PA NJ & DE Legislative Proposals for
COVID-19 Small Business Relief:

Is Modifying Existing Business Policies a Partial Solution?

April 9, 2020
Business interruption insurance or business income insurance coverage generally covers losses from direct business interruptions. Depending, of course, on the language of the policy, business interruption policies typically reimburse the insured for loss of revenue, rent, sometimes payroll, and utilities stemming from certain losses specified in the policy. The interruption, however, must be the result of a direct, physical loss. A typical business interruption provision will cover losses resulting from a fire, lightning strike, or other natural disasters. Courts have enforced exclusion clauses where the interruption and resulting economic loss is unaccompanied by a distinct and demonstrable loss of the physical use of the business property. See generally , Motorists Mut. Ins. Co. v. Hardinger, 131 F.App’x (3d Cir. 2005) (non-precedential) relying ­ on Port Authority of New York & New Jersey v. Affiliated FM Ins. Co. , 311 F.3d 226 (3d. Cir. 2002).
 
After the SARS epidemic in 2002, the vast majority of business interruption policies contain provisions excluding coverage for business interruption losses stemming from infectious disease outbreaks. However, when these infectious disease exclusion provisions have been challenged, they have been upheld by the courts. See , Meyer Natural Foods, LLC. v. Liberty Mutual Fire Ins. Co. , 218 F. Supp. 3d 1034 (D. Neb. 2016) (upheld provision excluding business interruption loss due to e coli). There are few cases, thus, the general rule is that business interruption stemming from the current COVID-19 outbreak will not be covered by the policy unless the policy contains no such exclusion.
 
While the infectious disease exclusion has been upheld by the courts, the scale of the COVID-19 outbreak and its potentially devastating effect on the United States economy has resulted in a groundswell of support to try to keep small businesses afloat during the crisis. With respect to business interruption policies, several states, including Pennsylvania and New Jersey have introduced proposed legislation that would mandate insurance coverage for business interruption losses as a result of the COVID-19 pandemic.
Pennsylvania
On Friday April 3, 2020, a bipartisan group of 37 members of the Pennsylvania House of Representatives referred House Bill No. 2372 to the House Insurance Committee for vote. Bill No 2372 is “[a]n Act providing for insurance coverage for business interruption including coverage for business interruption due to global virus transmission or pandemic,” to take effect immediately if passed. The bill would apply retroactively for any losses on or after March 16, the date Governor Wolf declared a state of emergency in Pennsylvania. The bill would require an insurer to provide coverage and indemnify an insured for business interruption related losses due to the ongoing pandemic “. . . subject to the broadest or greatest limit and lowest deductible afforded to the business interruption coverage under the insurance policy.”

The bill is similar to bills introduced in neighboring states New Jersey and Ohio and it applies to small businesses with fewer than 100 employees. “An insurer who indemnifies an insured pursuant to the act may apply to the Pennsylvania Insurance Commissioner for relief or reimbursement. The act provides, “[t]he commissioner shall establish procedures for the submission and qualification of claims by insurers that are eligible for reimbursement.” As of the date of this update, there has been no announcement regarding the commissioner’s procedures for an insurer to apply for reimbursement of funds pursuant to the bill. The bill suggests there may be forthcoming legislation authorizing funds and establishing a procedure for insurers applying for reimbursement. There has been no such bill as of the date of this update.

On Monday, April 6, 2020 another bill was introduced concerning COVID-19 business interruption losses apparently conceived as an alternative to HB2372 to address business interruption losses. Bill No. 2386 was introduced by a bipartisan group of 16 members of the Pennsylvania House of Representatives, most of whom were not part of the group that introduced Bill No. 2372. Whereas HB2372 directs the insurer to cover the business interruption loss and then seek reimbursement from the state, HB2386 addresses the issue by directing the insured to effectively bypass the insurer and apply directly for reimbursement of the losses from the state. HB2386 permits eligible insured small businesses (fewer than 100 employees) who suffered business interruption losses as a result of the pandemic and who were denied business interruption coverage to apply for emergency funds to recover the losses. The bills, HB2372 and HB2386, have not yet been voted on and there is no information reported regarding if and when a vote is expected. We are monitoring these bills closely and will be sure to keep you abreast of any new information.
New Jersey
On March 16, 2020, the General Assembly of the State of New Jersey introduced Bill A3844 which directs insurers to cover business interruptions caused by the COVID-19 outbreak. If passed into law, an insured “…may recover those losses from their insurer if they had a policy of business interruption insurance in force on March 9, 2020, the date on which the Governor declared a Public Health Emergency and State of Emergency...” The bill applies only to businesses with less than 100 eligible employees. Under the bill, an eligible employee is defined as any employee who works more than 25 hours per week. “The bill 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, 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 Governor’s executive order.” See , New Jersey Bill A3844
 
The bill further provides that an insurer may apply for indemnification to the Commissioner of Banking and Insurance for relief and reimbursement from funds collected and made available. The Commissioner of Banking and Insurance is to establish procedures for the submission and qualification of claims by insurers which are eligible for reimbursement. To date, the bill has not been voted on and has been placed on hold for the time being amid insurance industry concerns. We are closely following any developments regarding the bill and will be sure to provide prompt updates as new information becomes available.
Delaware
Delaware has not introduced COVID-19 related business interruption insurance legislation. However, on March 20, Delaware Insurance Commissioner Trinidad Navarro issued a bulletin requesting insurers to provide coverage for COVID-19 related business interruption losses. “Throughout Delaware’s State of Emergency, many companies have had to close or reduce their business, and employees have been laid off or fired as a result,” Commissioner Navarro explained. “After hearing from businesses and residents who were concerned about the choices they will have to make with limited finances, we ask insurers to help alleviate some of that stress and ensure that residents and business owners in this difficult situation can have the peace of mind that insurance provides throughout the duration of the emergency.”
If you have any questions regarding business interruption and insurance legislation, please contact: