With COVID-19 business closures, legislatures across the country have been grappling with new questions, including what protections may be afforded by business income insurance. As of late, members of legislatures in states like New York1 and Pennsylvania2 have all proposed legislation in favor of affording coverage for claims that might otherwise be excluded. While these bills have not passed, they may offer some indication about what legal issues could arise in the future.3
Generally, a business with an all-risk insurance policy that includes a business interruption provision should be protected from business losses or suspensions (unless expressly excluded).4 However, because many policies that afford business interruption insurance require a “direct physical loss” to the property, carriers may deny COVID-19 insurance claims. Policies may also have specific viral, bacterial, or pollution exclusions that carriers may argue apply to claims filed under COVID-19. Anticipating these arguments, certain members of state legislatures have advanced bills to afford coverage for COVID-19 business interruption claims despite such policy language.
New York legislators propose that COVID-19 be deemed a “covered peril” for businesses that have 250 or less eligible employees.5 Subject to policy limits, the bill requires that the policy already contain a business interruption or loss of use provision. A carrier who provides coverage under the bill would be able to apply for reimbursement from the superintendent of financial services. The bill states:
[E]very policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption, shall be construed to include among the covered perils under that policy, coverage for business interruption during a period of a declared state emergency due to the coronavirus disease 2019 (COVID-19) pandemic.
Pennsylvania likewise proposed a bill called the “Business Interruption Insurance Act.” The proposed bill would apply to businesses with 100 or fewer eligible employees and would also grant carriers the opportunity to apply to the commissioner for reimbursement. The bill states:
[A]n insurance policy that insures against loss or damage to property, which includes the loss of use and occupancy and business interruption, in force in this Commonwealth on March 6, 2020, which is the date of the Proclamation of Disaster Emergency concerning the coronavirus pandemic, shall be construed to include among the covered perils under the insurance policy coverage for business interruption due to global virus transmission or pandemic.
While these bills have not passed, they reflect a broad legislative effort to incorporate COVID-19 claims as a protected peril under the policy. At this time, it is recommended that businesses with potential COVID-19 claims consult with legal counsel to ensure they are up-to-date with the changing legislative climate.
1 New York Assembly Bill 10226.
2 Pennsylvania House Bill 2372.
3 As of the date of this blog post, these bills have not passed.
4 Fayad v. Clarendon Nat. Ins. Co., 899 So. 2d 1082, 1085 (Fla. 2005) (“Unless the policy expressly excludes the loss from coverage, this type of policy provides coverage for all fortuitous loss or damage other than that resulting from willful misconduct or fraudulent acts.”)
5 The bill describes employees as individuals who work full-time, or 25 or more hours.