Some encouraging legislative and legal news:
US Treasury opposed to states proposed retrospective legislation
In an important signal to the US insurance industry, a senior member of the US Treasury called Frederick W Vaughan, has written a letter (8 May) to Congressman Ted Budd, in response to his letter to the US President (see our earlier article here) making it clear that the Treasury is opposed to the wholesale forcing of BI claims payments by insurers. The letter says that the Treasury is aware that various US states are attempting "legislative measures to retroactively change the terms of insurance contracts and compel coverage of COVID-19 BI losses."
The letter goes on to say "While insurers should pay valid claims, we share your concerns that these proposals fundamentally conflict with the contractual nature of insurance obligations and could introduce stability risks to the industry."
The letter concludes "Treasury looks forward to working with Congress, the states, the National Association of Insurance Commissioners, and other stakeholders in determining how to best move forward in addressing losses attributable to the current and potential future pandemics."
Frederick Vaughan is senior Principal Deputy Assistant Secretary, Office of Legislative Affairs at the U.S. Department of the Treasury. A copy of the letter is available here.
Washington DC City Council pulls draft legislation
Washington DC City Council had been planning draft legislation along the lines mentioned above, has apparently opted not to move ahead with the idea.
The US insurance trade group APCIA lobbied hard, with David Sampson, the association’s president and CEO, writing about the liabilities that would become payable as a result "These numbers [potential claims] dwarf the premiums for all relevant commercial property risks in the key insurance lines for D.C., which are estimated at $16 million a month,” and “We oppose constitutionally flawed legislation that retroactively rewrites insurance contracts and threatens the stability of the sector, to the detriment of all policyholders.”
New Jersey pulls retrospective BI Bill
It was widely reported in mid-March that the General Assembly of New Jersey had proposed a Bill (A-3844) that would compel insurers to compensate businesses for loss of revenue caused by the COVID-19 shutdown.
As referred to by Alistair Wood in his 3 April podcast, six other states’ legislatures proposed similar draft bills which would require insurers to cover BI losses not covered by their policies and/or were excluded from their policies. These draft bills would shift the economic burden of COVID-19 losses to the insurance industry and represent a significant challenge for US insurers and Lloyd's. Underwriters, however are very confident that these proposed laws will not be passed, partly because of the constitutional arguments that can be made, namely that they would be in violation of Article I of the United States Constitution.
It may well be this constitutional argument which has led the New Jersey legislature to pull the Bill, as while the bill passed the House, it was pulled from consideration before going to the New Jersey Senate.
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