At the outset of the COVID-19 pandemic, insurers were quick to argue that covering COVID-related business interruption claims would push the insurance industry to the brink of insolvency. These claims seemed exaggerated from the outset. The insurance industry is larger than the economies of all but a few countries and enjoys enormous capital and continuing profitable underwriting and investment on policies not implicated by the pandemic. It has survived asbestos, pollution, and hurricane claims. It probably could have handled even a strong wave of policyholder success. In addition to financial strength, property/business income insurers are protected by policy limits and sub-limits, time limits (for civil authority claims) and period-of-restoration/loss mitigation requirements as well as the ability to recoup losses through increased future premiums.
But even if insurers were completely right about the danger they faced in March 2020, subsequent events have largely erased those concerns. Most obviously, insurers have to date overwhelmingly prevailed in the coverage litigation. Even if this trend should reverse as more state courts decide the issue, many if not most insurer federal court victories will be subject to claim preclusion by the time any significant body of pro-coverage precedent emerges.
Regardless of whether the federal court decisions denying coverage are correct, they have established a litigation bulwark that will be reduced only gradually if at all. Insurers are not at risk of being forced to pay large sums in a short time frame. Policyholders, if successful in future litigation, will be making house-to-house gains in the ongoing COVID coverage wars, giving insurers additional investment income and avoiding any rapid depletion of reserves.
In addition, the policies in question typically contain provisions requiring that claims be made within two years after loss, or sometimes as little as a year. Insurance policy limitation clauses shortening that time are generally enforced – and the two year anniversary of the pandemic’s inception is well in sight.
Whatever force the insurance industry’s fears of economic disaster may have once had, that force has by now dissipated, if not evaporated. But insurance industry briefs in COVID coverage cases continue to plead poverty, an assertion that has moved from barely possible to highly exaggerated and now to non-existent.
Image: By Francis Barlow – http://mythfolklore.net/aesopica/barlow/59.htm, Public Domain, https://commons.wikimedia.org/w/index.php?curid=14476836