The New Jersey Legislature is working quickly to enact legislation aimed to lessen the impact of Coronavirus on small businesses. One bill seeks to increase the availability of business interruption insurance by eliminating a common exclusion that excludes virus-related losses.

Business Interruption Insurance

Business interruption insurance policies may not cover some losses related to COVID-19. Under many policies, the question of coverage begins with whether physical loss or damage to the insured’s own property has occurred.  From about 1966 until 2006, virus contamination would be covered under most policies.

In July 2006, the Insurance Services Office (ISO) submitted an exclusion for loss due to virus or bacteria, which, based upon a contrary representation by ISO that virus contamination was not intended to be covered, regulators approved. The exclusion states that it applies to income lost due to business interruption, expressly referencing the SARs outbreak of 2003. While ISO developed a rider to provide an insured with the option of purchasing specific coverage that would apply to disease outbreaks, state regulators have apparently not yet approved it. 

Proposed Business Interruption Insurance Legislation

Assembly Bill No. 3844 aims to ensure that New Jersey businesses that suffer losses due to interruption as a result of the coronavirus pandemic can recover those losses from their insurer so long as they had a business interruption insurance policy in force on March 9, 2020, which is when Gov. Murphy declared a Public Health Emergency and State of Emergency. The bill would apply to businesses covered by such a policy with less than 100 eligible employees (full-time employee who works a normal workweek of 25 or more hours) in the State of New Jersey.  

“This bill 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,” the proposed legislation states.

AB 3844 specifically provides that every insurance policy that includes the loss of use and occupancy and business interruption, in force on the date of the executive order, must 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 Governor’s executive order.  The coverage provided would be subject to the limits under the policy and would indemnify the insured for losses incurred during the State of Emergency.

The legislation further provides that an insurer which indemnifies an insured who has filed a claim pursuant to its provisions may apply to the Commissioner of Banking and Insurance (Commissioner) for relief and reimbursement from funds collected and made available for this purpose. The Commissioner would be required to establish procedures for the submission and qualification of claims by insurers that are eligible for reimbursement.

Finally, AB 3844 authorizes the Commissioner to impose upon, distribute among, and collect from insurance companies, other than life and health insurance companies, the additional amounts as may be necessary to recover the amounts paid pursuant to the bill. The additional special-purpose apportionment authorized by the bill would be distributed according to essentially the same procedures and calculations as are provided currently for the existing special-purpose apportionment.

What’s Next?

On March 16, the Assembly Homeland Security and State Preparedness Committee advanced AB 3844. However, it has failed to proceed to a final vote in the Assembly. According to sponsors, they are still working out several details. “A-3844 is a work in progress,” co-sponsor Assemblywoman Annette Chaparro stated. “We are working on finalizing the legislation to ensure it is the fairest and most responsible bill possible.”

Even if enacted, the legislation is likely to face legal challenges. Because the bill arguably alters private contractual relations, challengers may argue that it violates both the New Jersey and U.S. Constitution. In these challenges and in other private litigation, the representations made in 2006 and the state of coverage prior to 2006 are likely to be disputed. Given the potential impact of AB 3844, both insurers and policyholders should closely monitor the proposed bill.

If you have questions, please contact us

If you have questions or if you would like to discuss the matter further, please contact me, Charles Yuen, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.