Widespread economic losses to many businesses due to COVID-19 business
closures have led many plaintiffs’ attorneys to assert in lawsuits that business
interruption (BI) insurance policies cover these losses, while insurers generally
contend that their BI policies exclude coverage for a variety of reasons. We explain
the basic coverage contentions below. Additionally, several states are considering
measures that would retroactively establish coverage for pandemic-caused losses
under BI policies. While the resolution of coverage disputes and the legality of
retroactive coverage expansions in the courts is uncertain, clearly there is strong
interest in making BI pandemic insurance available going forward.
While a few insurers have offered BI pandemic coverage, no firms have
purchased it (Lerner, 2020). Further, many insurers are reluctant to expand their
BI policies to cover pandemic losses. Hence, there is strong interest in creating a
federal government insurance program that would provide BI pandemic coverage.
Currently, there are at least two formal proposals to establish such a program.
One proposal is the Pandemic Risk Insurance Act of 2020 (PRIA), which was
introduced in the U.S. Congress as H.R. 7011; PRIA would establish a Pandemic
Risk Reinsurance Program (PRRP) modeled after the Terrorism Risk Reinsurance
Program (TRRP) established by the Terrorism Risk Insurance Act (TRIA). Three
industry trade associations also have proposed a Business Continuity Protection
Program (BCPP) as an alternative to PRIA that is similar in some regard to the
National Flood Insurance Program (NFIP).
PRIA intends to create a public and private insurance program that would
provide BI insurance for pandemics, with participating private insurers retaining
5% of losses above a deductible. We critique the program contemplated by PRIA
and discuss the BCPP. Additionally, we consider a program concept of our own
design that would also borrow from the NFIP (but would differ somewhat from the
BCPP), as well as a program similar to the federal crop insurance program. We
conclude that frameworks based on the NFIP or the federal crop insurance program
would have several advantages over PRIA, which has a number of problems, but
even these alternative frameworks would face many challenges. This policy brief
provides a preliminary review of the PRIA and BCPP drafts, as well as other
alternative frameworks, and draws from a longer working paper by the authors
(Klein and Weston, 2020)
Assessing trends in insured losses from floods in Spain 1971–2008