New Jersey Assembly Passes Pandemic Insurance Law

The New Jersey Assembly recently enacted legislation intended to ensure that businesses have access to business interruption insurance in the next pandemic or virus outbreak...

The New Jersey Assembly recently enacted legislation intended to ensure that businesses have access to business interruption insurance in the next pandemic or virus outbreak. Assembly Bill 4551 authorizes insurers that issue business interruption policies to offer to their insureds and prospective insureds a rider that includes coverage for global virus transmission or pandemic, or both.

“Limited staff availability, temporary shut-downs, supply chain interruptions and necessary safety precautions that may take place during a pandemic can all ultimately impact a company’s revenue,” Assemblymen Roy Freiman, D-Somerset, and Gary Schaer, D-Passaic, said in a joint statement. “After the challenges the COVID-19 pandemic has presented our business community, it is prudent for us to find ways to mitigate these losses in the event of any future pandemics. Allowing businesses to seek out insurance coverage for business interruption caused by global virus transmission will help accomplish that going forward,” Freiman and Schaer added.

Obtaining Business Interruption Coverage for COVID-19 Losses

Business interruption insurance is intended to help keep businesses afloat when their operations are disrupted due to perils such as fire, floods, and theft. Losses that may be reimbursed generally include lost revenue, as well as expenses like rent, utilities, and temporary relocation costs.

As we have previously discussed, many businesses have been unsuccessful in obtaining business interruption insurance during the COVID-19 pandemic. In denying coverage, insurers have cited the policies’ virus exclusion provisions and/or argued that businesses had not suffered a “direct physical loss,” as required under the policy.

New Jersey Insurance Legislation

In March 2020, lawmakers introduced legislation designed to ensure that New Jersey businesses that suffered losses due to interruption as a result of the coronavirus pandemic could recover those losses from their insurer if they had a policy of business interruption insurance in force on March 9, 2020, the date Gov. Murphy declared a Public Health Emergency and State of Emergency in Executive Order 103. The bill would apply to businesses covered by such a policy with less than 100 eligible employees (full-time employee who works a normal work week of 25 or more hours) in the State of New Jersey.  

Assembly Bill 3844 specifically provides that every policy of insurance for loss or damage to property, which includes the loss of use and occupancy and business interruption, in force on the date of the executive order, must be construed to include 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.

Assembly Bill 3844 faced widespread opposition from the insurance industry. Critics also argued that mandating coverage could be unconstitutional. While the bill is still active, it has failed to advance and has no Senate counterpart.

Other legislative responses have been more successful. In May, Gov. Murphy signed Assembly Bill 4805. In an effort to increase transparency around business interruption insurance, it requires the Department of Banking and Insurance to publish on its internet website, on or before the 90th day after the date of enactment, a one page summary of common insurance clauses concerning coverage for the loss of use and occupancy of a commercial property and business interruption that may be used in a commercial insurance policy. Among other requirements, the statement must inform policyholders that their insurance policy may not cover pandemics or viruses.

The new law also mandates that insurers provide the summary to any potential purchaser of, or any policyholder seeking renewal of, a policy that provides coverage for the loss of use and occupancy of a commercial property and business interruption with the application for the policy or renewal. Additionally, insurers that have issued business interruption policies that are in effect on the date the summary is published must deliver the summary to each policyholder by written or electronic means within 90 days.

The latest bill to advance, Assembly Bill 4551, authorizes but does not require, insurers to offer a policy rider that would cover global virus transmission or pandemic, or both. 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.  

Under the bill, the Commissioner of Banking and Insurance must, on an expedited basis, review and approve, as appropriate, any insurance policy rider submitted by an insurer and designed to provide such coverage.  AB 4551 would take effect immediately and apply to policies of insurance issued on or after the date that the Commissioner of Banking and Insurance approves a rider offered pursuant to the bill.

If you have questions, please contact us

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