Whenever there is a big enough crisis, representatives in a democracy can be expected to respond to the needs of the people. While we could never get any needed legislation passed in New Jersey following Superstorm Sandy regarding wrongful claims conduct by insurance companies, the New Jersey Legislature now has pending legislation that would outlaw exclusions to the coronavirus.
I am not a constitutional lawyer, but I have passed more bar examinations than most lawyers. One of the basic constitutional questions on bar examinations concerns concepts that governments cannot change our personal contracts regarding performance after the fact. While there are some notable exceptions to this general rule, it would be a strange world if we could have elected officials change our currently existing private deals with new legislation.
Accordingly, if this pending legislation ever becomes law, do not bet the farm on collecting. If such a law came into being, future property contracts could prohibit the exclusion of virus or pandemic attacks, but companies could refuse to sell the insurance or raise premiums so high, few would purchase the product.
There are also coronavirus proclamations by elected officials closing and preventing access business to include words to the effect that one of the reasons for the orders shutting down or preventing people from going to a business is because the virus damages the property. This type of language could give rise to loss by Civil Authority claims. I will write more on this concept, but a very good discussion of this coverage is found in IRMI’s article, When Civil Authorities Take Over, Are You Covered?
I have heard that there has been some talk proposing that if the government would pass laws that would reimburse the insurance companies for any claims made under this coverage, the carriers would certainly adjust and pay these claims. I have not seen the actual proposed legislation, but with all the other stimulus programs just being started, anything is possible. It would certainly keep accountants and adjusters employed and provide some limited relief for those shut down by civil authority.
The coronavirus lawsuit filed by John Houghtaling has had a few of our readers asking questions. One is—what is the policy language? Houghtaling has been kind enough to forward a copy of that policy1 to me.
Insurance coverage guru Bill Wilson wrote an article, Does Business Income Insurance Cover Government-Ordered Business Shutdowns?
He noted the following in response to a question about a shutdown being covered by “Ordinance or Law” coverage:
Ordinance or Law coverage involves rebuilding a damaged property. Perhaps you’re thinking of coverage for short-term closures under the policy coverage for Order of Civil Authority?
You still need a covered peril.
A closing in response to an order based on avoiding a disease is not a covered peril, at least under ISO standard forms. In fact, since 2006, ISO has had a virus exclusion endorsement, the CP 01 40 – Exclusion for Loss Due To Virus Or Bacteria.
As some of you may remember, one of my fellow sailing competitor’s boat sank in our race to Honolulu last year. John Sangmeister survived that calamity, but his fantastic waterfront restaurant is now sinking as well. With his permission, I wanted to paraphrase some of the optimistic views this gentleman made to me. He recounted the various difficulties prior generations of his family had gone through. He remarked how wonderful a country America is because we are the bread-basket of the world and as a person in the food business, he assured me that we have more food stored away and ready for sale than anywhere else in the world. But, “we just lack enough teamster truck drivers to repack the entire store each day.” He expressed that fear is our biggest enemy and that we will find ways to overcome these new challenges as well.
Thanks to everybody who purchased my new book Pay Up! This is no joke, Pay Up! has become the new number one bestseller under that thrilling, sexy and fun genre of “business insurance.”
Thought For The Day
If I panic, everyone else panics.
1 Ordinance or Law Endorsement begins on page 102 of the attached policy.