Pandemic Risk Insurance Act of 2020: Proposed Legislation in Response to COVID-19

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Seyfarth Synopsis: As a result of the COVID-19 pandemic, the Government is taking steps to address the economic concerns of businesses across the nation through the proposal of legislation entitled the Pandemic Risk Insurance Act of 2020 (“PRIA”). If enacted, PRIA would effectively provide a federal loss-sharing program for insurance claims relating to losses resulting from a certified pandemic or epidemic, like COVID-19. The main goals of this proposed legislation are to (1) create a temporary program of shared public and private compensation for insured losses resulting from a pandemic or epidemic, (2) protect consumers by ensuring the availability and affordability of insurance for pandemic or epidemic risks, and (3) protect thousands of business and municipalities that are reliant on public events for a large portion of their revenue. As insurers are no longer writing policies to cover losses related to COVID-19 or are simply outright refusing to write policies covering losses related to contagious diseases, the government is attempting to provide security and stability for the impacted industries. We will continue to monitor and provide updates on this and other issues related to COVID-19.

As a result of the widespread impact of pandemics like COVID-19, the exorbitant losses incurred across the business sector, and the inability for private insurers to cover the massive losses sustained as a result thereof, the Federal Government could be stepping in to provide stability in the face of chaos. Under PRIA, the Government would mandate that insurance companies provide coverage for losses incurred by certain industries as a result of a certified health pandemic or epidemic, and will share in that loss in the event that certain conditions are met. This proposed legislation appears to apply only prospectively for future pandemics and epidemics, and likely will not affect existing policies that may exclude coverage for the current pandemic.

To trigger the federal funding, the industry seeking coverage must experience losses that exceed a particular dollar amount. Further, before the federal money can be injected into the struggling industry, the private insurers must show that they have paid a predetermined dollar value to claimants impacted by the pandemic or epidemic. Only once the industry loss threshold is met or exceeded and the particular insurer meets its required payouts will the Government step in to cover the losses. At this point in time, however, the threshold dollar amounts for industry losses and insurer payouts are uncertain and will be considered as the legislation progresses through the House of Representatives.

If this proposed legislation passes, industries impacted by future pandemics or epidemics will be able to acquire coverage that could provide significant relief where there otherwise was none, similar to the Terrorism Risk Insurance Act of 2002 that was passed in response to the September 11th attacks. Moreover, the loss sharing mechanism described above is intended to encourage insurers to provide coverage for pandemics or epidemics, lower premiums for policy holders, and incentivize commercial businesses to purchase such coverage. An additional result of the possible enactment of PRIA is the stability resulting from the confidence of these damaged industries knowing that they will not face collapse in the event of a future pandemic.

With the Government contemplating multiple approaches in addressing the COVID-19 pandemic including significant aid packages and bailouts to various industries, this proposed legislation appears to only apply prospectively for future pandemics and epidemics, and will likely not affect existing policies that exclude coverage for the current pandemic.