Why executives should resist rewriting the language of insurance contracts

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Shortly after the attacks on the World Trade Center and other places on the morning of September 11, President Bush declared the atrocities “an act of war.” This statement prompted a friend and influential member of Congress from Buffalo, John LaFalce, to call me, in which we both concluded that the attacks, these horrific ones, did not constitute an act of war. At least not in the sense of insurance.

Of course, Bush was not speaking in terms – or even thinking – of the war exclusion contained in most damage coverage. This language largely excludes the coverage of acts of war by a sovereign. If he had wanted it so, it could have meant that the insurance industry would not be responsible for any losses resulting from the attack. He probably meant it more figuratively, more to score a point and give an idea of ​​what we were up against. He didn’t mean the industry wouldn’t have to pay the $ 30 billion to $ 40 billion or more it spent on everything from business interruption claims to rebuilding the World Trade Center complex.

Over the weekend, our country’s current Managing Director, President Donald Trump, more deliberately engaged in yet another discussion about covering business disruptions in times of crisis. As reported in the Claims Journal and elsewhere, the president said that, of course, business interruption claims should be paid for losses from COVID-19. After all, businesses have poured a lot of money into business interruption insurance policies over the years, so why shouldn’t they cover losses that have occurred in recent weeks. Only if a policy excluded “pandemics” would they be out of reach, he said, even acknowledging the presence of exclusions in typical insurance policies.

As someone who had to tell then New York Governor George E. Pataki that the WTC disaster was one event, not two, I consider myself somewhat experienced in art, if not science, to interpret the language of insurance contracts despite the populist appeal of giving. people whatever they want, no matter what the contract might say.

Much like President Bush, you might expect nothing less from a President who is a former businessman who has a strange ability, critics aside, to understand much of what is going on. actually on Main Street and tap into the sentiment surrounding that reality.

One event, not two

As a business owner, I would like to agree wholeheartedly. My partners and I are paying property and casualty insurance premiums, and it’s always nice to get a return somewhere along the way for all that investment. But as an insurance lawyer, former insurance regulator and defender of the rule of law and the importance of adhering to contracts drawn up and signed by two parties committing to certain obligations, I am much less concerned. agree with the president’s position. As someone who had to tell then New York Governor George E. Pataki that the WTC disaster was one event, not two, I consider myself somewhat experienced in art, if not science, to interpret the language of insurance contracts despite the populist appeal of giving. people whatever they want, no matter what the contract might say. The governor, for his part, sought the right answer to the question and not the expediency, even if that meant that $ 3.5 billion in insurance funds would not go to the state.

The president, like President Bush and so many other leaders, is paid to lead the country in times of crisis and they have both done well in this regard. But he is not an expert in insurance contracts, had no experience on the other side of the claims table, and was not thinking for himself when he said the words he said. provided decisive legal advice on whether long-standing insurance policy language was sufficient to support a business interruption claim. He was giving a classically Trumpian opinion as a longtime businessman and Main Street champion on what he felt he needed to do with these policies. Of course, you also wouldn’t want him to comment or say that he thought the business interruption coverage didn’t apply. This opinion suffers from the same shortcomings – from an insurance point of view – and is seriously deaf to the political tone.

His voice is certainly the loudest, but by no means the only one in the business interruption coverage debate. Many states have seen the introduction of legislation to virtually rewrite corporate property coverage, regardless of years of case law, regulatory oversight, and industry practice. Some have even attempted to annex the workers’ compensation system on the assumption that exposure to COVID-19 is an industrial risk. Lawsuits are already hitting the closed doors of courts across the country, like newspapers thrown on the steps. The foam is palpable and the parties highly motivated to continue the drum of a message that insurance is an untapped resource. Of course, if we had adopted this same philosophy to make insurers pay for damage caused by flooding from one of the many recent storms that are clearly not in the typical damage insurance policy, or if we had them Asked to subscribe to any war that falls within the definition of exclusion within such contracts, this current discussion would be purely theoretical as there would be no property / accident industry to target.

Federal response

Ironically, the early recognition of the limits of business interruption coverage in this crisis likely served as a catalyst for the rapid federal response to the emerging crisis in the form of three relief laws, including one to provide checks. assistance to a large part of the population, and this to offer payroll protection and a long-term line of credit to businesses.

As in other cases, this crisis is likely to lead to changes in the way we cover pandemics. Some of these changes may be reflected in new wording in insurance contracts, a federal program such as terrorism or flood insurance programs, or another special purpose entity. But that’s for after the crisis, and not during it. Let the President continue to champion the needs of the public during this time in his speeches and tweets, but let’s not go crazy thinking that he lends more to the grievance process than President Bush did when he got it right. declared that we were at war. These contracts will continue to be interpreted as they should be, will be upheld by a judiciary largely from Mr. Trump’s reshuffle, and many of them will be seen as not providing the kind of cover the president would like to think they do.

The subjects
Legislation Damage Damage Damage Leadership Business interruption

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