DC Council Drops Mandatory BI Bill
WASHINGTON //BestWire// - The District of Columbia City Council has dropped a proposal that would have retroactively required commercial insurance policies to cover business interruption losses caused by the COVID-19 pandemic.
Council President Phil Mendelson pulled the language from an omnibus COVID-19 pandemic bill after council heard complaints about the impact on insurers.
“It is gratifying to see that common sense prevailed in the D.C. City Council, as members passed coronavirus legislation to aid D.C. residents but removed a business interruption insurance mandate that would have ultimately harmed business policyholders and insurance companies alike in the long run,” said Erin Collins, vice president of state affairs for the National Association of Mutual Insurance Companies.
The language in the bill broadly interpreted property/casualty insurers’ responsibility to cover losses. It said every commercial insurance policy in force as of March 25 that included coverage for loss of business income, loss of use and occupancy, or business interruption, would be required to provide coverage for claims “directly or indirectly resulting from a public health emergency.”
It also specifically would have barred insurers from denying a claim because there had been no physical damage to the business, nor would it permit denial based on civil authority.
The retroactive coverage would have applied to businesses with fewer than 50 full-time employees.
Insurance trade groups pushed hard against the measure.
American Property Casualty Insurance Association President and Chief Executive Officer David Sampson said in a statement before the vote that approval of the measure could have “dramatic negative repercussions for all D.C. families, individuals, motorists, and businesses.”
The APCIA estimated closure losses just for the D.C. small businesses targeted by this legislation could range from $300 million to $1.1 billion per month, although it said those losses were for all businesses with fewer than 250 employees.
“These numbers dwarf the premiums for all relevant commercial property risks in the key insurance lines for D.C., which are estimated at $16 million a month,” Sampson said.
The property/casualty industry supports federal assistance programs that are delivering aid directly to vulnerable small businesses, he said.
Sampson’s statement also repeated support for a COVID-19 Business and Employee Continuity and Recovery Fund, which would provide immediate financial assistance to impaired businesses, similar to the 9/11 victims compensation fund. Insurers are working with the business community toward enactment of the recovery fund in the next federal COVID-19 relief package, he said.
Likewise, Collins said NAMIC wants to work with council on solutions to provide “swift and direct aid to local businesses without upending the commercial insurance marketplace in our nation’s capital.”
Seven states are also considering bills that would mandate retroactive business interruption coverage for small businesses (Best’s News Service, April 14, 2020).
Industry capital backing U.S. insurers and reinsurers writing BI could decline by as much as 50% on an after-tax basis if legislated policy changes force carriers to pay for two months of retroactive coverage on COVID-19-related BI claims, according to new Best’s Commentary (Best’s News Service, May 5, 2020). AM Best said it believes forcing insurers to pay for COVID-19-related business interruption claims, despite any specific policy exclusions, could threaten many insurers’ solvency and reap disastrous consequences for the U.S. property/casualty insurance industry.
To view AM Best analysis and commentary on the COVID-19 outbreak visit: http://www.ambest.com/about/coronavirus.html.
(By Timothy Darragh, associate editor, BestWeek: Timothy.Darragh@ambest.com)