Business Interruption Bills Require Balancing of Interests

New Jersey was the first to introduce a proposal, quickly followed by Pennsylvania, New York, Massachusetts, South Carolina, Ohio, Louisiana, and Michigan. Federal legislation is also under consideration. Lawmakers have struggled to balance the interests of policyholders and insurers regarding important details such as retroactivity, insurer reimbursement and eligibility parameters. To date, no proposals have passed at either the state or federal level.

The prevailing theme across these legislative efforts is ensuring payment for business interruption claims notwithstanding the presence of virus exclusions or other language insurers have to date relied upon to issue denials. The insurance industry is voicing vigorous opposition, arguing these bills violate the Contracts Clause of the United States Constitution and could even lead to insurer insolvency. While the ultimate adoption and ability of any of these pieces of legislation to withstand imminent industry challenges remains unclear, there is a distinct possibility that the varied approaches taken by different legislative bodies may prove critical in the ultimate analyses.

Below is a brief summary of the legislation currently under consideration in each state:

New Jersey Assembly Bill 3844

Would provide coverage for businesses with 100 or fewer in-state employees, retroactive to March 9, 2020 and continuing for the duration of the State of Emergency. The bill includes the potential for reimbursement if insurers apply to the New Jersey Commissioner on Banking and Insurance.

Pennsylvania Senate Bill 1114; House Bill 2372

The Senate bill would provide coverage without regard to the number of employees or company size and provide no mechanism for insurer reimbursement. The House bill would limit coverage for large businesses to 75% of their policy limits while providing 100% coverage limits for small businesses, with a mechanism for insurer reimbursement for paid claims.

New York Assembly Bill 10226

This proposal would apply to businesses with 250 or fewer total employees retroactive to March 7, 2020, with reimbursement eligibility through the New York Department of Financial Services.

Massachusetts Senate Bill 2888; Senate Bill 2655

These bills would apply to businesses with 150 or less in-state employees. Senate Bill 2888 appears to be the leading proposal and allows insurers to apply for reimbursement, however important details about the reimbursement process remain unclear.

Ohio House Bill 589

The Ohio bill would apply to businesses with 100 or fewer employees total retroactive to March 9, 2020 and continuing through the duration of the State of Emergency. Insurers could apply for reimbursement from a new “Business Interruption Insurance Fund” administered by the Superintendent on Insurance.

South Carolina Senate Bill 1188

The South Carolina legislation would apply to businesses with 150 or fewer in-state employees. The bill contains a reimbursement provision.

Michigan House Bill 5739

Would provide coverage for businesses with 100 or fewer in-state employees. The language of the bill does not appear to provide reimbursement for insurers.

Louisiana Senate Bill 477; House Bill 858

Both Louisiana proposals appear to have been withdrawn. A subsequent proposal would require business interruption policies to include a form clearly listing the types of incidents that will not be covered.

Congress is considering several proposals including H.R. 6494, (The Business Interruption Insurance Coverage Act of 2020). Among other provisions, H.R. 6494 would require insurers offering business interruption insurance coverage to “make available, in all of its policies providing business interruption insurance, coverage for losses resulting from—(A) any viral pandemic; (B) any forced closure of businesses, or mandatory evacuation, by law or order of any government or governmental officer or agency, including the Federal Government and State and local governments.” The insurance industry opposes this legislation and instead is actively lobbying for federal pandemic insurance limited to future losses.

A perhaps superior, and more universally palatable, proposal may be akin to what has been introduced in the District of Columbia. The City Council introduced the “Coronavirus Omnibus Emergency Amendment Act of 2020,” but pulled the business interruption section before it came for a vote. Although the provisions of this section provide meaningful support to District small businesses, councilmembers raised questions about the proposal’s legality, economic repercussions, and the costs to insurers. Several councilmembers also voiced concerns over entering a protracted legal battle with the insurance industry.

The District of Columbia endeavors to balance the interests of policyholders and insurers. The bill includes both reimbursement for insurers and more stringent caps on eligibility. Coverage would be limited to businesses with fewer than 50 full-time employees and less than $2.5 million in revenue. This revenue cap, which appears to be the only of its kind to be proposed at any level, is significant because it limits coverage to businesses without adequate short-term working capital. Funding for reimbursement would be obtained through an assessment on licensed District insurers offering business interruption insurance. The amount of the assessment would be proportional to the insurer’s net premiums written in the District.

In the absence of definitive guidance on the fate of any of these proposals, it is important policyholders obtain tailored legal advice based on specific policy language and particular facts. Any legal analysis should be guided by controlling legal precedent specific to the jurisdiction where the policyholder operates. Klehr Harrison’s Insurance Recovery Focus Group stands ready to provide precisely this type of client-specific advice and to determine the appropriate legal strategy for each client.

The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.