As COVID-19 halts commercial activity throughout the United States, states have jumped into action to preserve insurance coverage for small businesses. New Jersey led the way by proposing legislation requiring property policies to cover business interruption losses resulting from COVID-19:
“[n]otwithstanding the provisions of any other law, rule or regulation to the contrary, every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption in force in this State on the effective date of this act, shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic, as provided in the Public Health Emergency and State of Emergency declared by the Governor in Executive Order 103 of 2020 concerning the coronavirus disease 2019 pandemic.”
The bill applies to policies in effect on March 9, 2020, and covers insureds with less than 100 eligible employees who work 25 hours or more each week (see Bill A-3844). The New Jersey law is currently on hold after resistance from the insurance industry; whether the assembly will eventually vote on the law remains to be seen.
Lawmakers in Ohio, New York, and Massachusetts have taken similar steps. Ohio House Bill 589 requires business interruption coverage to include losses caused by COVID-19 for insureds with less than 100 eligible employees who work 25 hours or more each week (see H.B. No. 589). New York Assembly Bill 10226 includes similar terms.
A Massachusetts bill, S.D. 2888, expands its scope to insureds with 150 or fewer full-time employees and expressly eliminates an expected insurer defense – that COVID-19 does not cause physical damage: An insurer cannot “deny a claim for the loss of use and occupancy and business interruption on account of […] there being no physical damage to the property of the insured or to any other relevant property” (see S.D. 2888). Other states may follow Massachusetts’ lead in responding to insurers’ contentions that COVID-19 does not cause physical damage to property even though the coronavirus’ presence renders property uninhabitable and requires removal through careful cleaning before a property can be safely used.
The federal government is also tackling business interruption losses. On March 18, 2020, a bipartisan group of members of the United States Congress wrote to insurance industry leaders imploring insurance companies to provide coverage for business interruption losses caused by COVID-19. The letter references several of the shelter-in-place orders imposed by states and the devastating impact of the virus on small businesses, which has only grown since the letter was written. Not surprisingly, on the same day, the American Property Casualty Insurance Association, the Council of Insurance Agents and Brokers, the Independent Insurance Agents & Brokers of America, and the National Association of Mutual Insurance Companies wrote a letter in response stating that many business interruption policies “do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.”
As COVID-19 continues to take a toll on business operations, expect more legislative activity at the federal and state level. If legislation becomes law, expect insurers to challenge their constitutionality under state constitutions, as well as the U.S. Constitution.
