The Pennsylvania Senate recently introduced legislation that, if passed, would force insurance companies to pay for COVID-19-related business interruption losses regardless of policy language, that may otherwise exclude such coverage. Senate Bill 1114, the “COVID-19 Insurance Relief Act,” was introduced with 18 bipartisan sponsors and referred to the Banking and Insurance Committee on April 15, 2020. While other states and the House of Representatives have introduced similar bills, Senate Bill 1114 proposes the most expansive relief for businesses to date.

Relying on the police powers of the legislature to enact laws that are necessary for the good of the public, Senate Bill 1114 aims to provide relief to business owners that have suffered major economic losses as a result of COVID-19 and mandated closures by directing insurance policies be interpreted to indemnify policyholders for these losses, even if the insurer has reasonable grounds to deny coverage. Recognizing that many insurance companies will rely on the lack of direct physical loss, damage or destruction of property to deny coverage, Senate Bill 1114 decrees that “property damage” in a Pennsylvania business insurance policy is to be defined as the presence of a person positively identified as infected with COVID-19 within the property, within the municipality, or within the Commonwealth of Pennsylvania. In order to defeat coverage denials based on virus exclusions and the policy language related to civil authority orders, the proposed legislation provides: “Notwithstanding any other law, rule or regulation, a policy of insurance…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.” By mandating that the presence of COVID-19 in the Commonwealth of Pennsylvania constitutes property damage and a covered peril, Senate Bill 1114, if passed, would leave insurers with little to no bases to deny coverage for COVID-19 related losses.

Besides providing coverage broader than the legislation proposed in other states and by the House of Representatives, Senate Bill 1114 fails to provide a way for insurers to be reimbursed for paid claims. Rather, the proposed legislation directs insurers to pay their policyholders out of the insurers' existing reserves and other assets, built up from the collection of premiums over the years, as well as the reserves and assets of their reinsurers. Senate Bill 1114 also fails to limit its applicability to small businesses like other proposed legislation. Instead, it provides that small businesses would be entitled to 100% of policy limits for eligible claims and covered losses and that all other businesses would be entitled to 75% of policy limits.

While the proposed legislation is still in its infancy, Senate Bill 1114 has the potential to change the landscape of anticipated coverage disputes related to COVID-19 business losses.