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The Coronavirus Aid, Relief, and Economic Security Act of 2019 (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act made some small but significant changes to the United States Bankruptcy Code that may have important effects for insurance professionals, from agents and underwriters to adjusters and claims counsel.

The CARES Act interacts with the newly-implemented Small Business Reorganization Act of 2019 (the “SBRA”) in a crucial way: for the next year, it increases the debt threshold to be considered a “small business” under the SBRA by over 275%. This means hundreds of thousands more businesses across the country may be eligible to take advantage of the streamlined bankruptcy filing procedures and more limited creditor rights provisions of the SBRA. As an increasingly broad swath of the economy feels the pinch of the coronavirus pandemic, insurance professionals should expect to encounter more bankruptcy-related matters in the coming months.

For individuals who are currently debtors in bankruptcy and have undergone “material financial hardship” because of the coronavirus pandemic, the CARES Act allows for easier modifications of plan payments. Similar modifications by many Chapter 11 reorganization debtors, while not specifically addressed by any current coronavirus-related legislation, should increase in the coming months. Expect future legislation to address this and more issues that will undoubtedly arise.

For the insurance industry, all of this means more bankruptcy issues will arise. Those payers who are already in bankruptcy will increasingly attempt to modify their bankruptcy plan payments to extend payments over longer periods of time. This would especially affect those premium finance companies catering to small and medium-sized business. More bankruptcy cases will be filed at increased rates in the coming twelve months, and many insurance companies will be creditors. Insurance companies should engage bankruptcy counsel to assist in protecting their creditor rights.

There will be increased fallout from the coronavirus pandemic in the coming years, and many unanswered questions remain. Will insurance premium-paying debtors be able to access the Fed’s business loan program announced this week in order to make payments? Will insurance commercial lenders be affected by the downturn such that they will have more frequent interactions with the bankruptcy courts? How can commercial insurance premium financing lenders protect their interest as bankruptcy creditors?  In coming occasional installments, we will explore these and more insurance-related bankruptcy issues through the lens of the coronavirus pandemic.

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James L. Sowder

James L. Sowder


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