Among the various challenges businesses are facing throughout the COVID-19 pandemic, one is particularly garnering attention – the issue of business interruption insurance policies which are not being paid out to those who have faced losses due to coronavirus-related business closures. Business interruption insurance is designed to replace business income lost due to forced closure, typically due to natural disaster-related property damage, and is intended to cover operating expenses during the closure. Like elsewhere in the United States, governments in Pennsylvania and New Jersey responded to the COVID-19 pandemic by, among other measures, closing non-essential businesses unless remote work is available. In light of these closures, many businesses turned to their business interruption insurance policies, only to find that many policies exempt virus and bacteria-related pandemics as covered disaster events – a relic of the early 2000s SARS outbreak. For those who had the foresight to purchase this coverage, they were shocked to find their policies did not cover the current crisis. In a handful of states, including New Jersey, legislators are working on a bill addressing this issue and forcing insurance companies to pay certain COVID-19 business interruption claims.
New Jersey Assembly Bill 3844 was introduced on March 16, 2020 and seeks to indemnify the insured (subject to the limits under the policy) for any loss of business or business interruption for the duration of the COVID-19 State of Emergency. This bill applies to policies issued to insured businesses with less than 100 eligible employees (full-time employees who work 25 or more hours per week) and would force the insurer to retroactively cover these businesses’ coronavirus-related closure losses.
The bill, if passed, would require insurance companies to classify the global pandemic as a loss similar to loss of use of occupancy or damage to property – which they specifically attempted to avoid when carving out their pandemic exemptions. Procedures for submitting claims and the specific qualification of claims that are entitled for reimbursement would be established under this bill. Insurance companies who indemnified an insured that filed a claim may apply to the Commissioner of Banking and Insurance for relief and reimbursement from funds collected and made available for purposes of adhering to this bill. Lastly, the bill authorizes the commissioner to impose, distribute, and collect from insurance companies, except life and health insurance companies, additional amounts necessary to recover the amount paid pursuant to this bill. If passed into law, A3844 (as currently drafted) would apply retroactively to March 9, 2020.
According to the purpose stated in the bill, the legislature is seeking to assist businesses who had the foresight to purchase business interruption insurance, and apply health emergency, as a form of coverage. The bill will help small businesses cover some of their operating expenses due to loss of income from the forced closure. As a result of the loss income, many businesses will have to lay off their employees, or in worse cases will be forced to go out of business. This bill will relieve small businesses from some of the financial hardship they are facing due to COVID-19.
Opponents of the bill are concerned that the bill will interfere with previous agreed-upon provisions and policies. Some opponents believe implementing this bill could have negative effects on viable business insurance policies in the future, due to insurance companies raising premiums or overall reconsidering their underwriting of these property loss policies. The Insurance Council of New Jersey voiced concerns as stated in a recent article in The Philadelphia Inquirer: “[T]this legislation would retroactively interfere with existing insurance contracts and mandate coverage in a commercial insurance policy where it may not currently exist.” https://www.inquirer.com/health/coronavirus/coronavirus-small-business-losses-insurance-claims-coverage-20200319.html The bill is still under consideration with revisions anticipated, and is currently on hold from voting.
Jacklyn Fetbroyt is a founding member of Kang Haggerty LLC and is currently a committeeperson of the Voorhees Township Committee. Among other things, Jackie focuses on counseling companies and business owners through all stages of their ventures from conception to dissolution, assisting her business clients in all of their needs for maintenance and growth. On Township Committee, Jackie strives to be a resource to and ears of the residents in her hometown.
In this ever-changing landscape of information and legislation, please be aware that the information contained in this blog post may no longer be relevant or applicable. The content of this post is for informational purposes only and should not be construed as legal advice or legal opinion.