As in many other states, Pennsylvania legislators are searching for a means of compelling insurers to pay claims irrespective of whether policy language dictates that result. Perhaps unlike most other states, however, each house of the Commonwealth’s legislature has proposed its own solution, leading to dueling legislative efforts.
Pennsylvania House Bill 2372 requires insurers to pay business interruption claims, irrespective of policy language, submitted by any policy holders with fewer than 100 employees. In contrast to the federal paycheck protection program, which many have criticized as funneling aid to large corporations rather than small businesses, the House Bill appears tailored to help those who need it most. But the Bill also importantly contemplates the consequences for the insurance industry, and it proposes a mechanism for reimbursements to insurers that pay claims. Reimbursements would come from a fund to which the entire industry will be required to contribute, thereby spreading the risk across the entire industry rather than across one carrier’s pool of policyholders. As an industry conceived on the concept of risk spreading, insurers should respect the House’s effort to minimize any single insurer’s losses while balancing unprecedented social interests in economic stability and the very survival of small businesses.
Senate Bill 1114 also requires carriers to pay claims irrespective of policy language. It does not, however, limit the pool of eligible claimants based on the number of employees or any other metric related to company size. The Senate Bill does, however, differentiate the level of reimbursement between small and large businesses, with small businesses eligible for 100% of their policy limits while larger companies could recover only 75% of their limits under the proposed legislation. Despite the lack of constraints on claimant eligibility, the Senate Bill provides no reimbursement mechanism for insurers.
All legislation of this kind will face constitutional challenges from the insurance industry, which contends that the payment of business interruption claims will drive many companies to insolvency. In that context, the extreme measures proposed by the PA Senate are ill advised.
In a regulated industry like insurance, all parties contract subject to future regulation. That fact, however, does not in and of itself permit regulators to re-write private contracts. However, a regulation may be sustained where it is “drawn in an appropriate and reasonable way to advance a significant and legitimate public purpose.” Sveen v. Melin, 138 S.Ct. 1815, 1822 (2018). The House Bill, which more meticulously accounts for program scope and consequences, likely survives this scrutiny by carefully balancing public and private interests. The Senate’s approach, however, fails to account for program size or industry consequence. It is therefore less clear that the Senate Bill survives scrutiny.
The take-away for clients, however, is that many policyholders should file business interruption claims if they believe that their policy may provide coverage. While these decisions require individual analysis, it is conceivable that any state or federal program that is ultimately adopted and survives imminent industry challenges may limit its scope to insureds that have submitted claims and received denials. Those who failed to do so, or who failed to preserve their rights at each step along the way, may face arguments that they have waived their rights or are simply ineligible for relief by virtue of their inaction. If you are considering filing a claim, the lawyers at Klehr Harrison are here to guide you through the process.
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Author Jordan Rand is a partner in the Litigation Department at Klehr Harrison.