Lawmakers in Massachusetts and Ohio introduced bills this week to rewrite existing insurance policies to cover businesses’ economic losses arising from Covid-19 work stoppages. The proposed language in both measures mirrors a New Jersey bill that was introduced last week but tabled after insurance company representatives raised objections to its legality and constitutionality.
S.D. 2888 in Massachusetts and H.B. 589 in Ohio would compel insurance companies to reimburse policyholders for significant business losses that are not covered by the insurance policies between the parties. Each bill would require existing property policies coverage with business interruption coverage to “be construed to include among the covered perils … coverage for business interruption” resulting from the Covid-19 pandemic during the declared state of emergency in each state. Most concerning for the insurance industry, the Massachusetts bill would specifically prohibit an insurer from denying a business interruption claim “even if the relevant insurance policy excludes losses resulting from viruses” or even if there is “no physical damage to the property of the insured or to any other relevant property.”
As a general rule, commercial property insurance policies only cover business interruption losses that are caused by physical loss or damage to insured property, and only for the period of time it should take to repair the physical damage.
The bills would apply to policies issued to insureds in the state with less than a certain number of full-time employees – 150 or fewer full-time employees in Massachusetts, and 100 or fewer in Ohio. Like the New Jersey legislation, the Massachusetts and Ohio proposals provide that a carrier issuing payment for coverage required by the bill could seek reimbursement from a pool funded by an additional assessment against insurance companies.
If enacted, the bills would require insurance companies to bail out private businesses harmed financially by coronavirus by retroactively expanding insurance coverage under existing policies. Unlike the government bailouts of distressed industries such as the airlines contained in the recently passed Senate stimulus bill, this rescue program would be funded by individual insurance companies, rather than the government. Additionally, the directive to rewrite existing insurance contracts between private parties would undo fundamental contract law rights and principles and raise serious constitutional concerns.