Proposed legislation in the city of Boston that would retroactively change insurance contracts to cover for business losses resulting from the COVID-19 pandemic could collapse the industry, and could even be unconstitutional, some industry experts have warned.
Sen. James Eldridge, D-Acton, filed a bill which mandated that insurers cover business interruption claims for coronavirus-related claims. The bill stipulates that insurers would have to cover costs for companies with 150 employees or fewer, even if the terms of the policy excludes losses caused by a virus.
“I’m not looking to attack the insurance industry,” the senator said. “I’d like to see us come together and agree on the details in the bill, but my focus right now is on how to support restaurants, their workers and other small business.”
Once the bill passes, insurance companies operating in Boston can apply for reimbursement from the Commissioner of Insurance, but the insurers would be later required to pay the state back.
Several industry experts have expressed their reservations about the legislation.
“This COVID-19 situation is a risk that I don’t think anyone could have possibly foreseen,” Kristen Whittle, a partner at law firm Barton Gillman, told Boston Herald. “I’m not insensitive to the plight of businesses. Everybody is struggling with this, but to target the insurance industry to absorb the loss, I think, is the wrong approach here.”
Massachusetts Restaurant Association vice-president of government affairs Steve Clark commented that the state bill is “an important first step,” but also noted that a federal reinsurance bill may also be necessary, since while he believes the insurance companies have money, “they don’t have unlimited funds.”
American Property Casualty Insurance Association (APCIA) president and CEO David Sampson also raised concerns that the “constitutionally-flawed legislation” will jeopardize the financial ability of insurers, and even threaten the stability of the insurance sector “to the detriment of all policyholders.”
Sampson had previously confirmed that APCIA is talking with industry and stakeholder groups about potential “liquidity solutions.”
Laura Meyer Gregory, partner at Sloane and Walsh LLP, brought into question whether the state bill is even constitutional.
“The bill, if passed with the current terms, would likely bankrupt some insurers and cause others to discontinue writing insurance policies,” Gregory told Boston Herald.
Boston’s proposal of a coronavirus insurance bill comes after the state of New Jersey proposed its own legislation, which would also virtually void any virus exclusions in business interruption insurance.