Pennsylvania recently joined the movement to introduce legislation that would override insurance policy language and require carriers that have issued commercial liability policies — specifically policies covering business interruption losses — to cover certain claims arising from the novel coronavirus 2019 (COVID-19). New Jersey was the first to introduce such legislation, with a number of states following suit. Dueling bills have been introduced in Pennsylvania’s House and Senate. While the bill introduced in the House largely mirrors those introduced in other states, the bill introduced in the Senate is notably different, both in its scope and its specificity.

PA House Bill

Initially, members of the Pennsylvania House of Representatives introduced House Bill 2372, which is presently in the House Committee on Insurance. House Bill 2372 is only four pages and followed New Jersey’s lead. Overall, the House Bill would require an insurer to find coverage even though its policies do not cover such claims, whether due to the required “direct physical loss or damage” condition precedent or an explicit virus exclusion. The House Bill has potentially sweeping implications for carriers and businesses.

Like the New Jersey legislation, the Pennsylvania House Bill would override common policy exclusions and redefine the scope of business interruption coverage. The Pennsylvania House Bill would provide the following relief:

Notwithstanding any other law, rule or regulation, an insurance policy that insures against loss or damage to property, which includes the loss of use and occupancy and business interruption, in force in this Commonwealth on March 6, 2020, which is the date of the Proclamation of Disaster Emergency concerning the coronavirus pandemic, shall be construed to include among the covered perils under the insurance policy coverage for business interruption due to global virus transmission or pandemic.

Pennsylvania House Bill 2372 (emphasis added).

Thus, under the proposed bill, business interruption insurers would be obligated to provide coverage for any damage during the period of the declared Pennsylvania state emergency due to COVID-19. The House Bill would apply to policies in effect on March 6, 2020 (the day Gov. Wolf declared a state of emergency). It would limit the extension of coverage to insureds with fewer than 100 “eligible” employees (those who work 25 hours or more each week).

To offset the costs to insurers that would be required to provide coverage never contemplated by their policies and indemnify eligible insureds for claims arising out of COVID-19, the proposed bill provides for a reimbursement mechanism for these insurers: Insurers can submit a claim for reimbursement to the insurance commissioner. To pay for the reimbursement, the commissioner will collect a special purpose apportionment from all insurers engaged in providing property and casualty insurance in Pennsylvania (whether or not the property and casualty insurance specifically includes coverage for business interruption). This assessment will be used to reimburse the business interruption insurers, and effectively spread the risk across the industry.

PA Senate Bill

On April 15, a group of Pennsylvania Senators went a step further when they introduced their own version of the bill. Senate Bill 1114 is much broader than House Bill 2372 and its counterparts in New Jersey, New York, Ohio, Massachusetts, Louisiana and South Carolina. Senate Bill 1114 would provide similar relief:

Notwithstanding any other law, rule or regulation, a policy of insurance insuring against a loss related to property damage, including the loss of use and occupancy and business interruption, shall be construed to include among the covered perils coverage for loss or property damage due to COVID-19 and coverage for loss due to a civil authority order related to the declared disaster emergency and exigencies caused by the COVID-19 disease pandemic.

Senate Bill 1114 (emphasis added).

But, the Senate Bill has a number of key distinctions from the House version.

First, the Senate Bill defines “property damage” as including direct physical loss, damage or injury to tangible property in a building, office, retail space, structure, plant, facility, commercial establishment or other area of business activity resulting from, but not limited to, the presence of (1) a person positively identified as having been infected with COVID-19, (2) at least one person positively identified as having been infected with COVID-19 in the same municipality of Pennsylvania where the property is located, and (3) COVID-19 having otherwise been detected in Pennsylvania.

Second, the Senate Bill construes business interruption policies to include as “covered perils” (1) coverage for loss or property damage due to COVID-19 and (2) coverage for loss due to a civil authority order related to the declared disaster emergency and exigencies caused by the COVID-19 pandemic.

Third, instead of limiting coverage to insureds based on their size, the Senate Bill essentially would require indemnification for all insureds. For insureds that classify as “small businesses,” insurers must indemnify 100 percent of the policy limit. For insureds not classified as small businesses, insurers must indemnify 75 percent of the policy limit. A “small business” is defined as a company satisfying the U.S. Small Business Administration’s criteria to qualify as a small business under 13 C.F.R. pt. 121 or a company that has received or will receive funding through a program administered by the U.S. Small Business Administration.

Fourth, the Pennsylvania Supreme Court would be given exclusive jurisdiction to hear any challenge to, or render a declaratory judgment concerning, the constitutionality of the act.

Fifth, the Senate Bill would not create a reimbursement fund for insurers required to indemnify insureds pursuant to the act.

In addition to these five distinctions, the most notable aspect of the Senate Bill is that it preemptively addresses any constitutional challenges based on the impairment of these insurance contracts by stating, “[i]nherent in the police powers of the legislature is the ability to enact laws that are necessary for the good of the public. Those laws may result in an impairment of contract rights when the legislature has a significant legitimate public purpose, such as remedying a social or economic problem.”

These proposed bills would have potentially sweeping implications for insurers and for businesses. Pepper Hamilton and Troutman Sanders are closely monitoring the status of these bills and will provide updates as they become available. We are also monitoring the bills introduced in other jurisdictions. We will share our updates on our COVID-19 Resource Center, and you can read an article regarding business interruption insurance coverage here.