Making insurers cover pandemic losses is ‘unconstitutional’

State lawmakers have made efforts to extend business interruption coverage to coronavirus-related insurance claims, but the head of a leading commercial real estate insurer is objecting to those moves.

Chubb CEO Evan Greenberg, in an interview on CNBC Thursday, said state governments can’t force insurance companies to cover incidents not included in the policy, leaning on the U.S. Constitution for support.

“You can’t just retroactively change a contract. That is plainly unconstitutional,” he told “Mad Money” host Jim Cramer, who acknowledged that he is a Chubb client. “The industry would prevail on that and so I understand the frustration of legislators, I understand they’re looking for a remedy, but this would be a self-inflicted injury and create great uncertainty at a time when we have enough uncertainty and we’re trying to heal the economy.”

State governments across the country responded to the coronavirus pandemic by shutting down nonessential businesses and ordering residents to stay at home to help slow the spread of the deadly disease. Lawmakers in seven states, including New York, New Jersey, Ohio and Louisiana, have put forth measures to retroactively include pandemic coverage in business interruption insurance, which covers loss of business revenue due to disasters.

But insurers are rejecting claims from restaurants and other businesses hurt by the coronavirus crisis. The insurance industry views those claims as unwarranted, under the conditions of their policies.

“Most catastrophes, like a hurricane or an earthquake, are limited by geography or time,” Greenberg said. “Pandemic is very different. You can imagine it hits all insurers, or a large majority, for a loss all at once. It has no geographic bounds, it has no time limit.”

Chugg offers commercial and personal property insurance, as well as coverage for casualty and personal accidents, among other services.

Disasters such as a fire, tornado, flood or a hurricane that cause physical losses to property would trigger business interruption coverage, he explained. Pandemics, unlike other catastrophes, are not included in the language for a specific reason, he said.

Insurance companies have “finite balance sheets” and potential pandemic losses are “infinite,” Greenberg said.

“So the only one who could really take the infinite nature, financial nature, of that is the government,” he said. “The insurance industry has $800 billion in capital and that’s to support all the normal risks we insure, plus the catastrophe events … we may incur in one year.”

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