The following article was brought to my attention today. Unlike some other industry online publications, Property Casualty 360 has no direct way to respond to articles. In this case, the article is labeled “Commentary,” so you’d think there’s be some mechanism for a counterpoint. Apparently not, so I’ll use my blog to respond to claims from policyholder attorneys that virus exclusion endorsements were filed in a manner that was false, misleading, and blatant misrepresentations. Here is the article:
“Here we go again: Virus exclusion for COVID-19 and insurers”
This article is a good example of cherry-picking language from a document, in this case a regulatory filing. The only possible misrepresentation I see is in this article itself. This is what the ISO filing actually said:
“Although building and personal property could arguably become contaminated (often temporarily) by such viruses and bacteria, the nature of the property itself would have a bearing on whether there is actual property damage. An allegation of property damage may be a point of disagreement in a particular case. In addition, pollution exclusions are at times narrowly applied by certain courts. In recent years, ISO has filed exclusions to address specific exposures relating to contaminating or harmful substances. Examples are the mold exclusion in property and liability policies and the liability exclusion addressing silica dust. Such exclusions enable elaboration of the specific exposure and thereby can reduce the likelihood of claim disputes and litigation.
“While property policies have not been a source of recovery for losses involving contamination by disease-causing agents, the specter of pandemic or hitherto unorthodox transmission of infectious material raises the concern that insurers employing such policies may face claims in which there are efforts to expand coverage and to create sources of recovery for such losses, contrary to policy intent.
“In light of these concerns, we are presenting an exclusion relating to contamination by disease-causing viruses or bacteria or other disease-causing microorganisms.”
There is nothing misrepresentative about the purpose of the filing nor the intent of existing policy forms. No property policies are designed with the intent to cover potentially catastrophic pandemic losses that could render an entire critical industry insolvent. That’s why many policy forms have exclusions for flooding, earthquake, war, etc. As the filing indicates, the pollution exclusion’s “contaminant” reference served to avoid claims of this type until some courts began to find coverage where none was intended.
It’s clear from the full wording in the filing that the exclusionary form was being introduced to counter the unintended consequences of judicial interpretations that do not reflect the intent of insurance policies. There has been an almost constant evolution of form language since the early 1980s as a result of adverse judicial decisions and this exclusionary form was preceded by a number of other exclusionary forms that were introduced to counter such decisions. There is nothing nefarious nor intentionally misrepresentative about the claims in the filing. Regulators understood this when they approved or failed to reject such filings.
The article itself has far more potential misrepresentations, such as:
“The concept that the presence of a virus does not constitute property damage is simply not true.”
There is substantial case law holding that physical damage requires more than the mere presence of a substance, especially one that consists largely of only short-term surface contamination that effectively self-destructs, leaving zero residual property damage. These courts have ruled that there must be some physical alteration of the property to constitute damage. Here’s an accurate article from an attorney that more objectively presents both sides of the issue:
“What Constitutes Loss or Damage in a Property Insurance Policy”
Likewise, if there is a “blatant misrepresentation,” it is in the form of this comment in the article [emphasis added]:
“[A]ssertions by ISO or AAIS or other insurers in 2006 that their insurance policies were not responding, or were not intended to respond, to these claims, were blatant misrepresentations.”
Anyone with even a basic understanding of insurance knows that no mainstream insurance policy is intended to respond to potentially catastrophic pandemics. Again, despite the allegation in the article, there is nothing in the filing that should lead any fair-minded and objective person of average intelligence to believe that the information was “false and misleading.” Again, regulators understood this and either approved or acquiesced to the filings.
It makes no sense for a court to refuse to uphold the plain, clear and unambiguous language of a policy form that excludes the uninsurable.
Photo by tuchodi 
Bill Wilson
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It is a shame we have come to this. For larger insureds with captives I am willing to bet not one thought of this exclusion and the need for funding.