The number of States proposing legislation that attempts to mandate insurers to retroactively provide coverage for business interruption claims due to COVID-19 continues to increase, with New York being the most recent State to introduce a bill to that end. Ohio (H.B. 589), New Jersey (A. 3844) and Massachusetts (S.D. 2888) have all previously discussed and/or tried to introduce legislation to attempt to retroactively mandate such insurance coverage, but we have yet to set to see any such legislation be put into effect and more importantly, tested from a constitutional standpoint, which undoubtedly will be at the heart of any such disputes. The most recent proposed bill A. 10226 in New York provides:
"Notwithstanding any provisions of law, rule or regulation to the contrary, every 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 of emergency due to the coronavirus disease 2019 (COVID-19) pandemic."
The proposed legislation further states that any such required coverage would be “subject to the limits under the policy, for any loss of business or business interruption for the duration of a period of a declared state emergency”. The bill would apply to insurance policies that would have been in effect by March 7 and for businesses with fewer than 100 full-time employees and would any insurers that indemnify its insured for business interruption claims would be able to seek reimbursement from the New York Superintendent of Insurance, which would be funded by a “special purpose apportionment” that the New York Superintendent of Insurance would be authorized to collect from all insurers doing business in the state.
Some states, such as California and New York, are also starting to require certain disclosures and/or production of relevant information on business interruption coverage by property and casualty insurers to either policyholders or the respective department of insurance.
Various insurance associations have voiced their significant concern as to the possible effect of such legislation if passed. In response to the various legislation, Erin Collins of the National Association of Mutual Insurer stated in an email that such attempts is “a dangerous, unprecedented, and unconstitutional proposal that NAMIC emphatically opposes”. It follows that the constitutionality of any such legislation, if enacted, will likely be the focus of the debate, which will not only affect the enforceability of insurance contracts in this country, but challenge the basic, long-standing precepts of contract law in every state.
In this regard, most property insurance policies require “direct physical loss or damage to the insured property caused by a covered peril”. One factor that will inherently have to be litigated in this regard is being able to prove that there was such direct physical loss or damage caused by the virus, which would likely entail scientific experts having to opine whether and how long the property was affected by the contamination from the virus. We expect that it will be an ever evolving involving issue that will pose significant debate as to how and whether any such opinions is even possible beyond speculation and can be supported with testing or scientific data.
Notwithstanding the hurdles on proving direct physical loss or a covered peril, many property insurance policies contain exclusions for any such damages arising out of pollutants or specific to bacteria or viruses. For example, ISO Form CP 01 40 07 06, covering losses due to a virus or bacteria, provides:
We will not pay for loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease
Additionally, there are a number of other coverages under insurance policies to be cognizant of and insurers could see argued in an attempt to trigger coverage. Policy provisions pertaining to civil authority orders prohibits access to the insured property could serve to cover business loss, but that coverage would likely still be subject to other policy provisions referenced herein above, such as proof of direct physical damage. Many commercial property forms also address coverage for interference with ingress and egress to the insured property, which likewise are typically still subject to other policy provisions mentioned. There is even some cover for political risk that provides coverage for losses arising from business interruption if the losses that an insured experience is due to the government’s regulatory actions, which could be argued would include the numerous orders that have been issued by both the federal and state governments.
The lawsuits have already begun to be filed in regard to business interruption claims following the government issued orders pertaining to business closures. Not surprisingly, Louisiana saw the first lawsuit filed by the group owning the French Quarter restaurant, Oceana Grille, in New Orleans against Certain Underwriters at Lloyd’s, London. The group owning the French Laundry restaurant in Napa Valley filed a similar lawsuit in California against Hartford Fire Ins. Co. We have also seen a number of movie theater and restaurant owners file suit in Illinois, as well as a suit in Florida filed by a sports bar after its business interruption claim was allegedly denied.
We are continuing to closely monitor and evaluate all of the legislation and lawsuits being filed, which appears to be an ever evolving situation with ever evolving arguments and issues presented. We will certainly continue to keep our clients and industries updated on further developments, arguments and issues to not only be aware of but to expect in the ensuing litigation which we expect to flood the courts in the very near future.
If we can be of any assistance or provide any resources as it pertains to any questions, claims or lawsuits, please do not hesitate to contact us, as we stand ready and able to assist in any way we can.