This is going to be a very short post but wanted to get this thought out there and no reason to write more than is necessary.
There is obviously a lot of concern about the potential for insurers to be found responsible for covid related business interruption losses. There are many reasons – which have been covered well elsewhere – to think this is a remote risk, at least under standard policies given the crystal clear exclusions.
In addition to the exclusions though, there is another solid argument for why insurers can prove they never intended to cover pandemics under standard property policies. A number of insurers offered more expensive policies that did cover pandemic.
If there were any doubt about the intent of the standard exclusion, one would only have to point to the “premium” policy to show that pandemic was only meant to be covered if the insured was explicitly charged for it.
So what does this have to do with brokers? If a broker only presented their client with the option to buy the standard policy, an enterprising lawyer could argue they were negligent and thus exposed to damages under an E&O policy.
While I’m sure some agents & brokers offered their client the option to buy the more expensive policy (and have documentation that the insured turned it down), I’m guessing many didn’t (or can’t prove it). Why would you offer your client a more expensive policy for a risk everyone knows they didn’t care about six months ago???
Thus, when the restaurant trade groups realize they aren’t going to win their lawsuits against the insurers, their next move will be to target their broker or agent for E&O. How big could these claims get? I don’t have a good answer for that yet, but even if the individual claims are small, the frequency could be large.
The brokers’ losses would be limited to their insurance retention, but this could be a meaningful loss for writers of E&O coverage. This could potentially be the equivalent of a clash event which isn’t how the coverage is priced. Don’t be surprised if this becomes a concern as business owners begin to realize it is futile trying to get contract law overturned.