Ryan J. Beal
Director – Financial Services Division
Overmyer Hall Associates
Your advisors have always been there for you when you have needed them. For cash management, liability management or investment management, they excel for you, their clients. As the Director of the Financial Services Division here at Overmyer Hall Associates, I have been fortunate enough to partner with many of these professionals on another important piece of the puzzle, risk management and insurance.
Some of my clients have reached out to learn more about the court cases and insurance legislations that have been introduced, regarding COVID-19, I was happy to get to work. Now, I thought it might be worthwhile to put together some information with what we know now, what we are sharing with our clients, and what we see happening from here. Hopefully you find this information valuable.
As you are probably aware already, most policies do not explicitly cover business interruption due to “pandemics”. According to studies recently done by RiskGenius, an independent Insurance Professional consulting firm, about 80% of policies are “silent” on pandemic coverage, meaning they do not specifically include or exclude it in the policy language, while many more policies specifically state that lack of coverage. While there is little legal opportunity to challenge the policies that exclude pandemic coverage, it is that other 80% that leaves room for interpretation by the insurer and the courts.
In our opinion, we see many future suits being filed in jurisdictions across the country. If we have learned anything from past precedents here (Texas Mold Crisis of 2001-2003 for instance, which I will touch on in a minute) it is that these cases will take several years to work their way through the courts, and that the ultimate effect on insureds will most likely be a net negative.
To reference the previous example, in Texas back in 2001 a woman named Melinda Ballard discovered black mold in her 12,000 sq. ft. home. Her contention was that Liberty Mutual was negligent in their speed of response and remediation and that the mold caused learning disabilities in her son and brain damage in her husband. Initially the jury awarded her $32 million. On appeal, that was reduced to $4 million which didn’t even cover the repair needed and her legal costs. It was in essence “thrown out”. BUT, and why this is important today, the fallout from this case caused several things. First, a historically large increase in homeowner insurance rates. Mainly in Texas, but was felt nationwide. Secondly, it lead to mold being specifically excluded in future policies. A stance that still exists 18 years later. Ultimately, a net negative for the insurance buying public.
We see that as a possibility here as well. What was an 80% “Silence” rate on pandemics, will now probably be replaced by specific future exclusions. And, if judgments are issued against insurers for the lack of coverage, business insurance rates will certainly climb, potentially dramatically.
Potential lawsuits aside, we also have seen legislation advance in Ohio, New Jersey and Massachusetts that would retroactively expand business interruption insurance to include losses associated with the Coronavirus. It is our current view that these bills are “dead on arrival”. They are both flawed economically, where some studies have shown that losses would exceed premiums collected by over 12 times, and constitutionally where you have the government making material changes to a privately executed legal contract. Article 1 of the Constitution specifically prohibits this.
So while many industries are actively and strongly lobbying for this type of legislation, particularly the restaurant industry, we believe that this will not be an option for companies currently suffering from business shut downs due to COVID-19.
With that being said, there is one proposal making the rounds in the US Congress that has my attention. It was written by a Risk Management professor from Butler University, Zachary Finn. In that proposal, he is outlining an expansion to the Terrorism Risk Insurance Act. This expansion would cover pandemics in the same manner as acts of terrorism. There is a governmental pool, funded by a combination of public funds and insurance company contributions to pay out in the event of an act of terrorism. These acts are typically specifically excluded in commercial insurance policies.
This is intriguing because it limits the out of pocket expense of insurers, and comes at a time where the US Government is desperate to stop the momentum of a deep recession. It is our conclusion that this certainly bears watching in the coming weeks.
Ultimately, though, our immediate concern is for our clients. Their health and that of their family, their team and their business. It is a difficult scenario because so much is uncertain, and so much of this story remains to be told. However, what we have seen, and what we continue to coach our clients on, is how to keep their business as strong as possible for the return to “normalcy”. We have seen an uptick in professional related, unintentional “errors” due to the sudden changes in operating procedures. We have also seen and heard of many more attempted cyber-attacks. Hackers and thieves like nothing more than to exploit a period of crisis.
Please make sure to review the coverages that you have in place and ensure you familiarize yourself with coverage triggers and who to contact in the event of a cyber claim. We would be more than happy to assist with that review in order to help you with your peace of mind.
We continue to work with legislators, our insurance carriers and industry groups to fight for the interests of our clients. I am hoping I will have more positive news to report in the near future.
The current facts and future opinions are bound to change quickly, as they have these past several weeks, and we will continue to update everyone as the conditions warrant.
Stay safe, and I look forward to seeing proof of the resilience of our business community and our country as a whole.
About Overmyer Hall Associates
Overmyer Hall Associates is one of the fastest growing agencies in the country, quickly becoming one of the largest property and casualty insurance agencies in Central Ohio. Overmyer Hall Associates provides clients with insurance and risk management, specializing in Business Insurance, Surety Bonding, and Home & Auto Insurance. Since its founding in 2011, the firm has been awarded Columbus Business First’s "Fast 50" and "Best Places to Work" awards, the IIABA’s “Best Practices Agency” recognition, Columbus CEO Magazine’s “Best Insurance Broker” and the Columbus Young Professionals Club’s “Wonderful Workplace for Young Professionals” award. www.oh-ins.com