In the last couple of days, several people have brought a policyholder attorney COVID-19 PowerPoint to my attention. One of the slides is entitled “Possible Broker/Agent Negligence” and suggests at least three grounds for lawsuits against insurance agents and brokers:

  1. Failure to endorse policy to extend 4-week civil authority coverage.
  2. Failure to timely endorse policy with [sic] to cover Coronavirus claims.
  3. Failure to endorse policy to reduce 72 hour waiting period.

With regard to #2 above, I’m not aware of any standard coverage endorsement for pandemic claims. Mainstream property insurance forms are not designed nor intended to cover catastrophic exposures of that type, just like they usually don’t cover flood risks, and pandemics present geometrically larger exposures to loss, making them even less insurable than floods. So, I’m not sure what grounds there would be for legal liability on the part of insurance agents and brokers for not attaching coverage endorsements that largely don’t exist.

The only realistic basis for failure to provide coverage might be where an agent represents an insurer that does not use a specific virus exclusion or an insurer that would be willing to remove a virus exclusion, but fails to do so. That would require that agents possess Nostradamus-like powers of prognostication and likely would not be successful anyway given the probably lack of coverage under policies that have no specific virus exclusion.

With regard to #1 above, ISO does have an endorsement, the CP 15 32 – Civil Authority Changes Endorsement that allows the 28-day (4-week) coverage period to be extended to 60, 90, or 180 days. The rate modification factor for these coverage enhancements are 1.10, 1.15, and 1.25, respectively. If the Maximum Period of Indemnity business income option has been used, the coverage period can be increased to 60 or 90 days.

The CP 15 32 form also allows the one-mile radius provision to be increased, but that is governed by each individual insurer’s coverage and rating plans and may be based on state regulatory mandates or guidelines.

With regard to #3 above, ISO also has a CP 15 56 – Business Income Changes – Beginning Of The period Of Restoration Endorsement which allows the 72-hour waiting period to be eliminated or reduced to 24 hours. The rate modification factors for these enhancements are 1.15 and 1.10, respectively.

Here are some of the E&O issues that immediately come to mind:

First, business income coverage was never intended to apply to pandemics, so these questions don’t always come up in that context.

Second, if an insured was offered the opportunity to extend civil authority coverage to 180 days and reduce the waiting period to 0 days, realistically, how many of them would be willing to increase their business income premium by almost 50% (1.25 X 1.15 = 1.4375)? At best, only insureds in coastal areas would likely even consider this.

Third, ISO currently has over 1,800 active Commercial Property policy forms and endorsements countrywide, with any one state having up to 200 in effect. Each of these forms has a multitude of coverage options. In the case of ISO’s BusinessOwners Program, there are over 2,300 BOP policy forms and endorsements countrywide (some of those being liability forms), with up to 220 in effect in any one state. This does not count the THOUSANDS of non-ISO proprietary or enhancement forms that might be available to independent agents. So, how can an agent be expected to offer tens (maybe hundreds) of thousands of coverage options to every insured?

Fourth, case law in various jurisdictions have established an agent’s duty to advise. I’m not aware of any state that would hold an agent negligent or otherwise legally liable for not offering every conceivable policy enhancement available, not even states that have a professional standard of care or where a special relationship is relatively easy to establish. It’s simply an unreasonable (and, frankly, impossible) standard of care.

No doubt, there will be lawsuits against agents, perhaps jointly with those against insurers. However, in most jurisdictions, absent any specific facts and circumstances to the contrary, I would not expect success if consideration is given to the absence of pandemic coverage, coupled with the unreasonableness of expecting insurance agents to offer every possible coverage enhancement.


Photo by Wesley Fryer

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Bill Wilson

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One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information