Following the lead of other states, the Pennsylvania legislature has introduced a bill designed to force insurers to cover COVID-19-related business-income losses. House Bill 2372 circumvents the business-interruption coverage’s “direct physical loss or damage” requirement as well as any virus exclusion.
In a co-sponsorship memorandum, Rep. Frank Carmody wrote that: “Many of these business interruption insurance policies are not covering interruptions which are due to COVID-19. However, this disease has undoubtedly interrupted business as usual. We live in extraordinary times, and we must take extraordinary action to mitigate the effects of this pandemic. To provide small businesses with some much-needed relief, I will be introducing legislation which will do the following:
- Clarify that business interruption policies in effect as of the date of the Governor’s disaster declaration (March 6, 2020) include coverage of perils related to COVID-19.
- Allow insurers to receive reimbursement for business interruption insurance claims paid due to COVID-19.
- Provide for a mechanism to make funds immediately available for such reimbursement.”
Like legislation recently introduced in the New Jersey Assembly, the proposed law would take effect immediately upon enactment and apply to all policies issued to small and mid-size businesses – insureds with less than 100 full-time employees – that were in effect on March 6, 2020:
Notwithstanding any other law, rule or regulation, an insurance policy that insures against loss or damage to property, which includes the loss of use and occupancy and business interruption, in force in this Commonwealth on March 6, 2020, which is the date of the Proclamation of Disaster Emergency concerning the coronavirus pandemic, shall be construed to include among the covered perils under the insurance policy coverage for business interruption due to global virus transmission or pandemic.
The coverage required by this section shall indemnify the insured of an insurance policy, subject to the broadest or greatest limit and lowest deductible afforded to business interruption coverage under the insurance policy, for any loss of business or business interruption for the duration of the declaration of disaster emergency described in subsection (a).
As written, the proposed law, which was introduced into committee on April 3, 2020, seemingly would eliminate application of any “virus” exclusions, including the approved ISO form CP 01 40 07 06 – Exclusion of Loss Due to Virus or Bacteria. That exclusion precludes coverage for “loss or damage [including business income] caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
The bill would allow insurers that pay claims to apply to the Commonwealth for reimbursement from funds collected and made available for this purpose. Funds would be distributed proportionally based on the net written premiums received by each company compared to the sum total of all such net written premiums received by all insurers writing that type of coverage within the Commonwealth.
Clark & Fox will be tracking the progress of this proposed legislation and will keep their clients apprised of developments and its impact if enacted. If you have any questions about this issue, please contact John Clark at 856-288-2404 or firstname.lastname@example.org or Michael Savett at 856-345-0386 or email@example.com.