On March 16, 2020, the New Jersey Assembly introduced several bills related to coronavirus, including Bill A-3844 concerning business interruption insurance during the COVID-19 state of emergency. If enacted in its current draft form, the proposed bill would force insurers of certain businesses to provide business interruption coverage and pay for COVID-19 losses, even though policies may contain provisions that expressly exclude coverage for virus or bacteria related losses. Insurers could then apply to the Department of Banking and Insurance for reimbursement.
The bill would modify or eliminate a mandatory exclusion for business interruption policies adopted by ISO in 2006 (form CP 01 40 07 06 – EXCLUSION OF LOSS DUE TO VIRUS OR BACTERIA) that is intended to bar coverage for any virus-related losses. The policy modifies all coverage for property damage to buildings or personal property, business income, extra expense or action of civil authority, and states:
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.
The proposed bill would remove the exclusion and create coverage for first-party losses from COVID-19, even under policies where coverage is already excluded. The law applies to policies in force on March 9, 2020 and issued to policyholders with less than 100 eligible employees in New Jersey. The proposed law defines “eligible employee” as “a full-time employee who works a normal work week of 25 or more hours.” In its current form, the draft bill would provide as follows:
“Notwithstanding the provisions of any other 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 in force in this State on the effective date of this act, shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic . . . concerning the coronavirus disease 2019 pandemic.”
The bill would also require insurers to indemnify the insured, subject to policy limits, for “any loss of business or business interruption for the duration of declared State of Emergency.”
However, the National Association of Mutual Insurance Companies has decried the proposed bill, arguing that business interruption coverage is triggered by physical loss or physical damage, not fear of pandemics. The controversial bill was pulled off the table on March 17 without a full Assembly vote but will likely be amended and voted on soon.
The proposed law underscores how the unprecedented threat of COVID-19 will pose unique challenges for commercial insurers and policyholders alike as the pandemic situation develops. We are following this New Jersey legislation and other emerging COVID-19 issues.
Fullerton Beck is prepared to help clients interpret their policies and act as a confidential resource for questions and concerns. For more information on this controversial NJ legislation or any related insurance coverage topics, contact Fullerton Beck LLP.