New draft legislation in New Jersey would force insurance companies to cover claims for business interruption caused by the novel coronavirus (COVID-19) pandemic even if their policies contain virus exclusions.
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 9, 2020. The draft bill, A3844, states in part:
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, as provided in the Public Health Emergency and State of Emergency declared by the Governor in Executive Order 103 of 2020 concerning the coronavirus disease 2019 pandemic.
The coverage required by this section shall indemnify the insured, subject to the limits under the policy, for any loss of business or business interruption for the duration of that declared State of Emergency.
As part of the Statement accompanying the bill, the drafters comment that:
Industry sources have indicated that global virus transmission and pandemic are generally excluded from the list of covered perils under the existing standard business interruption insurance policy. The Insurance Services Office, ISO, has developed a rider to provide an insured with the option of purchasing such coverage, but to date, no states have yet approved the form. This bill, then, is intended to hold harmless a certain portion of the business sector, which had the foresight to purchase business interruption insurance, for losses sustained as a result of the current health emergency, but for which no such coverage is currently offered.
As written, the proposed law 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 State for reimbursement from funds collected and made available for this purpose. Funds are to 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 State.
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 jclark@clarkfoxlaw.com or Michael Savett at 856-345-0386 or msavett@clarkfoxlaw.com.
