BRK and business interruption insurance

[longlake95]

Anyone have thoughts on BRK's exposure to interruption insurance? I'm not sure about the clauses and exclusions that might be found in a typical BI policy.

 

From my reading over the years it doesn't seem to be a big part of BRK. I don't think WEB would like the kind of unpredictable exposure unless he was getting super-high premiums.

 

[StubbleJumper]

This article discusses the question in general, but who knows what BRK might have chosen to insure:

 

 

https://www.insurancejournal.com/blogs/big-i-insights/2020/03/24/562253.htm

 

 

 

SJ

[LC]

In the business income policy, with or without the CP 01 40, there is no coverage – unless:

 

Courts ignore the meaning and reality of property damage;

Courts ignore the pollution exclusion (in the absence of the CP 01 40); or

Governmental authorities intervene.

Even if coverage is found – there is generally a 72-hour deductible. The virus doesn’t live in the air on surfaces beyond that amount of time.

 

Here is the final reality, is it the property or the people that is the problem? Is this a biological issue or a property damage issue? The commercial property policy is not designed to cover biological issues, it is for property issues.

 

To end this article, given the policy wording and requirements, there is no coverage for a business income loss resulting from the coronavirus.

 

Unsurprisingly, the guy paid by insurance companies and writing for an insurance journal claims that business insurance does not cover this event. No conflict of interest here, I suppose?

[Pedro]

My experience is that direct (fire) and indirect (BI) losses caused by a virus will be excluded in insurer/commonly used commercial property insurance policies. I see insurer wordings being consistent in excluding this peril.

 

It's the non traditional wordings where ambiguity can arise. Those wordings are abundant in soft markets. It's impossible for the average investor to know because you can't access each individual wording to see the verbiage.

 

It will be interesting to see Q1 loss ratios & reserve levels across the industry. I anticipate analysts will try and get companies to nail down their COVID BI loss estimates.

 

No doubt there will be clients upset with their insurer and broker for not covering nor explaining the exclusions to them when they purchased BI cover. Lawyers will be happy. 

 

https://www.ckom.com/2020/04/04/class-action-lawsuit-filed-against-insurers-refusing-to-pay-business-interruption-insurance/

 

 

 

[Libs]

Trump weighs in today:

 

https://www.businessinsurance.com/article/20200410/NEWS06/912333993/Trump-suggests-insurers-should-pay-virus-business-interruption-claims-COVID-19-c

 

Here's a company suing for coverage:

 

https://dc.eater.com/2020/4/8/21212037/downtown-proper-21-sues-coronavirus-insurance-coverage

 

[Cigarbutt]

Business interruption insurance is becoming a huge issue for many US and UK primary carriers and reinsurers at large.

Commercial insurance exposure with contracts exposed to specific business needs are particularly sensitive to interpretation and litigation.

 

Retroactive coverage, which is basically what claimants are going after, would mean huge costs for the industry. It is likely that public entities directly or indirectly will pick up the tab but the transition period remains ill defined. At a minimum, litigation costs are expected to increase significantly and policy pricing is expected to increase for certain lines to an extent that entities looking to be insured will simply accept a clear exclusion clause.

 

https://www.dbrsmorningstar.com/document/359364.pdf?Expires=1586624996&Policy=eyJTdGF0ZW1lbnQiOlt7IlJlc291cmNlIjoiaHR0cHM6Ly93d3cuZGJyc21vcm5pbmdzdGFyLmNvbS9kb2N1bWVudC8zNTkzNjQucGRmIiwiQ29uZGl0aW9uIjp7IkRhdGVMZXNzVGhhbiI6eyJBV1M6RXBvY2hUaW1lIjoxNTg2NjI0OTk2fX19XX0_&Signature=Uyxg~dmC7rqVStSnZjIVN4m8FEDfhV9Svs9XbsaNnssRvPv4qhjj3YJXkqYZgF6vUQWU0G0ETUjJZ94IO71GKtThO9goW2uKJhl4vsrRz5rq49UsJgEwvRGFc5kXWcJ9K8V9M3PO4EATUef8fVK4SbmNP3DEbTwSEqxHyVdnDs6D4Inq~oQjDhMn5zlgWX5ofLx7otVS2Qta~snUuATWxQRCMkoqbRQ29-GbojxpT6-mXRj8~PR~vlUCK6ixR3cY1mW0G8GMmHZ1oh4TTVKL0pOrwxBg1j4E9rOo941izf6Ju1hcW4yoW2Xi5X1w3if7IAoy3rzC67RioaJjrWoW8gbOTCZW69cT8Vh-DtsAkb1eL71tzjEWUcm1~~JORbY7Ac7kIvb3PjYM6HvuCX0FzLMd-wZ4d9ZbXepjvNY1SdhSB7wqFlVN8s0MUouXUEMmEhAWV6MgxkUdIqF8TsXTdw2bFhfnAG0574D282o7HgOnitg6NM0ts7gTvLkX28p0KItwYVgEzWyis7OEqEljg08qRTdH1Qt2eoi48ko6dppxzzuQr7qD8Vz82~4PdAdW0wXRwoDcOPX2WGGaEfomeQT~KmOspqlr8l~cpilE623cZ-H38S4TtqWysxIoeVE32mihoWZoXGzDbuxMaaSVlNppkHJb3866sMQO1mmV0gk_&Key-Pair-Id=APKAI2JJS4PJDGONDEZQ

 

http://www.pciaa.net/pciwebsite/cms/content/viewpage?sitePageId=59762

 

It seems the issue is large enough for Mr. Buffett to eventually comment on publicly.

[scorpioncapital]

How exactly does it work that an insurer got a premium for NOT covering this risk and then the government says they must cover something they didn't get compensated for. I mean it's quite possible they go bankrupt.

Does it make any sense. If they had actually had premiums to consider the risk and now the government comes in and says it doesn't matter if you charged $1 you are liable for xxxxxxxx$. I expect a great legal fight.

[Cigarbutt]

How exactly does it work that an insurer got a premium for NOT covering this risk and then the government says they must cover something they didn't get compensated for. I mean it's quite possible they go bankrupt.

Does it make any sense. If they had actually had premiums to consider the risk and now the government comes in and says it doesn't matter if you charged $1 you are liable for xxxxxxxx$. I expect a great legal fight.

In a way, this is typical contract clause haggling and social insurance (redistribution) at play, only on a much larger scale. People are trying to share the pain.

It's perhaps helpful to read the last memo from Mr. Howard Marks who has been unusually bipolar lately. His last message (Knowledge of the Future) includes interesting passages. He seems to be troubled by the extent of collateral stretch by the Great Redistributor (and maybe that's preventing him from making money now, so potential bias).

"Markets work best when participants have a healthy fear of loss. It shouldn't be the role of the Fed or government to eradicate it."

Sometimes one shouldn't fear about fear but sometimes one should fear the relative absence of fear.

[scorpioncapital]

It's funny. Fear of loss as an incentive. Now we have fear of loss from government due to risks you had no way to foresee and explicitly excluded. Essentially...a tax!

 

[RichardGibbons]

It's funny. Fear of loss as an incentive. Now we have fear of loss from government due to risks you had no way to foresee and explicitly excluded. Essentially...a tax!

 

It's far worse than a tax. It's a third party capriciously changing contracts after signing.

[DooDiligence]

It's funny. Fear of loss as an incentive. Now we have fear of loss from government due to risks you had no way to foresee and explicitly excluded. Essentially...a tax!

 

It's far worse than a tax. It's a third party capriciously changing contracts after signing.

 

This administration has gone to great lengths to destroy trust.

Quite consistent with the way Trump has always operated.

 

This would be the final thrust into the heart of trust.

[scorpioncapital]

I am surprised Trump, the businessman, would be advocating for this. Everything he has done has been pro business like lower taxes and regulation.

 

Is the idea of these retrocessional pandemic interruption clauses that the government would then reimburse the insurer in part, like a chain of reimbursement or the idea is pretty much to stiff the insurance companies? I don't really understand it since the Federal government has been doing a ton of helicopter money why would they not just pay the tenants or landlords or insurer directly with federal cash? Why are they looking for a scapegoat in one area vs another?

[petec]

I am surprised Trump, the businessman, would be advocating for this. Everything he has done has been pro business like lower taxes and regulation.

 

 

Can't be anything to do with the fact that his own businesses probably have business interruption insurance ;)

[scorpioncapital]

I've been reading many articles on this subject and it seems it really is not covered under almost any policy. But they will try to 'legal up' no doubt. I find the American system fascinating. In several other countries in Europe and Canada, the government would just subsidize businesses with a generous make-whole system or just compensate the individuals directly with cash deposited directly in the bank. In this way there is absolutely no need to sue or go after an insurer. But I am not sure why in the USA people are not made whole, at least temporarily, during these closures.

[The Investor]

The probability of these lawsuits/attempts to retrospectively change contracts succeeding on a large scale is very small indeed I would say.

[DooDiligence]

I just saw the 1st television ad, from a local ambulance chaser, soliciting plaintiffs re: business interruption insurance.

 

 

and here's the same turd being arrested for DUI & refusing the field sobriety test & the breathalyzer.

 

www.pnj.com/story/news/2016/06/01/maloneys-dui-charges-dropped/85243512/

 

He used to run a bunch of ads saying "if you've been arrested for drunk driving, don't call me".

 

A real smug POS.

[Spekulatius]

I am surprised Trump, the businessman, would be advocating for this. Everything he has done has been pro business like lower taxes and regulation.

 

Is the idea of these retrocessional pandemic interruption clauses that the government would then reimburse the insurer in part, like a chain of reimbursement or the idea is pretty much to stiff the insurance companies? I don't really understand it since the Federal government has been doing a ton of helicopter money why would they not just pay the tenants or landlords or insurer directly with federal cash? Why are they looking for a scapegoat in one area vs another?

 

Haha,self interest? He owns business as well that are closed right now.

[fareastwarriors]

French restaurant ruling puts coronavirus claims on global menu

 

https://www.reuters.com/article/us-health-coronavirus-axa/french-restaurant-ruling-puts-coronavirus-claims-on-global-menu-idUSKBN2320TQ

[rolling]

French restaurant ruling puts coronavirus claims on global menu

 

https://www.reuters.com/article/us-health-coronavirus-axa/french-restaurant-ruling-puts-coronavirus-claims-on-global-menu-idUSKBN2320TQ

They do admit that the contract (and other identical contracts) contained some ambiguity. WEB did say he was aware of at least one insurer who also had that ambiguity on their contracts and would have to pay. He ruled it out for berkshire contarcts

[StubbleJumper]

French restaurant ruling puts coronavirus claims on global menu

 

https://www.reuters.com/article/us-health-coronavirus-axa/french-restaurant-ruling-puts-coronavirus-claims-on-global-menu-idUSKBN2320TQ

They do admit that the contract (and other identical contracts) contained some ambiguity. WEB did say he was aware of at least one insurer who also had that ambiguity on their contracts and would have to pay. He ruled it out for berkshire contarcts

 

 

Apparently the wording used in British insurance contracts may have sometimes been ambiguous as well.  Not a direct problem for BRK, but who knows what GenRe might have reinsured.

 

 

SJ

[longterminvestor]

I'm watching Hiscox here.  Chatter in the insurance broker market says Hiscox is exposed.  Management for Hiscox says all is "under control".  Time will tell.