Federal bill would mandate insurers offer pandemic policies

Legislation applauded by REBNY

United States Congresswoman Carolyn Maloney (Getty Images, iStock - Photo Illustration by Steven Dilakian for The Real Deal)
United States Congresswoman Carolyn Maloney (Getty Images, iStock - Photo Illustration by Steven Dilakian for The Real Deal)

Desperate to recover losses incurred during the pandemic, restaurants and retailers turned to their insurers, only for many to have their business-interruption claims denied.

A federal bill aims to prevent that from happening again.

The Pandemic Risk Insurance Act, reintroduced last week by New York Rep. Carolyn Maloney, would require insurers to offer business interruption policies that would cover some losses from infectious disease outbreaks that are declared a “covered public health emergency” by the Department of Health and Human Services.

“It fills a void that was created, which we all saw firsthand in the litigation that happened during Covid, which was: Who was to bear the economic impact of the pandemic?” said Danielle Lesser, chair of Morrison Cohen’s business litigation group.

Modeled after the Terrorism Risk Insurance Act, which was created after 9/11, the Pandemic Risk Insurance Act would have private insurers foot part of the cost for businesses that buy policies, with the government picking up the rest of the tab.

“If passed, this bill would provide some welcome relief to real estate owners, particularly owners of restaurants, hotels, convention centers and event venues that depend on public gatherings for revenue,” Alan Lyons, chair of Herrick’s insurance and reinsurance group, said in an email.

However, if it were implemented like the Terrorism Risk Insurance Act, businesses may have to opt into coverage, meaning they would not automatically be covered and would have to pay for the plan, according to Alan Packer, an attorney with Newmeyer Dillion.

“Is it really solving a problem? I’m sorry to say I don’t think it is,” Packer said. “It is politically solving a problem that we have to do something about it. But it’s not going to provide coverage to every policyholder.”

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However, it would seem to address an issue that vexed businesses that did have business-interruption or event-cancellation insurance when the pandemic hit: Their insurers still refused to pay, citing exceptions in the policies for pandemics.

The exceptions exist because pandemics could cause many claims to be filed at once, potentially bankrupting insurers. The bill from Maloney, who represents parts of Manhattan and Queens, would prevent that by having the federal government provide a backstop. The government already does so for other events that insurers prefer not to cover, such as nuclear-plant disasters and floods in addition to terrorist attacks.

The potential cost to taxpayers, as well as partisanship in the narrowly divided Congress, are significant obstacles to the bill’s passage.

The Real Estate Board of New York, along with other trade associations, came out in support of the legislation as it would potentially provide retailers with the means to pay rent. During Covid-19, many retailers stopped paying when their businesses were forced to close.

“A newly created pandemic risk insurance program will help put New York City’s economic recovery on stronger footing by ensuring that the impacts of any future pandemic are more effectively managed, protecting jobs and economic activity that are vital to our economy and residents,” James Whelan, president of REBNY, said in a statement.

The pandemic caused a plethora of businesses to turn to the courts, suing their insurers over denials of coverage. As of April, more than 1,500 lawsuits had been filed nationwide against insurers since the onset of the pandemic.