By letter dated March 31, 2020, 33 bipartisan members of the California congressional delegation wrote to California Insurance Commissioner Ricardo Lara requesting that he use his authority to ensure that insurance companies comply with their business interruption policies.
After hearing that insurers were denying coverage to various California businesses that purchased business interruption insurance, members of Congress wrote the letter to help businesses get business interruption coverage so they can remain solvent throughout closures due to the COVID-19 pandemic.
The letter states the following: “We urge you to exercise all authority to ensure the insurance companies comply with their business interruption policies. During this crisis, we must do everything possible to mitigate the devastating impact on small businesses due to the coronavirus pandemic.” Members of the California delegation further wrote, “The coronavirus poses significant challenges to many small businesses and we are urging you to exercise all authority to have insurance companies comply with their business interruption insurance to cover losses caused by a California statewide business shutdown ordered to prevent the spread of coronavirus.”
In response, property-casualty insurers reaffirmed their position that business interruption coverage is not designed to respond to losses caused by communicable diseases. “Insurance coverage works by spreading risk, but that model simply cannot account for a situation in which losses are catastrophic and nearly universal. Standard business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19, and as such, were not actuarially priced to do so,” wrote leaders of insurance trade groups. The leaders further cited estimates that just one month of business interruption losses for small businesses could reach $383 billion, thereby potentially threatening the solvency of the entire insurance industry.