A new bill introduced by New York Assembly members Robert Carroll and Patricia Fahy would effectively force insurers to provide retroactive coverage for claims filed by businesses that have closed or lost revenue due to the COVID-19 pandemic. Recent weeks have seen similar measures proposed in Ohio, Massachusetts and New Jersey as a means of offering additional support to businesses impacted by the pandemic.
Assembly Bill A10226A, which was introduced on March 27, 2020, would apply to businesses that: (1) have fewer than 100 “eligible employees,” meaning full-time employees who work at least 25 hours per week; (2) had policies “insuring against loss or damage to property” including, but not limited to, business interruption or loss of use coverage; and (3) such policies were in full force on or after March 7, 2020, the date Governor Cuomo announced a state of emergency. While coverage would be subject to the limits of the policy, it would encompass losses suffered through the duration of the emergency.
If enacted, this legislation would significantly alter the scope of coverage for many property policies, most of which require that a business interruption be due to direct physical loss to property. It might also override certain measures employed by insurers after the SARS outbreak in 2003, which included the implementation of exclusions from standard commercial property policies for viruses, pandemics and contagious or infectious diseases. Such exclusions are known commonly as “virus exclusions.”
To prevent certain insurers from bearing the brunt of the financial costs associated with this proposed change in the law, the bill further provides that insurers can seek reimbursement from the New York Superintendent of Insurance, who will collect money from all insurers doing business in the state. This is known as a “special purpose apportionment.” Moreover, the bill provides that the Superintendent will employ measures to protect against the submission of fraudulent claims.
Nonetheless, the insurance industry is wary of the effects such legislation might have on the industry, especially with the looming threat of an expectedly active hurricane season. Retroactively offering coverage for which no premium was collected may create uncertainty and instability in the sector.
Even if it were to pass, however, the measure would likely be challenged on constitutional grounds, as the contracts clause of the U.S. Constitution limits the ability of states to interfere with private contracts. Regardless, in light of the introduction of such legislation, all policyholders should carefully review the terms of their property policies and provide their insurers with timely notification of any potentially covered losses.
If you have questions about business interruption insurance claims, please contact me at (516) 393-8291 or email@example.com.