Wednesday, April 1, 2020
Volume 1, Issue 15
In Today’s Issue:
- Coronavirus Business Interruption Claims
- The Genius Behind Apple’s Greatest Products
- Thomas Jefferson’s Debts
To read last week’s newsletter covering coronavirus and black swans, the crisis facing small businesses, and the math of pandemics, please click here.
Coronavirus Business Interruption Claims
Business interruption insurance helps to cover lost income due to perils such as fire, wind, theft, vandalism, and similar events. Such coverage allows a business that is temporarily shut down to obtain some relief to pay fixed and semi-fixed costs while damages are repaired. We are, of course, in the midst of a massive interruption to business activity throughout the economy due to government imposed restrictions to combat the spread of Coronavirus. This would lead many to believe that insurance companies should be responsible for paying some or all of these costs.
This concern has been on the minds of insurance company shareholders for weeks since the damages are obviously extensive. Recently, I looked into the question of whether business interruption policies typically cover pandemics and found that most do not (see the footnotes in this recent article on Berkshire Hathaway). Insurance companies obviously have been aware of the risk of pandemics and, in most cases, specifically excluded pandemics from coverage.
Is this reasonable? Critics will be quick to castigate insurance company executives but the reality is that premiums were set with a specific set of risks in mind. Customers were not being asked to pay for the risk of pandemic coverage. Unfortunately, now this coverage is badly needed but it is not reasonable to ask for coverage that was never paid for.
Reasonable or not, several governments have taken steps to force insurers to pay for pandemic related business interruption retroactively. The Stroock Law Firm recently published an analysis regarding the retroactive changes to policies being pursued in the New Jersey General Assembly. Specifically, the article examines whether legislation similar to what New Jersey is pursuing would violate the contracts clause of the United States Constitution.
Readers with an interest in the insurance industry will want to read the entire analysis, but the concluding remarks are excerpted below:
Even with the well-being of the public in mind in the wake of a national emergency, the New Jersey bill appears to exceed what is permissible under the Contract Clause. While “minor reallocations, not going to the heart of the bargain, have been permitted to accomplish an overriding public purpose,” forcing insurers to cover losses that were not contemplated or bargained for appears extreme. While no state has addressed this issue, especially in the context of a health crisis that affects the financial well-being of thousands of business owners and their employees, we believe that a viable constitutional challenge can be asserted with respect to Bill A-3844 and similar governmental action.
It is far too soon to make any firm predictions regarding the success or failure of these initiatives. The insurance industry ended the first half of 2019 with capital of $838.9 billion making insurers a prime target for litigation, as the Wall Street Journal reported on Tuesday. Lawsuits in such an environment are inevitable and could stretch out for many years.
Thanks to @dale_landry for sending a link to the Stroock Law Firm’s analysis.
The Genius Behind Apple’s Greatest Products
Apple as we know it today would certainly not exist without the vision of Steve Jobs. However, the company’s success would not have been possible without many brilliant deputies. Shortly before his death in 2011, Jobs told his biographer that no one at Apple had more operational power than Jony Ive. In 2013, Leander Kahney published Jony Ive: The Genius Behind Apple’s Greatest Products which I reviewed this week on The Rational Walk. Much in life is due to random luck and serendipity. Ive was close to quitting when Jobs returned as CEO in July 1997 and, for a period of time after that, Jobs did not even know of the existence of Ive’s design studio. Fortunately, Jobs eventually toured the studio and he and Ive hit it off and soon became near-daily collaborators on the most important products in Apple’s history.
Ive resigned from Apple in mid-2019 to start a design firm, but his firm will continue to have some involvement with Apple in the future. Ive’s resignation was definitely unfortunate for Apple shareholders given his key role while he worked with Jobs and in the years since. Apple will need to continue innovating in the years and decades to come to justify its current market capitalization. Hopefully, the team he built is strong enough to carry on his legacy.
Thomas Jefferson’s Debts
In early 1826, Thomas Jefferson was in declining health in the last winter of his life when he received unwelcome news from his grandson, Thomas Jefferson Randolph. Nearly deaf and wracked with pain from prostate problems and other maladies, Jefferson is reported to have “turned white” when he learned that his beloved Monticello would have to be included in a “lottery” being arranged by the commonwealth of Virginia that was designed to provide financial relief to its most prominent founding father. Jefferson appears to have been solvent with a positive net worth, but he was illiquid and unable to service his many debts which amounted to over $107,000, an enormous figure at the time. Jefferson was land rich but cash poor. A series of misfortunes, including a series of bad crops and the assumption of debts due to co-signing for the obligations of his friends, had compounded to an unmanageable level as he neared his 83rd birthday.
Jefferson, seeing no other viable options, had lobbied the commonwealth to allow a lottery that would raise enough funds to repay the bulk of his obligations. He hoped that giving up 1,000 acres along with his mills to the lottery winner would be sufficient, but in the depressed economy of 1820s Virginia, the Monticello estate, appraised at $71,000, had to be included as well.
Jefferson died on July 4, 1826 and his debts were not fully paid off until 1878 after the death of his grandson who also served as the estate’s executor. By all accounts, Jefferson’s debts caused tremendous distress during his retirement years. Some of his misfortunes were due to his long years of public service which took his attention away from personal finances, but from his days in Paris in the 1780s, Jefferson enjoyed the finer things in life as well and seemed to make few attempts to seriously economize.
Over the past two years, I slowly read all six volumes of Dumas Malone’s epic biography of Thomas Jefferson and can recommend the series to those with a deep interest in this fascinating founding father. Of the six volumes, I found the first and the last most compelling. Jefferson’s idealistic youth and his role as the author of the Declaration of Independence are memorably covered in the first volume and his fascinating retirement years are covered in the final volume. The two volumes covering Jefferson’s presidency are arguably the most tedious, as they necessarily cover, in minute detail, political controversies that contemporary readers might have little interest in.
I have listed each of the books below. Some of the books are on the expensive side if purchased new but there are often much cheaper used copies available. Buying used books from Amazon re-sellers is sometimes hit or miss but can be a good option from established and highly rated sellers.
Volume 1: Jefferson the Virginian
Volume 2: Jefferson and The Rights of Man
Volume 3: Jefferson and the Ordeal of Liberty
Volume 4: Jefferson the President: First Term
Volume 5: Jefferson the President: Second Term
Volume 6: Jefferson and His Time: The Sage of Monticello
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Copyright and Disclosures
Nothing in this newsletter constitutes investment advice and all content is subject to the copyright and disclaimer policy of The Rational Walk LLC.