IMPORTANT: Please scroll down to the Comment section. Rather than trying to constantly update this article, I will be adding additional information as I come across it. Almost immediately, I came across regulatory action being considered in Colorado and a statement from Progressive that they were not going to enforce their food delivery exclusion for the next month or so.
The first article I wrote about the coronavirus dealt with business income coverage:
“Business Income Insurance…Does It Cover Coronavirus Shutdowns?”
The conclusion of this article was that there is likely little or no coverage under most business income forms. The insurance industry’s pockets are simply not deep enough to bail out hundreds of thousands of businesses, at a minimum, without imperiling the solvency of many insurers.
However, a couple of days later, I wrote an article about what the industry CAN do, from a coverage standpoint, to help individuals who, because of workplace changes, may now find their personal lines insurance coverage imperiled:
“How the Insurance Industry CAN Help with the Coronavirus Pandemic”
Below are just a few issues that consumers need to be aware of and for which insurers have an opportunity to do something really positive during this crisis without breaking the bank.
Many restaurants have closed their premises but are still offering carry-out and delivery. To keep servers and others employed, some are using them to deliver food in their personal autos. Likewise, some grocery and consumer goods stores are expanding their delivery services and hiring people to deliver products in their personal autos.
The ISO Personal Auto Policy (PAP) excludes the use of an auto as a “public or livery conveyance.” However, the consensus of case law is that the application of this exclusion requires that the insured, for example, offer the livery service to the general public and not do so through a private employer.
The first case I came across that found coverage was a 1982 Tennessee Court of Appeals case United Services Automobile Association v. Couch. Later, while doing research on a pizza delivery claim, a found at least two other state courts (and Supreme Courts at that) that found coverage under the PAP for pizza delivery: USF&G v. Lightning Rod Mutual Ins. Co., Ohio Supreme Court, 1997, and RPM Pizza, Inc. v. Automotive Cas. Ins., Louisiana Supreme Court, 1992.
In addition, other courts holding the exclusion to be ambiguous include Progressive Cas. Ins. Co. v. Metcalf, 501 N.W.2d 690 (Minn. Ct. App. 1993), Pizza Hut of Am., Inc. v. W. Gen. Ins. Co., 36 Ark. App. 16, 816 S.W.2d 638 (Ark. Ct. App. 1991), and Cincinnati Ins. Co. v. W. Am. Ins. Co., 112 F. Supp. 2d 718 (D. Ill. 2000). The first two of these three cases involved pizza delivery and the last mail delivery.
One Pennsylvania court found that the “carrying persons or property for a fee” exclusion found in some non-ISO (and older ISO) policies DID bar recovery, though the dissenting opinion makes a compelling argument that the court was mistaken, given the body of case law on this exclusion around the country.
However, all of this being said, there are certainly carriers who will attempt to use these or similarly worded exclusions to deny coverage for food, grocery or other deliveries. In addition, some carriers specifically include “Food Delivery” or similar endorsements on their personal auto policies.
And worse, some particularly onerous policies which have escaped the regulatory scrutiny of insurance departments may include general business exclusions for certain types of vehicles or uses as I explained in this article.
The bottom line is workplace changes may result in the use of autos by consumers in a way that is excluded by their current auto policies.
There are many potential coverage issues when it comes to homeowners (HO) policies. The obvious one is the fact that most HO policies exclude liability that arises from communicable diseases such as this exclusion in ISO HO policies:
“Bodily injury” or “property damage” which arises out of the transmission of a communicable disease by an “insured”….
With millions of people now working from home, it’s important to recognize that most homeowners policies have very broad liability exclusions for business activities. Many HO policies do not include personal injury liability for things like slander, libel, etc. Given what some people are saying on social media or in person when confronting alleged hoarders in the grocery, this very inexpensive coverage might come in handy.
Similarly, most HO policies have some sort of limitations on property coverage. The ISO HO-3 form limits coverage for property used “primarily” for business purposes to $2,500 on premises and $1,500 off premises. Some non-ISO (and older ISO) forms have much lower limits and they apply to ANY property used for ANY business purpose.
What can insurers do?
In the article cited above, I explain that there will be little that can be done from a coverage standpoint for businesses. However, for impacted consumers, carriers have an opportunity to step forward with policy form changes that benefit insureds without breaking the bank.
One example could be issuing 6-month duration PAP endorsements that remove or modify business exclusions related to transporting people or property. Yes, there will be increased claim frequency because of this, but there might be an actuarial basis for it being offset by the fact that people are currently driving far less as they hunker down in their homes and put off travel plans.
Something similar could be done with regard to the increased “business” exposure presented by those working from home. I don’t have any specific suggestions beyond lifting property damage limits and reverting back to decades-old form language that used to cover some business exposures if they were of a nature that could occur with a causal business connection (e.g., spilling hot coffee on a visiting client).
What do you think? Are there things that insurers can do that are reasonable and responsible? If you have suggestions, please post them in the Comments below. In addition, if you have any actual knowledge of carriers proactively doing things like this, please post that as well.
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What the state of Colorado is considering:
What Progressive is doing (Flo must read my blog?):
Before someone decides my point here is petty (and long-winded), remember that we are and industry that tells people that words are important. Just look at the press surrounding “physical damage to property” is getting.
So to my point, this morning in response to another comment, you said you thought most insurance companies want to do the right thing. I believe that is a true statement. Unfortunately, there is a reason 43%-56% (depending on who is publishing the data) of the public doesn’t trust their insurance company to “do the right thing.” Forgetting for a minute what the average consumer sees as “the right thing,” I would prefer for Progressive to to make a clear statement of coverage rather than stating they will “…modify enforcement of policy exclusions…” too insurance speak! Words matter!
Some states (e.g., Kentucky and Wisconsin) are mandating coverage (e.g., for food or grocery delivery) that doesn’t exist in policy forms. Progressive is voluntarily waiving the delivery exclusion. As I’ve written, I believe this MUST be done via endorsement. I believe it was Wisconsin that also ordered that if a commercial policyholder doesn’t have an auto policy or coverage but they do have a CGL policy, then that policy MUST cover the hired and nonowned auto exposure. How do you identify coverage, exclusions and conditions without policy language? Is this H/NO coverage without any exclusions or limits?
As you noted in the post, mandating coverage that is a totally different (and dangerous) precedent!
Excellent information and perspective. Thanks for sharing.
Wisconsin Mandates That Insurers Cover Auto Delivery Exposures?
I posted a couple of days ago that something insurers could do is voluntarily cover delivery if their policies excluded it. Given the reduced exposure of less people overall driving, the loss experience could be a wash. However, I suggested they do this by issuing short-term endorsements, not just arbitrarily saying they won’t exclude such losses. It’s important to expand coverage contractually.
Now it appears that Wisconsin has mandated that personal auto insurers cover delivery even if their policies exclude and that CGL policies include hired and nonowned auto coverage for deliveries:
Wisconsin’s action is disturbing if they are MANDATING that insurers cover something not covered by their contracts. I question if that is within their regulatory authority.
It also begs the question that, if insurers go along with such an order as a matter of goodwill, what’s to prevent states from mandating that they pay BILLIONS in uncovered business income claims?
There is a right way and a wrong way to respond to this crisis and probably a legal way and an illegal way.
The best carriers we represent now are displaying a great deal of compassion. For example, the owner operator truck driver. Who has been running auto parts for decades. He has no other option for generating revenue and has a large payment every month in order to drive a safe vehicle. Thank you to our carrier who allowed him to place his ONLY power unit on “comp only” during this shutdown. It may be one of the factors that allows him to maintain ownership of the vehicle so that he can get back to work when we are ‘allowed’ to. I have never seen carriers (invested time both on carrier and now agency side of the biz) work better with our clients than they are now. This is a time when the “rubber meets the road.” Your top quality carriers are calling YOU to see what they can do to help. No one is insulated from this and I appreciate the carriers who recognize that we all truly all in this together.
Cliff, I think most mainstream insurers want to do what’s right. Stories like this are good to hear.