Insurance Coverage vs. COVID-19
Co-ops & HOAs May Be Left Holding the Bag |
Article Courtesy of The Cooperator
By A.J. Sidransky
Published
August 5, 2020
By its very definition, insurance coverage is planned
protection against both the expected and the unexpected. Life insurance
clearly provides financial security in the event of death, which of
course is an eventual certainty. But at the same time, it also provides
for circumstances in which someone’s passing is early or sudden. On the
other hand, something like flood insurance provides protection against a
‘known unknown’—a potential threat that can be prepared for to some
degree through intelligent analysis of risk. As such, insurance is a
generally accepted method of handling potential risk in the business
world. Pay a little now, and get what you need to cover the cost of the
unexpected later, when and if you need it. Co-op, condo, and HOA
properties and owners are well acquainted with this business practice
and carry several types of insurance to cover all kinds of possible
emergencies. So… how does that shake out in the current COVID-19 crisis?
Responding to the Unknown
While insurance policies are forward-facing—meaning they attempt to
manage future risk—they are based on past data, such as how probable
similar events were in the past, and how past experience can help us
manage the same or similar circumstances in the future. However, when it
comes to something as unprecedented as the current pandemic, insurance
carriers are in new and uncertain territory—often to the detriment of
those looking for coverage.
Ryan Fleming is a partner at JSG Insurance, with offices throughout the
Northeast. He explains, “Insurance policies in general aren’t designed
to respond to something like this. It’s triggered by a sudden,
accidental, unexpected occurrence. In this case, with this type of
pandemic growth, policies aren’t really designed to cope with it.”
Insurance actuaries—the statistical scientists who calculate and
interpret risk on behalf of insurance companies to help them set
premiums and determine the extent (and limits) of coverage—calibrate new
crises into risk analysis going forward. As carriers re-evaluate
potential claims from COVID-19 and any future pandemics, the actuaries
will have to figure out what such new variables mean in terms of risk
exposure—and, by extension, coverage options.
“Many carriers took the experiences of the SARS and ebola [outbreaks]
and used them to write some verbiage into policies, so that insureds and
insurers would be clear on coverage,” says Fleming. “Now, other carriers
that were a little less aggressive in their verbiage are going to have
to see how the claims come across the table and determine how to resolve
them.”
Wayne Dow, also a partner with JSG Insurance, sees some uncertainty in
how carriers are reacting and will react to the current situation. “In
my experience, for insurance carriers it’s always been a matter of
looking at the coverage. Look at the facts of the claim, try to make it
fit the coverage, and then figure out the response at that point. I
don’t think the carriers are sitting in their offices trying to figure
out how to disclaim coverage. I believe this pandemic has been something
that obviously no one expected or accounted for. In my discussions with
carriers, they view this as a new situation. And I think everyone is
trying to remain calm and try and figure out what claims are going to
look like, how they’re going to come in, and how they should be
measured.”
Carrier Response
Four months into the pandemic, claims are beginning to come in—and
policyholders are beginning to see what considerations insurance
companies are taking with respect to existing policies and COVID-19.
“We’re expecting an influx of claims,” says Fleming, “but truthfully,
what I’ve been saying for the last few months is that right now we are
‘pregnant’ with claims, but in a symbolic nine months we’re actually
going to give birth to those claims. To date, we haven’t seen COVID-related
claims come through in bulk. What we’re seeing more of right now is on
the commercial side of things—business interruption and workers
comp–type claims.”
According to Fleming, “We are expecting to see claims that struggle to
prove causation, that basically maintain that they believe the insured
contracted the virus at a community location, in one of the amenities.
We believe carriers are going to have a very direct response to those
claims.”
For his part, Dow stresses that “as phased reopening continues, you may
start to see those claims develop, but I think it’s going to be one of
those issues where we may see a ‘shotgun’ approach. Carriers are going
to be seeing all kinds of stuff—from discrimination claims to harassment
in the actual cases themselves. And it’s at that point when I think
insurers are going to sit back and look at these claims. I’m sure
they’ve looked at their coverage forms and tried to figure out exactly
how best to respond, but there’s going to be a measured response by all
carriers on all lines of coverage affected by this. I think because of
the fact that things aren’t completely open in some locations, and the
possible ramifications of events in those that have opened, we haven’t
yet seen exactly what we’re going to be looking at in terms of claims.”
Fleming adds that “there’s already some pretty specific verbiage in most
general liability policies talking about virus, bacterial pathogen, and
biohazard exposure, and the exclusion of defense. So in the absence of
that, there are some other caveats that carriers are going to that
indicate that they are really going to dig in their heels. At the end of
the day, if somebody says, ‘hey, I contracted the virus at the community
amenity,’ it’s going to be difficult for them to prove that that
actually occurred, unless they lived in a bubble with no one else and
went only to that amenity.”
Non-Health-Related Claims
For some condo associations and co-op corporations, especially in urban
settings where property tends to be more vertical than horizontal,
another insurance complication raises its head: lack of rent payments
from non-resident sources. In other words, a restaurant on the ground
floor that normally pays the association or co-op $40,000 per month,
covering a substantial portion of the community’s operating budget, has
slowed down—or closed down entirely—as a result of the pandemic. Many
businesses carry what’s called business interruption insurance to cover
their rent in this possibility. Many landlords also carry rent
interruption insurance. But what if the insurer won’t pay?
Fleming says that right now, it’s a difficult gray area. “It all depends
on triggers. This is interruption coverage. It’s in there, it’s on the
policy. Only problem is getting to it. All that’s needed is the proper
key to unlock the policy benefits. The insured must show that the event
is a cause of loss. Without that cause of loss, we struggle to get
access to that coverage. I actually read an article yesterday morning
about how lawsuits from insureds versus insurance carriers are in the
hundreds, because they’re trying to trigger that business income
coverage. Businesses are saying they have the coverage. They’re claiming
all sorts of triggers, whether it’s civil authority, or just the
existence of COVID, the state not allowing them to open—all of these
situations. They’re saying these events should have triggered the
business income coverage; the carriers are saying, ‘no, we don’t see the
trigger.’”
Both Dow and Fleming say they expect to see a growing—and
consistent—level of resistance on the part of insurance carriers to all
kinds of insurance claims for the foreseeable future.
Clearly, co-op corporations and condominium associations are at risk of
getting caught in the middle of this potential legal morass. Whether an
insurance claim results from an individual claiming to have contracted
the virus through some perceived negligence on the part of the
association or corporation, or as a result of civil action that closed
down a business whose monthly rent represents an important component in
the community’s financial and operational plans, it’s ultimately the
shareholders or unit owners left holding the bag. An already tense and
difficult situation may be made even worse by competing self-interests.
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