When the pandemic hit, many businesses were surprised to learn that their business continuity insurance did not cover “viral contamination.” As Connell Foley attorneys Lisa J. Trembly and Aaron H. Gould explain in a recent blog post, viral events are viewed in the insurance industry as uninsurable.
They cite a white paper by the American Property Casualty Insurance Association (“APCIA”) that states:
“The magnitude of potential losses exceeds the claims paying resources of the industry while a lack of historical data impairs the ability of insurers to precisely model the frequency and severity of losses and determine premiums. This problem is exacerbated by the fact that the majority of business continuity losses are driven not by random events, but by the unprecedented and deliberate actions of thousands of public policymakers. The consequences of these actions are not insurable and potentially pose a systemic risk to the industry as a whole and the economy broadly.”
As a result, 83% of insurance policies do not cover viral contamination, virus, disease, or pandemic, and 98% of all policies had a requirement for physical loss, the attorneys stated.
Not surprisingly, several state legislatures, including New Jersey’s, have introduced legislation to require insurance policies to cover such outbreaks, only to see the bills put on hold.