In our most recent post, we addressed the New Jersey Legislature’s attempt to override terms and exclusions embodied in virtually all commercial Business Interruption Insurance policies including the “virus” exclusion and the requirement that the damage be attributable to a “direct physical loss of insured property.” That bill, A3844 was passed by the State Assembly’s Homeland Security and State Preparedness Committee but did not make it to the floor for a full vote. Apparently, the insurance industry got wind of the bill and pressed for further discussions before the bill was presented. Obviously, the insurance industry will be lobbying hard to prevent the bill from passage. Their arguments include what appears to be a solid challenge that the proposed legislation violates both the State and Federal Constitutions as an improper interference with contract. The risks that the legislation would seek to compel coverage were specifically written out of these policies more than 10 years ago, and policy holders were not charged premiums to cover losses from these events.
Although it remains to be seen if the New Jersey bill advances, two other States, Ohio and Massachusetts introduced similar bills to expand business interruption insurance to cover losses attributable to Covid-19 business closures. Both bills virtually mirror New Jersey’s A3844 and would override the virus exclusion and look to ignore the direct physical loss requirement. All of these bills would allow the insurers paying out on such claims to seek reimbursements from their State’s insurance fund which is financed by insurance companies. However, if these claims were allowed to go forward, the amount paid out would likely overwhelm the carriers and the insurance funds. At a minimum this would result in the carriers making up for what would be enormous losses by passing the burden onto its policy holders in the form of enormous premium increases across their product lines.
Just as it did in New Jersey, insurance industry representatives and trade groups will be working overtime to block the Ohio and Massachusetts bills. We will continue to follow all legislative developments and to provide any useful updates as this crisis continues.
It has been reported that federal lawmakers are continuing efforts to get the insurance industry involved in some fashion to provide businesses with money to help them through the crisis. Some industry insiders may be considering setting up a fund to assist small businesses in lieu of fending off potential legislation that would compel them to honor business interruption claims similar to the fund set up following the 9/11 attack. This follows the industry’s recent rejection of a plea by 18 members of the United States Congress that they cover claims for businesses impacted by the virus. We will monitor the federal government’s efforts to get the insurance involved.
For now, we recommend that you review your business insurance policies and, if they contained any form of business interruption insurance, follow its directions on filing a claim to recoup losses. Put your carriers on notice of your claim and preserve your rights under your policy in the event there is some change in the law or other development that impacts your coverage.
