Around the country, states have proposed legislation that would require insurers who provide property insurance to cover business interruption during the coronavirus pandemic. These pending laws have not seen much movement since being introduced; however, as the pandemic continues, state legislatures have focused more on this issue. These states are considering mandatory business interruption coverage laws and applying them retroactively: California, Louisiana, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, South Carolina and the District of Columbia introduced legislation that generally requires carriers insuring against loss or damage to property to cover business interruption during a declared state of emergency due to COVID-19, even if an exclusion applies, or declaring that the presence of a virus is a physical loss.
In New York, A1937/S4711 are currently pending bills, originally introduced as A10226/S8211 in late March 2020. These are the highlights of that proposed legislation:
- Proposal requires certain perils to be covered under Business Interruption insurance coverage during the COVID pandemic.
- This bill would apply to those business which had business interruption insurance in effect on March 7, 2020, the date of the Governor’s Executive Order 202, the declaration of a State of Emergency related to COVID-19.
- It is limited to businesses with less than 250 full time employees.
- It provides for automatic renewal of insurance, at the current rate, during the pandemic.
- It provides that any policy of insurance with a virus exclusion permitting the insurer to deny coverage shall be deemed to have that exclusion deemed null and void.
- Insurers would pay/indemnify their insureds who have filed business interruption claims and then the insurers would apply to the Superintendent of the Department of Financial Services for “relief and reimbursement from funds collected and made available for this purpose and pursuant to a special purpose assessment (to recover the expenses from insurance companies, other than life & health insurers).
- Superintendent is to establish submission of procedures, qualification, and eligibility for reimbursement.
Other New York bills are pending on the issues, including A10327, which relates to providing such coverage to “insureds with coverage who operate programs and services including a mental health outpatient provider . . . substance use disorder treatment provider . . . community-based program funded under the office of mental health . . .” and A5396/S4333 which establishes the temporary hospitality and business relief fund and creates a credit for certain hospitality businesses affected by the COVID-19 pandemic.
Pending bills, at both the State and Federal levels, attempt to mandate insurance coverage for risks that were, arguably, never intended to be assumed by the insurers, for which premiums were never collected.
If passed, this could pose serious solvency concerns for insurers, who have not set reserves for these losses. All policyholders would have claims at the same time. This could arguably end the existence of business interruption insurance in its entirety and could endanger other, clearly covered claims.
The Federal bill, the Business Interruption Coverage Act of 2020 is more expansive than the state proposals, as it mandates coverage for COVID, acts of terrorism, and extreme events be made available to insureds, but permits exclusion of such coverage if the insureds do not pay for the additional coverages This bill would preempt state law pursuant to the McCarran-Ferguson Act (1945).
This pending legislation, if passed, would be challenged, and legal challenges could hold up payments for years in any event, which would result in no payments to assist small businesses in their viability now. The bills will most likely be challenged under the contracts clause, the due process clauses, and the takings clause of the U.S. Constitution.
This article was co-written by Rosa M. Feeney of Lewis Johs Avallone Aviles, LLP.