The PRIA Discussion Draft would apply to any insurance company licensed in any U.S. state, territory or possession, as well as any insurance company eligible to write insurance in the U.S. on a surplus lines basis, including non-U.S. insurance companies listed on the Quarterly Listing of Alien Insurers of the NAIC. Like TRIA, such participating insurers would be subject to individual and industry deductibles, and then such insurers would share with the Treasury in losses up to certain thresholds.
PRIA versus TRIA
While it certainly makes sense that PRIA would follow in the footsteps of TRIA, there are a number of practical and legislative differences that could impact PRIA’s reach and success.
As an initial matter, terrorism risks and pandemic risks are inherently different. While both sets of risks present the prospect of catastrophic damage and immense insurance liabilities, terrorism risks are likely to be greatest in global city centers. While large metropolitan areas also are likely to be most impacted by pandemics, COVID-19 has clearly demonstrated that disease does not respect state lines or stay confined to discrete neighborhoods, with nearly every state imposing some level of business closures as a result of the pandemic.
As such, because PRIA will likely contemplate that pandemic insurance be provided on terms that “do not differ materially” from other components of business interruption insurance coverage, the insurance and reinsurance markets will need to collaborate closely to determine what the premium price points should be.
From a drafting standpoint, there are a number of important distinctions between TRIA and the PRIA Discussion Draft. First, the PRIA Discussion Draft is a voluntary program whereby participating insurers would be required to pay reinsurance premiums to the Treasury for participation; by contrast, TRIA is a mandatory program. Moreover, it also remains to be seen how broad PRIA’s “make available” requirement will extend if passed. TRIA requires that each insurer “shall make available, in all of its property and casualty insurance policies, coverage for insured losses…” By contrast, the PRIA Discussion Draft is worded slightly differently and requires that each insurer shall “make available, in all of its business interruption insurance policies, coverage for insured losses…” (Emphasis added). Therefore, on its face, TRIA is significantly broader and mandates that terrorism coverage be provided in connection with any commercial property and casualty insurance policy. In contrast, PRIA may only require coverage for “covered public health emergencies” in connection with business interruption insurance policies, and only then for voluntarily-participating insurers.
While certain components of PRIA have been met with general optimism, efforts to enforce retroactive coverage by insurance companies of COVID-19 claims (particularly when in-force insurance policies contain communicable disease exclusions) has been met with a significantly different tone from the insurance community.
A number of states have bills in their respective legislative chambers that would augment current in-force business interruption insurance policies to compel coverage for COVID-19. In addition, the “Business Interruption Insurance Coverage Act of 2020” draft bill has been circulating through Congress, which, if passed into law, would force all insurers that offer business interruption insurance to offer coverage for a viral pandemic and “[a]ny exclusion in a contract for business interruption insurance that is in force on the date of the enactment of [the] Act shall be void to the extent it excludes” viral pandemics. Similarly, PRIA also may require that participating insurers void exclusions in current, in-force policies for pandemic-related losses. However, the PRIA Discussion Draft currently leaves open as a discussion point whether this mandate would go into effect as of the date of PRIA or at some later date, and PRIA’s participation under the PRIA Discussion Draft would be voluntary. These “retroactive coverage” legislative efforts will quite likely be challenged in the courts should they become law.
While it may feel like we have endured a lengthy war against COVID-19, we may yet be in our early days with respect to formulating a recovery strategy. Numerous frameworks exist to help align the interests of current and prospective insurance policyholders and their respective insurance carriers to help mitigate past, present and future pandemic-related losses.
The TRIA model provides a proven framework to facilitate the implementation of PRIA efficiently. While it remains to be seen where federal and state legislatures ultimately land, it is likely inevitable that before COVID-19 is truly in the past, legislation to help mitigate the damage it has caused will become the law of the land.
Reprinted with permission from the April 21, 2020 edition of PropertyCasualty360 © 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.
