October 4, 2022

Volume XII, Number 277

Advertisement

October 03, 2022

Subscribe to Latest Legal News and Analysis
Advertisement

Federal Government Proposes “Reinsurance Backstop” to Cover Insurance Industry Losses Due to Pandemic-Related Claims

As the insurance industry faces the repercussions of the coronavirus pandemic, the federal government has proposed a draft bill, identified as the “Pandemic Risk Insurance Act of 2020,” that would establish a federal “reinsurance backstop” for pandemic insurance industry losses in excess of $250 million. The intent of the Act would be to provide support to the insurance industry for pandemic risk. The proposed bill seeks to create a federal program that would provide for a system of shared public and private compensation for business interruption losses resulting from a pandemic or outbreak of communicable disease. The proposed Act is said to mirror the Terrorism Risk Insurance Act, which was enacted in 2002 in response to the attacks of 9/11. 

The proposed legislation, led by House Financial Services Committee Chairwoman Maxine Waters (D-CA) would be administered by the Department of the Treasury and act as a reinsurer for commercial property/casualty insurers. The program would be triggered when industry losses exceed the $250 million threshold and aggregate losses would be capped at $500 billion in a calendar year for both insurers and the government. Insurers that participate in the program will be charged an annual premium for reinsurance coverage, purportedly based on the actuarial cost of providing such reinsurance coverage, including costs of administering the program. 

In return for a federal backstop on pandemic losses, insurers would agree to make available business interruption insurance coverage for insured losses that do not differ materially from the terms, amounts and other coverage limitations applicable to losses arising from events other than public health emergencies. The government would pay 95 percent of the losses in excess of an individual insurer’s deductible with the rest to be paid by the individual insurer.

© 2022 Wilson ElserNational Law Review, Volume X, Number 122
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Paul S. White Partner Insurer Litigation: Coverage/Extra-Contractual Insurance & Reinsurance Coverage Professional Liability & Services

Paul White focuses his practice on complex insurance coverage and bad faith litigation and represents defendants in commercial litigation. Paul's insurance coverage practice includes advising and representing insurers in bad faith litigation and insurance policy disputes, including first-party property policies, general liability coverage, errors and omissions insurance, and media liability insurance. He also advises and represents insurers in subrogation actions on property losses. In addition, Paul has litigated and arbitrated disputes throughout the United States involving domestic and...

213-330-8818
Siobhán A. Breen Associate New York Directors & Officers Liability Insurance & Reinsurance Coverage
Associate

Siobhán A. Breen represents primary and excess professional liability insurers and drafts coverage opinions with respect to complex insurance coverage matters involving directors and officers liability, errors and omissions liability, miscellaneous professional liability, lawyers professional liability, and employment practices liability.

Prior to joining Wilson Elser, Siobhán’s practice consisted of insurance coverage and insurance defense litigation. Siobhán has experience in securities class actions, shareholder derivative actions, cyber/privacy actions, and professional...

212-915-5502
Advertisement
Advertisement
Advertisement