It appears that New Jersey’s recently introduced bill, A3844, was only the tip of the iceberg. Bills now pending in Ohio and Massachusetts seek to expand business interruption coverage for businesses adversely affected by social distancing policies enacted to combat COVID-19, and largely follow the form and substance of the New Jersey bill.
Ohio H.B. No. 589 requires every policy insuring an Ohio business against loss or property damage and including coverage for the loss of use and occupancy and business interruption to “be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic during the state of emergency.” The bill is limited to providing coverage for policies issued to companies with 100 or fewer employees who work at least 25 hours per week. The Ohio bill establishes a reimbursement fund by levying assessments on insurers writing coverage in Ohio, with the amount of the assessment based on the insurers’ net written premiums. After paying a claim pursuant to the bill, an insurer can seek reimbursement from the fund. The bill would require payment for losses sustained during the duration of the state of emergency Ohio Gov. Mike DeWine declared on March 9, 2020.
Massachusetts S.D. 2888 even more explicitly mandates that insurers cover COVID-19 losses regardless of a policy’s terms. The bill would require “every policy of insurance insuring against loss or damage to property” to provide coverage for loss of use and business interruption claims resulting from COVID-19. Importantly, the bill states that the coverage must be provided regardless of whether the policy has a virus exclusion or whether there is physical damage to the insured’s property.
Like the New Jersey and Ohio bills, the Massachusetts bill does have certain limitations. For example, it would only apply to policies issued to businesses in Massachusetts with 150 or fewer full-time employees. It would also apply until the rescission of Massachusetts Gov. Charles Baker’s March 10, 2020 Executive Order 591 that declared a state of emergency in the Commonwealth. However, the requirement is subject to the policy limit and policy restrictions regarding length of time applicable to business interruption coverage.
The Massachusetts bill then grants the commissioner of insurance the authority to require insurers that sell business interruption insurance in Massachusetts to contribute to a fund, from which insurers paying COVID-19 losses could seek reimbursement for amounts paid. Still, the mechanism for submission of a reimbursement claim is unclear from the current draft of the bill. Finally, the bill makes clear that it is subject to the Massachusetts laws regulating unfair practices by insurance companies, thereby creating substantial penalties for its violation.
As the COVID-19 pandemic continues to affect larger swaths of the economy, we anticipate additional states will introduce similar legislation intended to require insurers to cover losses that otherwise would be excluded by their policies. While it is unclear if any of this proposed legislation will ultimately become law, if the bills are enacted, litigation is almost certain to ensue on the validity of the laws. It will then be up to the courts to balance the needs of those businesses dramatically affected by COVID-19 with the rights of parties to contract.
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