A bill being drafted in the state of New Jersey could put certain property insurers on the hook for business interruption losses due to the COVID-19 outbreak.
Once approved, NJ Draft Bill A-3844 would immediately take effect, and will apply retroactively to insurance policies in force on March 09, 2020, specifically those policies that insure against loss or damage to property, as well as loss of use, occupancy and business interruption coverage. Essentially, the bill voids any virus exclusions such policies may have.
New Jersey declared a state of emergency on March 09, 2020, so the bill requires insurers to indemnify their insureds for any business loss sustained since. However, the bill only applies to policies issued to policyholders with less than 100 full-time employees – particularly those employees who work a normal week of 25 or more hours.
In addition to virtually nullifying virus exclusion clauses, the bill will allow insurers to apply to the Commissioner of Banking and Insurance for reimbursement for indemnity paid to policyholders through the bill. This relief would be funded via a special purpose apportionment on non-life and non-health insurance carriers operating in the state of NJ.
The state’s planned legislation comes after legislators of the US House of Representatives recently signed a bipartisan letter requesting to insurance trade groups that their members recognize financial losses resulting from the coronavirus pandemic as part of their policyholders’ business interruption coverage.
A blog post on insurance coverage law firm Saxe Doernberger & Vita, P.C.’s (SDV) website noted that the bill’s wording does not address whether it aims to drop the prerequisite listed in most business interruption policy forms that there be “direct physical loss or damage” to covered property for coverage to apply. The blog post also outlined that it remains to be seen if the bill, in its current incarnation, is intended to allow business interruption coverage despite the absence of direct physical loss of damage to cover property in the context of the COVID-19 pandemic.
SDV said that the bill is still in the early stages of the legislative process, but is expected to proceed rapidly. Other states are also predicted to follow suit.
