COVID-19 Important Updates
On this page you will find important information regarding the following:
- COVID-19 and Business Interruption Insurance Coverage
- Families First Coronavirus Response Act (FFCRA)
- Coronavirus Aid, Relief, and Economic Security (CARES) Act
COVID-19 and Business Interruption Insurance Coverage
The debate over business interruption insurance and similar coverages and their applicability in the current crisis has escalated considerably in recent days. A variety of policymakers, trial lawyers, and insureds are pursing efforts to force the insurance industry to assume responsibility for COVID-19 related losses. The Independent Insurance Agents & Brokers of America (IIABA) has prepared the following, which briefly outlines some of the legal, financial, and other substantive problems associated with the current state of business interruption insurance and its application during this pandemic:
COVID-19 and Business Interruption Insurance Coverage
Attempting to Revise Insurance Contracts Retroactively Is a Bad Idea
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What Is Business Interruption Insurance Coverage and How Does it Work?
· Business interruption insurance covers financial losses (e.g., continuing operating expenses, lost income) when a business cannot function because of physical damage to a commercial property due to a covered loss (e.g., a fire in a restaurant kitchen).
· Only about 40% of commercial property insureds purchase this coverage, and it is purchased by an even smaller percentage (30%) of small businesses.
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Is Business Interruption Coverage Available to Pay for COVID-19 Losses?
· For nearly every commercial policy, the answer is no. For the financial and practical reasons outlined below, there is no coverage for pandemic events of this nature available in the marketplace today.
· To recover under business interruption coverage, losses must be related to physical damage inflicted upon the insured’s property. There is no physical damage predicate in the context of the COVID-19 pandemic.
· In addition, almost every commercial policy with a business interruption component contains an explicit exclusion for any losses caused by any virus. COVID-19 is the virus responsible for the current pandemic and the related business closures, and the exclusion precludes coverage.
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Why Is There an Exclusion for Losses Caused by COVID-19?
· Pandemics are uninsurable, and the losses associated with a pandemic are beyond what the existing insurance mechanism can afford to cover.
· Insurance policies contain exclusions for losses caused by events like war, nuclear and radiation accidents, and pandemics because the potential losses are so extreme and widespread that providing such coverage would threaten insurer solvency and force companies to charge premiums that would be cost-prohibitive.
· Exclusions for extreme perils of this nature are commonplace, and the policy terms are contained in filings routinely submitted to state insurance departments.
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Such Proposals Are Unconstitutional.
· Legislatively rewriting existing insurance contracts by somehow nullifying the virus exclusion or the physical damage requirement would blatantly run afoul of the constitutional prohibition against the government impairing private contracts.
· Courts would almost certainly find such action unconstitutional. This is not a close legal question.
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Mandating Retroactive Business Interruption Coverage for COVID-19 Losses Would Be Financially Catastrophic for the Property-Casualty Industry.
· Insurers do not collect premiums for excluded risks of loss, and forcing insurance companies to pay for losses that were not accounted for and supported by premium will jeopardize the solvency of the insurance system.
· The magnitude of these losses is enormous and will threaten the financial health of many insurers, quickly send some domestic companies into insolvency, and destabilize an otherwise healthy economic sector. The insurance industry will be needed to support economic activity and help fuel our economic rebound when the restrictions are lifted, but it will not be positioned to do so if measures like this are enacted into law.
· Such proposals would require insurers to utilize the premiums collected for other specified risks and set aside to pay claims, and the outlays this would mandate will almost certainly exceed the amount of premium collected for all commercial property insurance.
· Requiring insurers to compensate businesses with fewer than 100 employees for these excluded losses would cost the industry $220 billion to $383 billion per month. That amount rises to $900 billion per month if the threshold is raised to 500 employees. In contrast, the P&C industry’s total surplus – which exists to pay covered automobile, home, and business losses – is only $812.2 billion and would be wiped out quickly if such mandates ever took effect.
· Such proposals will have lasting and significant negative effects and result in large increases in premiums and reductions in the availability and scope of coverage. |
State Regulators and Legislators Object to Retroactive Mandates.
· The National Association of Insurance Commissioners (NAIC) – which is comprised of the regulators responsible for ensuring the solvency of the industry and protecting consumers – has cautioned against and expressed opposition to such proposals. They have said requiring the payment of claims that were not covered “would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.”
· The National Council of Insurance Legislators (NCOIL) has stated that such proposals are unconstitutional and “inadvisable for policy and economic reasons.” NCOIL has also noted that requiring payment for such losses would destabilize insurance companies, “render them unable to pay claims for which they did accept the risk,” and “jeopardize the solvency of any number of insurers.” |
Businesses Are Hurting. What Can Be Done?
· Proposals that attempt to revise insurance contracts and compel insurers to pay for losses that were clearly excluded are misleading and offer false hope to businesses that are struggling through the crisis. These businesses need serious and realistic solutions.
· We are in the midst of an unprecedented crisis, and the federal government is the only entity able to provide the type and magnitude of financial assistance required.
· The insurance industry is working closely with the business community on a proposal that would enable those in need to receive compensation from the federal government. The federal fund that has been proposed would be open to all businesses adversely affected by the pandemic and not simply the small minority that bought business interruption coverage that excluded such risks.
· The insurance industry is also actively working with customers in need (by instituting moratoriums on cancellations and non-renewals, providing premium payment grace periods, etc.) and proactively educating clients about the federal financial assistance and resources that are now available. |
Families First Coronavirus Response Act (FFCRA)
The Families First Coronavirus Response Act (FFCRA or Act) requires certain employers to provide their employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. Our friends at BenefitMall put together the following flowchart to assist employers with this new law's requirements.
Coronavirus Aid, Relief, and Economic Security (CARES) Act
Congress’s latest coronavirus relief package, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, is the largest economic relief bill in U.S. history and will allocate $2.2 trillion in support to individuals and businesses affected by the pandemic and economic downturn. To see how this $2 trillion breaks down, check out the following visual put forth by NPR:
Here are the highlights of the CARES Act (as reported by Forbes):
Direct payments: Americans who pay taxes will receive a one-time direct deposit of up to $1,200, and married couples will receive $2,400, plus an additional $500 per child. The payments will be available for incomes up to $75,000 for individuals and $150,000 for married couples.
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Unemployment: The program provides $250 billion for an extended unemployment insurance program and expands eligibility and offers workers an additional $600 per week for four months, on top of what state programs pay. It also extends UI benefits through Dec. 31 for eligible workers. The deal applies to the self-employed, independent contractors and gig economy workers.
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Payroll taxes: The measure allows employers to delay the payment of their portion of 2020 payroll taxes until 2021 and 2022.
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Use of retirement funds: The bill waives the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-related purposes, retroactive to Jan. 1. Withdrawals are still taxed, but taxes are spread over three years, or the taxpayer has the three-year period to roll it back over.
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401(k) Loans: The loan limit is increased from $50,000 to $100,000 |
Small business relief: $350 billion is being dedicated to preventing layoffs and business closures while workers have to stay home during the outbreak. Companies with 500 employees or fewer that maintain their payroll during coronavirus can receive up to 8 weeks of cash-flow assistance. If employers maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven.
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RMDs suspended: Required Minimum Distributions from IRAs and 401(k) plans (at age 72) are suspended.
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Charity. There is a new provision that provides an above-the-line deduction for charitable contributions, plus, the limits on charitable contributions are changed. |
Net Operating Losses: The Tax Cuts and Jobs Act (TCJA) net operating loss rules are modified. The 80% rule is lifted, and losses can now be carried back five years.
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Interest Expense Limitation: The interest expense limitations are increased to 50% from 30% for tax years beginning in 2019 or 2020. Taxpayers can also elect to calculate the interest limitation for 2020 using their 2019 adjusted taxable income as the relevant base, which often will be significantly higher.
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Excess Loss Limitations: The excess loss limitation (ELL) rules for pass-through entities are suspended.
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Large corporations: $500 billion will be allotted to provide loans, loan guarantees, and other investments, these will be overseen by a Treasury Department inspector general. These loans will not exceed five years and cannot be forgiven. Airlineswill receive $50 billion (of the $500 billion) for passenger air carriers, and $8 billion for cargo air carriers.
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Hospitals and health care: The deal provides over $140 billion in appropriations to support the U.S. health system, $100 billion of which will be injected directly into hospitals. The rest will be dedicated to providing personal and protective equipment for health care workers, testing supplies, increased workforce and training, accelerated Medicare payments, and supporting the CDC, among other health investments. |
States and local governments: State, local and tribal governments will receive $150 billion. $30 billion is set aside for states, and educational institutions. $45 billion is for disaster relief, and $25 billion for transit programs. |
Coronavirus testing: All testing and potential vaccines for COVID-19 will be covered at no cost to patients. |
Agriculture: The deal would increase the amount the Agriculture Department can spend on its bailout program from $30 billion to $50 billion. |
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