The coronavirus (COVID-19) public health emergency will certainly produce significant financial losses across the economy as businesses shut their doors for prolonged periods to avoid infections and exposures. In response, some state legislatures and regulators have begun exploring options to reduce the financial losses to businesses by attempting to allocate certain uncovered business interruption losses to property insurance carriers.
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 would take to repair the physical damage.
In what appears to be the first attempt by a state to legislate around policy wordings, New Jersey legislators introduced a bill that would have required existing property policies to be construed to include coverage for business interruption loss “due to global virus transmission or pandemic” for the duration of the declared State of Emergency in New Jersey. The bill was voted out of Committee on March 16, 2020 but was reportedly held prior to receiving a vote before the full Assembly. It may be modified and reconsidered at a later date.
New Jersey Bill No. A-3844 would have applied to policies in effect on March 9, 2020 and issued to New Jersey policyholders with fewer than 100 full-time employees. Under the proposed legislation, a carrier issuing payment for coverage required by the bill could seek reimbursement from a pool funded by an additional assessment against insurance companies. The draft legislation notes that “global virus transmission and pandemic are generally excluded from the list of covered perils under the existing standard business interruption insurance policy” and that no states have yet approved a form developed by the Insurance Services Office (ISO) to provide such coverage.
This legislation recalls previous efforts by New York legislators to reduce uncovered policyholder losses from Superstorm Sandy by attempting to retroactively change insurance policies. In the aftermath of Sandy, the New York Assembly passed several bills to increase benefits to policyholders, including a bill invalidating anti-concurrent causation provisions in existing insurance policies. The Sandy bill would have prevented an insurer from denying a claim based on existing policy language foreclosing coverage when a loss has multiple causes, both excluded and covered. Due to constitutional concerns with the bill, it was later amended to apply only to policies issued or renewed after the effective date of the bill and would not apply retroactively to existing policies. Current efforts to modify coverage for coronavirus under existing policies will surely face similar constitutional and due process challenges, and pressure would likely be brought to bear to amend any language that applies retroactively to existing contracts.
In related news, the New York State Department of Financial Services (“DFS”) recently requested that property insurers in the state provide detailed explanations of benefits “suitable for policyholder review” regarding the extent and availability of insurance coverage in their policies with respect to COVID-19. Although the facts of each coronavirus claim will differ, DFS requested that the “explanation to policyholders” answer questions such as “whether contamination related to a pandemic may constitute ‘physical damage or loss,’” “what type of damage or loss is sufficient for coverage under the policy,” and whether “a civil authority prohibiting or impairing the policyholder’s access to its covered property in connection with COVID-19 is sufficient for coverage under the policy.” The DFS request suggests that policymakers will continue to explore avenues to reduce financial loss to businesses from coronavirus-related stoppages by pushing carriers to provide coverage under existing property insurance policies.