More legislation under consideration for business interruption claims
BY: Sarah Downey, NorCal Record
A new California bill addressing business interruption claims arising from the COVID-19 outbreak would include rebuttable presumptions that the business losses are pandemic-related and put the burden on insurance companies to show otherwise.
Many businesses have had claims denied by insurers on grounds the virus did not result in direct physical damage to property.
California AB 1552 would essentially rewrite current insurance contracts, Wayne Winegarden, Ph.D., senior fellow in business and economics at the Pacific Research Institute, told the Northern California Record by email.
“Clearly, if a business interruption insurance policy covered damages from a government shutdown, then insurers should pay on these policies. But the evidence does not support this interpretation. Therefore, insurers are being forced to cover the costs of risks that they have not budgeted to cover,” Winegarden said. “Since these costs were not expected, it is possible (probably likely) that insurers will have insufficient funds to cover these claims in addition to the claims they are contracted to cover. A financial crisis for insurers could possibly result.”
By potentially undermining key growth fundamentals – secure property rights and contract enforcement – Winegarden said AB 1552 may convey that California is not a hospitable place for business.
“Obviously, the businesses that receive the payments will be made better off. But every dollar that makes an insured business better off makes the insurance industry worse off. On net, these impacts will cancel one another out and there is no net benefit from the income transfer,” Winegarden said.
Re-writing insurance policies could create long-term costs for businesses and consumers, Winegarden said, potentially manifesting in higher rates or fewer available services.
“Since there is no net benefit from the transfer, but large costs imposed on the insurance business, the legislation will harm California’s economy – during the recovery stage and in the long-term,” Winegarden said. . .
