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Columbia Business Monthly

Senate Bill Sparks Debate

By Kevin Dietrich

South Carolina's insurance industry opposes proposed state legislation that would require insurers to shoulder a significant portion of the financial hardship brought on by the Covid-19 pandemic.

Senate Bill 1188, introduced last month, would require insurance companies to pay out on Covid-19-related loss claims brought by their small business clients - those with 150 or fewer employees - since the beginning of the crisis, regardless of whether the insureds' business policies are written to cover such claims.

South Carolina is one of eight states to introduce such legislation, but most are in the Northeast or Midwest.

The South Carolina Insurance Association, a nonprofit providing insurance information to consumers, companies and the media, and funded by insurance companies, decidedly opposes the bill as introduced, said Executive Director Russ Dubisky.

"We have a number of concerns: first and foremost, the rewriting of insurance policies retroactively would set a very dangerous precedent and would go against the whole concept of contract law," he said. "We also have major concerns about the solvency of insurers if this bill were to pass and be enacted."

The bill, sponsored by Sens. Brad Hutto, D-Orangeburg; Marion Kimpson, D-Charleston; and Sandy Senn, R-Charleston; would require specified business insurance policies, such as business interruption coverage, to cover claims related to the coronavirus for the duration of the public health emergency, even on policies that have provisions to the contrary.

"People pay for insurance to pay out when unusual events happen," said Hutto, a member of the Senate Banking and Insurance Committee. "Business interruption insurance is just that, designed to help pay for when business has been interrupted."

The bill would not allow an insurer to deny a claim for a loss of use and occupancy, or business interruption, related to Covid-19. It would apply to policies that specifically exclude losses related to viruses. 

SB 1188 would establish funds from which insurers that pay business interruption claims under the proposed legislation can seek reimbursement of those claims. It would finance those funds by collecting sums pro rata from all insurers licensed in the state.

The South Carolina Chamber of Commerce, whose members range from startups to family-owned businesses to global enterprises, did not express a position when called for comment on the legislation.

The bill was introduced in the South Carolina Senate on April 8. It was then referred to the Senate Banking and Insurance Committee.

Other states where similar legislation has been proposed are Louisiana, Massachusetts, Michigan, New Jersey, New York, Ohio and Pennsylvania. None have adopted the legislation.

Earlier this month, an effort to make it easier for small businesses in the District of Columbia to claim coronavirus-related damages under business interruption insurance policies was put on hold, thanks in part to a strong lobbying effort by the insurance industry.

The D.C. Council, the central and chief policy-making body for the District of Columbia, decided not to move ahead after six of its 12 members raised concerns regarding costs the proposal could impose on insurers, along with its legality.

Apprehension among insurers includes that such legislation doesn't consider the risk-calculation performed in crafting policies.

"It's important to remember that unless a policy specifically covers an event such as this, the insurer isn't charging premiums for such a contingency and hasn't collected money to set aside against these types of losses," Dubisky said.

Many property damage policies include an exclusion for damage caused by contaminants. These became more common after the SARS outbreak in 2003, when many insurers added exclusions to standard commercial policies for losses caused by viruses or bacteria. 

Policyholders can expect that insurers will assert this exclusion to Covid-19 claims.

In addition, there is a question as to whether such legislation would be upheld in court.

According to international law firm Holland & Knight, there are constitutional limitations on the ability of states to impose this kind of retroactive across-the-board interpretation of contractual provisions on a select group of private parties. 

"These constitutional requirements are sufficiently complex and debatable that any state statutes seeking to retroactively impose a ‘forced' interpretation of insurance policies in this manner will almost certainly be challenged in court immediately upon enactment," the Miami-headquartered firm wrote in an April 24 alert.

The South Carolina General Assembly ended its regular session May 12 after being away from Columbia for several weeks because of the Covid-19 pandemic. Lawmakers passed a Sine Die resolution to return in September to discuss the state budget and other matters.

Hutto said that, if possible, he would like to hold committee meetings during the summer to bring different parties together to get a better understanding of the issues involved with Covid-19-related loss claims.

"There are some things that we'd have to look at that I just don't know at this point, such as what is the magnitude of the problem," he said.


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