Rewriting Insurance Contracts Would Shake Pillars of Capitalism
As we start down the long road to recovery from the COVID-19 pandemic, it can be tempting to take shortcuts that have superficial appeal. But in our effort to rebuild, we must be careful not to tear down the basic building blocks that have created the most prolonged period of prosperity and human achievement in world history. Some may not know that one of the cornerstones of our economic system is insurance.
Put simply, insurance allows us to take risk: from buying a home and driving on the highways to starting a business and making an uncertain investment. Unfortunately, some businesses are trying to undermine this system by demanding insurance companies be held responsible for all their lost profits during the COVID-19 crisis. These businesses want federal government-dictated recompense that comes from one of the most expensive policy add-ons: coverage for pandemics — despite the fact that they didn’t request this coverage nor was it part of the calculation of their premiums.
Many businesses have what is called “business interruption insurance.” During a fire or a tornado, this insurance protects from losses caused when the business is closed due to physical damage in order to keep the business afloat while it makes repairs.
Businesses that want extra insurance beyond the standard policy provisions pay for that coverage. Some buy extra coverage for floods or earthquakes. Others buy extra coverage for loss of electricity to their business or the inability to obtain needed supplies. One of the most expensive options is coverage for a pandemic. For example, the organizers of the Wimbledon tennis tournament paid almost $2 million per year for pandemic coverage. And when COVID-19 forced the tournament to cancel, the insurance company honored the deal, paying Wimbledon $142 million.
But some are now asking the federal government to rewrite their contracts to force insurance companies to pay for pandemic losses even though the businesses never paid premiums for the coverage.
Businesses and insurance companies should honor the terms of their agreements. That is why I, along with six other state attorneys general, wrote a letter to President Trump asking him to decline this request to supersede insurance agreements. If a business paid for pandemic coverage, the insurance company should pay for the business’s losses — no question. But by the same token, I expect businesses that did not pay for pandemic coverage to live by the terms of their agreement. They shouldn’t run to the federal government to override their contracts, asking it to hijack insurance company funds in violation of the Fifth Amendment. That is elemental to our system of the rule of law — a system we state attorneys general defend every day.
Here’s the stark reality: Insurance companies may not be able to pay legitimate claims if they are forced to give pandemic windfalls to businesses who did not pay for that coverage. Just two months of paying for everyone’s pandemic losses, regardless of whether they purchased pandemic coverage, would require the surplus cash of every U.S. home, auto, and business insurer in the country. These insurance companies then wouldn’t have anything left to cover anyone else’s insured losses.
The consequence of rewriting insurance agreements shakes the very pillars of capitalism. If this subversion of a quintessential tenet of insurance risk assessment and coverage occurs, no commercial contract will be immune from a post hoc revision benefiting an undeserving but loud interest group.
The enforceability of all contracts will henceforth be subject to the whim and caprice of the federal government.