As I wrote in this article on March 20, most insurers providing business income coverage are likely going to deny most, if not all, COVID-19 claims. The reason is, the claims aren’t covered by most insurance contracts that include business income coverage and payment of uninsured claims could jeopardize the solvency of many insurers, as well as make it difficult or impossible to pay covered claims for which policyholders have paid premiums.

However, as I wrote in another article on March 22, there are things that insurers can do to extend policy coverages without becoming insolvent. For example, they can waive “delivery” exclusions on personal auto policies, cover employees as insureds under business auto policies while using their own autos on behalf of employers, and they can do other things like suspending vacancy clauses. This is exactly what some insurers are doing voluntarily and others may be doing in response to regulatory mandates.

BUT—and this is a big BUT—these broadenings of coverage should be done properly by issuing endorsements. If you’re going to cite contract language as the basis for denying claims, you should also cite contract language as the basis for paying claims. Otherwise, you may set a precedent for a willingness (even if grudgingly) to pay claims outside the four corners of the insurance contract.

In the past, it has not been uncommon for insurers to pay “goodwill” claims on losses not covered by policies. In some jurisdictions (e.g., Aetna Cas. & Sur. Co. v. Haas, 422 S.W.2d 316 (Mo. 1968)), this has come back to haunt them when later forced to cover similar claims.

In addition, this is arguably a contractual requirement of many, if not most, policies. For example, the ISO IL 00 17 – Common Policy Conditions form includes this provision [emphasis added]:

Changes

This policy contains all the agreements between you and us concerning the insurance afforded.  The first Named Insured shown in the Declarations is authorized to make changes in the terms of this policy with our consent. This policy’s terms can be amended or waived only by endorsement issued by us and made a part of this policy.

The exact language is used in ISO’s BusinessOwners program and likely there is similar language in the proprietary policy forms of non-ISO insurers. Many policies also have liberalization clauses like the following from the ISO CP 00 90 – Commercial Property Conditions form:

LIBERALIZATION

If we adopt any revision that would broaden the coverage under this Coverage Part without additional premium within 45 days prior to or during the policy period, the broadened coverage will immediately apply to this Coverage Part.

I’m not sure whether the phrase “we adopt any revision” refers to a regulatory filing or not. In other words, is any formal action (regulatory filing, actual policy form issuance, etc.) required? Regardless, I’m not sure the lack of filing or issuance modifies the Changes condition cited above.

I am admittedly not an attorney or legal expert, nor did I stay in a Holiday Inn Express last night, but this just seems like good advice. In some cases, endorsements may already exist, such as the ISO CA 99 33 – Employees As Insureds. Just add the existing endorsement on the basis that any normal premium charge is waived due to anticipated improved loss experience (though an amendment to the existing governing rates and rules form is probably a good idea).

In other cases, it is probably advisable that regulatory form filing requirements be complied with and state insurance departments will likely be receptive to expediting the filing process as they would an amendment to a rates and rules filing or permission may be implicit in a use and file state.

I believe this is the right way to do this even if, admittedly, it’s not the easy way.

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Bill Wilson

Founder at InsuranceCommentary.com
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

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