Healthcare cost and availability, and business interruption cover litigation- strange bedfellows with commonality- overarching need within economies for resolution for each multi-hundred billion dollar/euro/rupee/pound issue. Ironies abound- enormous need for healthcare due to COVID-19 should prompt revenue growth for providers, and closures of businesses due to government dictates due to COVID should prompt a rescuing flow of business interruption funding from insurance policies, yet in each case the respective systems did not provide.
Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’. image source
Business Interruption Update
The business interruption (BI) cover discussion has been belabored over the past several months but remains a front burner item as the news evolves from the realism of what the insurance industry provided for its customers (pandemics are not insurable risks) to planning for the next, and taking the coverage determinations from denial letters to litigation, and in some cases, a ‘meeting of the minds’ in terms of negotiated handling. It should be reminded to the reader- insurance policies are unique contractual agreements and there are many instances documented where pandemic BI cover was present on policies and insurers met the contractual agreements by reimbursing claimed costs, other instances where ambiguity of policy provisions encouraged carriers to indemnify clients rather than have the terms debated in court, or carriers simply reimbursed part or all claimed costs without admitting any policy liability.
It’s clearly noted that BI cover for pandemics was not thought of by insureds prior to COVID, and removed from cover by carriers since the SARS outbreak(s) in the early 2000’s. The infamous instance of cover being available prior to the COVID-19 outbreak (Marsh, Munich Re, and Metabiota designed a pandemic BI cover, PathogenRx, that was met by the buying public with a yawn) brings to the fore that solutions may be in front of the industry but absent priority do not catch on, i.e., the correct idea is not yet the right idea. Memories are short after SARS and communication from insurers convenient, resulting in the probable trillion USD uninsured business interruption cost as COVID continues to make its mark on economies. At this juncture a quick review of where BI issues stand in regions of the globe seems warranted.
Most jurisdictions on the continent have mirrored the common finding- business interruption cover is founded first on presence of physical damage, a virus is deemed not a physical damage in terms of driving insurance cover, and by extension BI cover for pandemic is not present. Litigation has sprung from the determination and some cases have been resolved to the benefit of plaintiff claimants. Policy review by a French court found that some policies issued by AXA supported a decision for payment of BI cover , but the policies in question held a specific clause that held cover was present. The German government has supported payment of 70% of business interruption costs for hotels and restaurants, with insurers then reimbursing one half the remainder amount- not an acceptance of liability but an agreement made for the good of the industry and its clients. Some Swiss carriers have agreed to pay BI claims without admitting policy liability as a “neat conclusion for everyone.”
The latest from the UK is that the Financial Conduct Authority (FCA) is continuing its test case with carriers and insureds in the English High Court, seeking to short cut handling of the many BI litigation instances filed to date. Typical BI cover is as in other jurisdictions, but this test case approach has prompted another layer of careful review of policy terms by carriers to ensure any ambiguities are identified and (hopefully) prompt out of court actions. Latest report- plaintiffs have filed a 300+ page Skeleton Argument with the court, suggesting the test case may produce a testy environment. (thanks, Mario Pinto for the heads up).
With significant cases beginning to number more than one hundred involving potential thousands of insureds and hundreds of carriers, a federal court judicial panel is considering a request from plaintiffs to consolidate the actions under one lawsuit. The action is not being met favorably by carriers nor by many companies that have sued, as looking at BI claims through a single lens would not meet the unique needs each policy provides for or the varying perspectives of BI cover found within the many US insuring jurisdictions. Under any circumstance the outcomes of legal challenges will seemingly take years, suggesting carriers will have reserving needs that have P&L and balance sheet impacts over many business cycles.
The position remains as an unequivocal confirmation of fire policy cover- absent a direct damage from a covered peril there is no BI cover for pandemics. Parties may continue to debate if the presence of virus constitutes direct damage but named peril circumstances and exclusions from cover for viral outbreaks remain a barrier to insureds’ recoveries.
Insurer Guardrisk’s denial of BI cover for a restaurant client has been overturned by SA Western Cape Highcourt, with the court siding with the insured based on policy provisions and failure of the carrier to adequately support the denial. Its another instance of policy wording not being equivocal and specific in wording to support a carrier’s position. Whether the outcome of this case prompts wholesale approval of BI actions is undetermined, but is a reminder to carriers to ensure internal review of policy language and claims is addressed from a ‘customer liberal’ position, but without perverting the intention of the contract wording or in unique handling for one insured vs. another.
Healthcare and health insurance
Healthcare related to COVID-19 has not been a unique concern for most jurisdictions; testing and direct care have been provided as available and there are few reports of persons being refused care related to the outbreak. Where unexpected issues have arisen is in persons not being able to receive care that is unrelated to COVID-19 due to lack of resources that have been otherwise applied to the outbreak. This is problematic on at least two fronts- 1) people are foregoing treatment for chronic concerns and for elective actions, and 2) providers are not benefiting from providing typical healthcare services that are the mainstays of revenue and profitable operations. Another irony- failure to adequately treat potential comorbidity conditions enhance a person’s exposure to COVID-19 effects.
Some topical issues:
There have been rumblings of dissatisfaction among customers who have been denied ‘cashless’ services at hospital for COVID-19 treatments (customer pays the hospital to receive treatment or care, and then submits the claim to an insurer.) This has proven burdensome to patients in terms of finding immediate cash resources in order to receive treatment. The IRDAI has as of July 14 indicated to providers that cashless options must remain available to clients to avoid having ill persons not getting treatment. Of course, the double-edged sword remains reimbursement amounts are noted as outdated, and the carrying of costs by providers until reimbursed places the providers in a significant economic hole. The increasing presence of coronavirus within the Indian population will worsen the concerns.
The US is experiencing the most pronounced outbreak of COVID-19 among even the upper tier of affected countries, and the overall financial effects will surely total more then $1 trillion. Capacity in hospital facilities is being tested in acute outbreak states and is highlighting a systemic concern within the US healthcare system- loss of facilities due to economic concerns that predates the outbreak. Without getting into the evolution of the problem that is a few decades in the making, the very presence of facilities in more rural areas of the country is now becoming a barrier to healthcare access relating to COVID-19. An example of the situation is found in upstate NY, where a small city hospital that had found bankruptcy as its best choice prior to the outbreak found itself shut out of the government PPP (Payment Protection Program, or Payroll Protection Program) loan program due to regulatory bars to lending to an org in bankruptcy. So a provider who was needed to provide COVID-19 care for the city’s residents was unable to ensure operations carrying forward due to a problem that was systemic in nature (healthcare reimbursement reductions) and a regulation that well pre-dated COVID- no government subsidized loans to orgs in bankruptcy. This hospital’s clever action- rescind the bankruptcy, get approved for the loan, then reinstate the bankruptcy action. A true example of the need to work around bureaucracy in times of dire public need. Sign those lawyers up for cleverness recognition.
Two significant aspects of COVID-19 and the insurance industry, and unresolved issues to date. And to think the outbreak has not reached its peak in some significant economies. Huge economics makes for many constituencies, competing issues, and no ready cures.
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