As New Jersey braces for an uptick in confirmed cases of COVID-19, the state legislature today, March 16, 2020, will consider a bill that would require property insurers covering risks in New Jersey to pay for business interruption losses due to the disease, even if their policies expressly exclude coverage for losses due to viruses or bacteria.
The proposed law—Assembly Bill 3844—would require every property policy that provides coverage of the loss of use of property and for occupancy and business interruption to be “construed” to include coverage for business interruption due to COVID-19. The law would require indemnification of insureds for any loss of business or business interruption for the duration of the State of Emergency that New Jersey Governor Phil Murphy declared on March 9, 2020, subject to the policy limits.
The law would apply to policies in effect in New Jersey on March 9, 2020 issued to insureds with less than 100 “eligible employees” in New Jersey. The term “eligible employee” is defined as “a full-time employee who works a normal work week of 25 or more hours.”
An insurer that indemnifies an insured for a loss presented under the law may apply to the Commissioner of Banking and Insurance for relief and reimbursement by the Commissioner for the amounts paid. In turn, these costs will be passed on by the Commissioner to insurers operating in New Jersey (other than life and health insurers) through the established annual special purpose apportionment distributed among these insurers and through the Commissioner’s authority under the law to collect from these insurers additional monies necessary to recover amounts it pays for COVID-19 claims.
If passed, the law would take effect immediately, and would be retroactive to March 9, 2020.
While clearly aimed at reducing the financial impact of the coronavirus on New Jersey’s medium-sized and small businesses, if enacted, the law would re-write those implicated property policies excluding coverage for losses due to viruses or bacteria, changing the parties’ private agreements without additional consideration. Ultimately, however, the financial burden for this unilateral change in coverage will be borne by insurers writing coverage in New Jersey, including insurers who do not issue property policies. Insurers will face further uncertainty regarding the extent of their potential exposure for business interruption claims under the law, given the indefinite length of the State of Emergency. If the law is passed, we would expect constitutional challenges by the targeted insurers, and potentially also by the insurers ultimately responsible for the claims, particularly given the law’s retroactive application.
For more information on this proposed legislation and its impacts on the insurance community, please contact: