Legislation impacting the insurance industry frequently follows new case law and recent catastrophes. Such is the case again this year, as exemplified by legislative efforts related to the COVID-19 pandemic and other recent changes in insurers’ risk exposures. Here are some of the latest trends …
The majority of recent opinions in lawsuits related to business interruption coverage due to the pandemic have enforced policy exclusions for coverage for losses due to communicable diseases, and other exclusions applicable to COVID-related damages. Consequently, legislation has been introduced in several states such as New Jersey and Ohio to force insurers to cover business interruption losses due to the pandemic.
While the CARES Act (Coronavirus Aid, Relief and Economic Security Act) and Paycheck Protection Program (PPP) attempt to address business-related pandemic losses, more help for businesses impacted by the pandemic is needed. In response, many insurance industry trade associations are promoting proposed federal legislation to establish a COVID-19 Business and Employee Continuity and Recovery Fund. This fund is intended to aid with payroll, rent, utilities and other continuing expenses for businesses impacted by pandemic shutdowns as a supplement to the CARES Act.
In addition, federal legislation titled Pandemic Risk Insurance Act of 2021 was introduced last year. This would entail a combination of public and private compensation for property and casualty losses from pandemic-related causes. The National Multifamily Housing Council, which supports this proposed legislation, refers to it as “a government backstop, modeled after the Terrorism Risk Insurance Program (TRIA), to drive increased private sector coverage for future pandemic risks.” This program would ensure continued availability and affordability of property and casualty insurance for pandemic or infectious disease outbreak-related losses.
Florida’s Legislative Response to Roof Damage Claims
Florida has seen such an incredible rise in homeowner’s coverage claims for roof damage that many insurers doing business in the state have sought dramatic premium increases. Three insurers who sold homeowners insurance in the state have declared insolvency. Many insurers doing business in Florida have claimed financial inability to procure reinsurance to protect against further financial trouble. To respond to this homeowners insurance crisis, the Florida legislature is wrapping up a special session to address the issue. The Florida Senate passed Bills 2D and 4D, which have gone to the governor’s desk for signature. Bill 2D creates a lower level catastrophe fund called the Reinsurance Assistance Program (RAP) to provide another “layer” of reinsurance to insurers unable to buy it in the private market. In turn, participating insurers are to reduce premiums by four percent. Bill 4D allows insurers to repair roofs instead of requiring that roofs with at least 25% damage be replaced.
Insurers have claimed that fraudulent roof damage insurance claims have been a major driver of the rapid escalation of homeowners insurance loss exposure to Florida insurers. Related legislation approved during the recent special Florida legislature session also addresses some of the claims and subsequent litigation factors that are driving higher losses, such as plaintiff attorney fee multipliers and other punitive bad faith laws.
Bad Faith Laws
First-party bad faith claims and litigation arising out of property and casualty claims continues to be an escalating national trend. Numerous states in the last decade have enacted legislation designed to ensure prompt investigation and payment of claims to insureds. This has increased the exposure for such claims to insurers, a dramatic example being Florida roof claims.
Other states besides Florida have begun to enact legislation to address the negative financial impact to insurers from insured-friendly bad faith laws. For example, Missouri enacted HB345 in 2021 which places new limits on covenants not to execute between a tortfeasor and a claimant. This law prohibits the use of arbitrations between claimants and tortfeasors resulting in large damages findings from being used to obtain judgments against the tortfeasors’ carriers. Under the new legislation, if a tortfeasor’s insurer did not agree in writing in advance to the arbitration or the covenant not to execute, the findings from the arbitration are not binding on the insurer.
An insured may enter into a contract to limit recovery against it to the amount of insurance only if the insurer denies coverage or refuses to withdraw a reservation of rights. Because some claimants and tortfeasors attempted to use arbitrations to prevent insurers from intervening in litigation related to a claim to protect the insurer’s interests, this new law requires insureds and claimants to give notice to insurers of any covenants not to execute which are entered into between claimants and alleged tortfeasors and allows insurers to intervene in any litigation related to said agreements.
Ridesharing Legislation Coming
In Colorado, HB 22-1089 enacted this year requires rideshare companies to carry $200,000 per person in uninsured/underinsured motorist protection benefits for drivers and passengers. As ridesharing becomes increasingly popular, we will see other states pass similar laws.
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