Lawmakers in New Jersey, New York, Ohio, and Massachusetts have proposed legislation confirming that property policies’ business interruption coverage extends to losses attributable to the coronavirus pandemic and social distancing. These bills allow policyholders to avoid costly and unnecessary disputes with their insurers over the meaning and scope of insurer-drafted provisions relating to physical loss and damage requirements and so-called virus exclusions.
The first state to take such action, New Jersey, issued bill A. 3844, requiring property insurers to pay COVID-19 business interruption claims. The bill’s accompanying Statement explains that the proposed law is intended to hold harmless that portion of the business community that had the foresight to purchase business interruption insurance for losses sustained as a result of the current health emergency. The bill requires that every presently in-force business interruption policy insuring against loss or damage to property be construed to cover the perils associated with the “global virus transmission or pandemic” and “the coronavirus disease 2019 pandemic.”
Insurers would be required to indemnify, up to a policy’s limits, lost business income for the duration of the declared State of Emergency (Executive Order 103 of 2020). The bill offers relief to all commercial insureds with fewer than 100 eligible employees (i.e., full-time employees working more than 25-hours per week in New Jersey).
Although the bill is opposed by the insurance industry, insurers paying claims may apply to the commissioner of banking and insurance for reimbursement from funds collected pursuant to a special purpose assessment made against all carriers insuring risks in New Jersey. The New Jersey Assembly Homeland Security and State Preparedness Committee approved the bill. The New Jersey Assembly has not yet voted on it.
New York’s assembly introduced draft bill A10226 for debate on March 27, 2020. It too requires property insurers to cover business interruption losses (up to policy limits) resulting from the COVID-19 pandemic. The New York bill applies to policies offering business interruption and loss of use and occupancy coverage as of March 7, 2020, and protects insureds with fewer than 100 eligible employees (those working in New York full time, i.e., at least, 25 hours per week).
On March 24, 2020, Massachusetts introduced Senate Docket 2888, requiring every property insurance policy then effective and offering business interruption coverage to be construed to include “coverage for business interruption directly or indirectly resulting from the global pandemic known as COVID-19, including all mutated forms of the COVID-19 virus.” The bill prohibits insurers from denying claims “for the loss of use and occupancy and business interruption on account of (i) COVID-19 being a virus (even if the relevant insurance policy excludes losses resulting from viruses); or (ii) there being no physical damage to the property of the insured or to any other relevant property.” Indeed, this proposed law would effectively eliminate what the insurance industry has announced are its two primary coverage defenses. The bill applies to policies issued to insureds with 150 or fewer full-time Massachusetts employees. As in other states, an insurer may apply for reimbursement from funds collected via assessments to Massachusetts insurers.
On March 24, 2020, the Ohio legislature introduced H.B. No. 589, requiring insurers to cover “losses attributable to viruses and pandemics” under their property policies’ business interruption coverage. This proposed law applies to policies issued to Ohio businesses with 100 or fewer eligible employees. Like similar proposals, the Ohio bill would allow insurers paying claims for COVID-19 losses to seek reimbursement from funds collected by the Ohio Superintendent of Insurance from assessments to insurers engaged in the business of insurance in Ohio.
The insurance industry’s objections ignore the proper role of state governments and insurance regulators in overseeing and controlling risk transfer, the nature and scope of policies issued to their citizens, and the conduct of insurers selling insurance in their states. Indeed, these bills are not the first legislation aimed at protecting policyholders and enforcing risk transfer. When thousands of Connecticut homes were affected by crumbling foundations due to the presence of pyrrhotite in concrete, that state responded when insurers refused to honor their coverage obligations. The state recognized that repairing these homes typically required replacing the entire foundation, at a cost exceeding $100,000, and offered relief. The Connecticut General Assembly created the Connecticut Foundation Solutions Indemnity Company to reimburse qualified homeowners from funds collected from insurers and from a surcharge placed on homeowners insurance policies issued in the state.
Today, small businesses are undeniably suffering. These policyholders purchased business interruption coverage, paying a premium for their respective insurers’ promise to reimburse them when they suffered loss of business revenue because they could not use their property or conduct their operations. Insurers should not be permitted to compound these losses by denying coverage for the very risks they assumed, and policyholders should not have to battle their insurers for coverage.