In the wake of the Sept. 11 attacks, our country was facing the real possibility of total disruption in commerce as a result of the insurance industry adding “terrorism” exclusions to all forms of property and liability insurance policies. Insurance policies already included an exclusion for “‘war” and had for many years. However, absent a declaration of “war,” property and business income policies, like the ones covering the Twin Towers, did not specifically include an exclusion for terrorism.
Faced with the real possibility that terrorists intended to continue to attack U.S. properties, and the inability to actuarily project and rate for this exposure, insurers began to add exclusions for terrorism. The result: banks stopped lending and extending credit lines for an exposure that couldn’t be insured. Construction projects came to a halt and new construction projects were stopped.
The Terrorism Risk Insurance Program was created in 2002 as a result of TRIA, the Terrorism Risk Insurance Act passed by Congress. Its purpose was to create a federal backstop for terrorism risk and to mandate the insurance industry to offer coverage, rather than exclude coverage. As a result of TRIA, banks began lending and extending credit. The wheels of commerce began turning again.
Now we face a new concern as a result of COVID-19 and the potential that commerce will again come to a halt. Insurers are denying business interruption claims because they never agreed to cover business interruption due to disease absent “direct physical damage” or a virus and bacteria exclusion or a combination of both. If hadn’t already, insurers will be adding specific exclusions to property policies clarifying the intent not to cover disease as an insured peril.
The House Financial Services Committee has proposed legislation on a go-forward basis to address the concerns of the financial services sector. It’s called PRIA, the Pandemic Risk Insurance Act. Its purpose will be to provide a federal backstop for a future pandemic and encourage insurance companies to specifically insure for the exposure. Currently considered voluntary, which could change, PRIA would also provide a sole remedy protection for a future event and protect insurers from lawsuits by policyholders seeking coverage.
PRIA is not meant to retroactively legislate coverage for the current pandemic. Individual insured’s lawsuits or state-specific legislation addressing whether coverage should exist for the current pandemic will be ongoing and resolved in time.
Steve Doss is a Vice President at CCIG. Reach him at Steve.Doss@thinkccig.com.
CCIG is a Denver-area insurance, employee benefits and surety brokerage with clients nationwide. We do more than make sure you have the right policy. We help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.Back to Resources