From questions over business interruption policy coverage spurred by the COVID-19 pandemic to property damage due to civil unrest, as well as significant court cases and state regulatory actions, it was a busy year for East region insurers.
Here’s a look back on the most noteworthy topics covered in Insurance Journal’s East region this year:
Business Interruption Insurance
As the COVID-19 pandemic claimed much of East region readers’ attention this year, a perhaps lesser known type of insurance moved into the spotlight, becoming familiar to many: business interruption (BI) insurance.
This type of insurance covers loss of income in some cases if a business is inoperable due to an event causing physical damage to the property, such as a fire or hurricane. Policies typically require physical damage to be present, and most policies specifically exclude losses due to virus, fungus or bacteria.
This became a point of contention this year, however, as many businesses were for the first time facing state-mandated shutdowns due to a pandemic, with some businesses voluntarily closing their doors for the safety of workers and customers. Proposed legislation began popping up in various East states, beginning with New Jersey and soon spreading to Massachusetts, New York and Pennsylvania, that would require insurers to cover COVID-19-related BI losses despite virus exclusions in their policies.
Though none of the bills passed as proposed, they raised questions about this type of legislation’s constitutionality, the financial strain insurers could endure if required to cover virus-related risks and exactly how an industry that focuses much of its effort on predicting risk can respond to something so unprecedented like a global pandemic.
In New York, the Department of Financial Services instructed insurers to submit details of business interruption policies provided to insureds, as well as the coverage each policy offers regarding COVID-19, in an effort to increase communication between insurers and their clients and achieve more clarity on this issue.
BI lawsuits also began popping up, with popular seafood restaurant chain Legal Sea Foods going to court in May in an attempt to get its insurer to pay for its business interruption losses after it was shuttered by the coronavirus and restrictions on dining.
In Pennsylvania, the state supreme court also in May issued a ruling that found COVID-19 was no different than other natural disasters in that they all involve “substantial damage to property, hardship, suffering or possible loss of life.”
The court found that because the virus is spread from person-to-person contact, has an incubation period of up to 14 days and can live on surfaces for up to four days, any location, including an individual business, is within a disaster area and is thus damaged. The ruling sparked concern that it could negate one of the insurance industry’s standard bases for denying BI coverage: the physical damage component.
The COVID-19 Pandemic
All over the East region this year, insurance regulators issued guidance to the industry on how best to respond to the ongoing coronavirus pandemic.
In New York, one of the earliest moves was Governor Andrew Cuomo’s March 6 announcement regarding six global and national insurance companies’ agreement to offer ‘cancel for any reason’ travel policies in the state.
In the summer as the pandemic was in full swing, a New York State Department of Health (NYSDOH) report found the coronavirus outbreak that has afflicted nursing homes throughout the state may have resulted from staff and visitors unknowingly infecting residents early in the pandemic.
As something that has become known as “quarantine fatigue” began setting in while COVID-19 continued to upend fall and winter plans and wreak financial havoc on small and mid-sized businesses in particular, states began grappling with businesses that were opening despite mandated shutdowns. In an October weekend crackdown in New York City, 62 tickets amounting to more than $150,000 in fines were handed out to violators of newly imposed restrictions in coronavirus hot spots.
In Pennsylvania, Governor Tom Wolf issued a warning to businesses that choose to open despite the pandemic shutdown, saying they could be jeopardizing their insurance coverage. Following Wolf’s warning, Pennsylvania Insurance Commissioner Jessica Altman reminded businesses of risks and increased liability they could face if they don’t comply with the shutdown order.
Indeed, businesses in Pennsylvania could still face liability if employees or customers contract COVID-19 on the premises, as Pennsylvania Governor Tom Wolf just this month vetoed a bill that would have expanded liability protection against COVID-19-related lawsuits for various businesses and entities in the state.
House Bill 1737 was initially introduced by members of the Pennsylvania House of Representatives and later amended by the Pennsylvania Senate and sought immunity protections against COVID-19-related lawsuits for a greater number of businesses, such as restaurants and nursing homes. A press release issued by Wolf’s office said the bill proposed “overly broad immunity protections from civil liability due to the pandemic.”
In Minneapolis, where police officers’ May 25 arrest of Floyd turned fatal, demonstrations over police brutality and racial inequality were sparked and quickly spread to other U.S. cities, including East region cities like New York, Pittsburgh, Boston and Washington D.C. However, East region readers were all eyes as peaceful protests by day were overcome by violence at night as criminal activity such as looting, arson and vandalism led to property damage and curfews being imposed in some cities.
The Property Claims Service, a unit of the Insurance Services Office, labeled this as a catastrophe since it was expected to meet the threshold of exceeding $25 million in losses, according to I.I.I.
These scenes that played out all over the East region also served as a stark reminder for the insurance industry of civil unrest that took place in New York and other U.S. states more than 50 years ago.
Beginning April 4, 1968, riots that broke out in New York and other states throughout the U.S. following the assassination of Martin Luther King Jr., an event typically referred to as The Holy Week Uprisings, resulted in 43 deaths, thousands of arrests and millions of dollars in property damage, Smithsonian Magazine reported.
The Insurance Information Institute (I.I.I.) estimates the King assassination riots in New York caused $4 million in losses for the state’s insurance industry, equating to $30 million today. I.I.I. ranks it among the top 10 costliest U.S. civil disorders for the insurance industry, a ranking Larry P. Schiffer, senior partner in Squire Patton Boggs’ New York office, told Insurance Journal in June that the civil unrest over the fatal arrest of George Floyd could measure up to.
“This is likely going to be, if not the biggest, one of the biggest insurance losses caused by riot, vandalism and commotion in U.S. history,” he said.
East Region Court Cases
Beyond the pandemic and the civil unrest which continued to dominate headlines for most of the summer, East region readers were also paying close attention to several notable court cases this year.
The Massachusetts Supreme Judicial Court ruled in March that an insurer is responsible for paying liability claims resulting from the improper use of a portable generator, despite an uninsured premises exclusion in the insured’s homeowners policy. This came after four people died from carbon monoxide poisoning at an uninsured cabin owned by Mark Wakelin. The cabin did not have electrical power, and it was found that a portable generator Wakelin left at the cabin had been improperly used indoors by the victims to power a small refrigerator.
Also in March, the Court of Appeals of Virginia upheld a Virginia Workers’ Compensation Commission decision that workers’ comp benefits cannot be awarded to a truck driver injured in an accident after failing to wear a seat belt. This decision came after claimant Parker Mizelle appealed the Commission’s decision, contending it was incorrect in finding he could not be awarded workers’ comp benefits because his injuries were caused by his intentional failure to wear a seat belt.
In May, A New Jersey appeals court upheld a trial court’s ruling that Chubb Insurance Co. is not responsible for damages to two insureds’ homes caused by Superstorm Sandy because of a flood exclusion in their policies.
The former president and chancellor of Liberty University (LU), Jerry Falwell Jr., in October filed suit against the school for reputational damage following his August resignation, according to a complaint filed in the Commonwealth of Virginia Circuit Court for the City of Lynchburg. The complaint alleged that LU leaders did not investigate lies about Falwell Jr., leading to his forced resignation after he served for 13 years as the university’s president. It also claimed the university subsequently engaged in a campaign to damage his reputation and family legacy.
Later in the year, a former Starbucks Corp. barista in New Jersey sued the coffee chain in November, claiming she was fired illegally because she did not want to wear a “PRIDE” T-shirt, which she said conflicted with her religious beliefs. Betsy Fresse said her August 2019 dismissal from a Glen Ridge, New Jersey store, near her Newark home, for allegedly violating Starbucks’ “core values” amounted to illegal religious discrimination under federal civil rights law.
New York Regulation
As has been the case in prior years, New York regulatory action was also a topic of interest for East region readers, beginning in July when The New York State Department of Financial Services (DFS) filed cybersecurity charges against title insurance provider First American for exposing millions of documents containing consumers’ personal information.
The charges served as the first to be filed under DFS’ cybersecurity regulation, Part 500 of Title 23 of the New York Codes, Rules, and Regulations, which went into effect in March 2017 and was implemented under a phased two-year timeline.
In September, DFS Superintendent Linda Lacewell implemented several new initiatives to address climate-related financial risks, calling on insurers to begin integrating these practices into their risk management and business strategies.
The move came amidst annual climate summit New York Climate Week, underway from September 21 through 27, and ahead of the November 4 anniversary of the U.S. formally beginning its withdrawal process from the historic 2015 Paris Climate Agreement last year.
This fall, a coalition of business advocacy and local government groups renewed calls for reform to a New York law that has been on the books since the late 1800s. New York State Labor Law sections 240/241, known as the Scaffold Law, holds contractors and property owners engaged in construction, repair or demolition work 100% liable for gravity-related injuries despite any gross negligence on the part of injured workers, such as failure to use proper safety equipment.
The coalition, which includes more than 75 member organizations such as contractors and various trade groups, wrote a September 29 letter to New York Governor Andrew Cuomo calling for removal of this absolute liability standard within the Scaffold Law.
Finally, closing out a three-year investigation, DFS entered into a November settlement with the National Rifle Association (NRA) to resolve alleged violations of New York insurance law. The settlement includes a monetary penalty of $2.5 million and means the NRA will be banned from doing insurance business in New York for five years, regardless of whether it obtains an insurance license during that time.
Doing Good in a Time of Need
While it’s safe to say 2020 has had many ups and downs, the insurance industry still managed to do a lot of good.
In the East region, William A. Smith & Son Insurance was nominated by its employees and won Insurance Journal’s annual Best Agency to Work For Gold award. Its employees, who filled out an anonymous survey as part of the nomination, said this honor is well-deserved due to the agency’s family-focused atmosphere.
“We really care about our customers and want win/win relationships,” said Jack Smith, executive vice president and owner of the Newburgh, N.Y.-headquartered independent agency. “It’s not just about how things are for us. We’ve been in business for 90 years. We want to make sure that everybody is served and that they feel good about doing business with us.”
Tinton Falls, N.J.-based managing general underwriter Convelo Insurance Group has been in business for nearly two years and is continuing its focus on the non-profit space, which has been hit hard by the pandemic this year.
“Insurance is a fundamental tool in our economy,” said Founder and CEO Josh Lamberg in a December interview with Insurance Journal. “It provides the ability to make someone whole in the event of a loss. However, nonprofits are experiencing an extremely hard market while trying to serve our nation’s most vulnerable. The impact of the hard market has been exaggerated by the impact of the pandemic.”
Lamberg said the ability to help the neediest in the community, particularly as the challenges nonprofits face have been exacerbated by this year, makes his job at Convelo one of the most rewarding yet.
“When we go home at the end of the day, we feel good,” he said.
At its annual Northeast Benefit Event, held virtually this year on December 9, The Insurance Industry Charitable Foundation (IICF) raised more than $880,000. The event gathered more than 380 insurance professionals and leaders in philanthropy for a virtual evening celebrating charitable giving and volunteerism throughout the year while fundraising to continue giving back to the community, according to an IICF press release.
Betsy Myatt, executive director of the IICF Northeast Division and IICF vice president and chief program officer, said although the benefit has become a holiday tradition in which meeting virtually instead of in-person was a big change this year due to the COVID-19 pandemic, she was inspired by the turnout for the celebration and the generosity of IICF’s member companies, event sponsors and insurance industry professionals, particularly at a time when the pandemic has created even more challenges for vulnerable communities.
“I think it really speaks of the insurance industry at its best,” she told Insurance Journal.
Happy new year, and thanks for reading Insurance Journal this year.
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