severity of long-term COVID-19 economic issues cannot be underestimated, or possibly estimated accurately at all at this time, once again desperation turns to the assets of insurers to assist in economic support for businesses. As an odd combination of both our litigious culture and a very generous and compassionate population, Americans are not loath to spread the wealth from deep pockets to shallower ones. And it almost goes without saying that insurers are not sympathetic parties in most of our neighbors' minds.

Legislatures, starting with New Jersey and now including Massachusetts, New York, Pennsylvania, Louisiana, Ohio and South Carolina are considering a mandate for business interruption insurance coverage for businesses shut down due to COVID-19. We need to be reminded that it was New Jersey that re-wrote insurance contracts in the 1980s to require insurers to cover the costs of pollution cleanup in municipal landfills, causing huge spikes in municipal insurance premiums and a countrywide closure of municipal insurance markets. Mississippi attempted to mandate flood coverage on all homeowners policies following Hurricane Katrina. While that attempt was unsuccessful, attempts to adjust coverage contract terms following an uninsured loss, to offer financial support to those suffering losses, continues over time.

As an insurance professional adviser for 40 years it falls to me to impose realism onto notions and hopes for coverage under existing insurance policies.

Reflecting over my four decades includes an understanding that virtually every adult U.S. resident carries some form of insurance, and most people, many forms of policies. While personal and commercial insureds' disinterest in both the scope and the limitations of their coverage has offered a career path for tens of thousands of insurance advisory professionals, and the fortunes of only a few less insurance law litigators and defenders, the downside is an expectation of coverage for every eventuality.

Credible deniability of policy exclusions and terms has consistently been a successful plea for awards from sympathetic juries. Such deniability does not mitigate the existence of very simple and specific policy exclusion language: “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” Arguing that this policy language does not specifically reference “pandemic” and thus invokes coverage, only encourages creatively assigning new or invented words any time to apply coverage where none was intended. Clever but untenable.

Rewriting insurance contracts ex post facto has no good outcome, neither for consumers nor businesses. 

Nancy P. James
Licensed Insurance Adviser and past president of the Massachusetts Society of Licensed Insurance Advisers
Concord, Massachusetts


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