Ten states (California, Louisiana, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, and South Carolina) and the District of Columbia have introduced legislation that would require specified business interruption policies to cover claims for small businesses based on coronavirus for the duration of the public health emergency, even in the face of a specific virus exclusion. While multiple versions of the bills have been introduced, key features include the following:
Number of Employees
The bills in the District of Columbia, Louisiana, New Jersey, Michigan, and Ohio would provide coverage only for insureds with fewer than 100 full-time-equivalent employees. In Massachusetts, Rhode Island, and South Carolina, coverage would be provided for insureds with fewer than 150 full-time employees; the New York bill, as amended, would put the cap at 250. Louisiana, Michigan, New Jersey, and Massachusetts would count only employees in that state for the purposes of this provision. Ohio would require that the business be located in the state, but the bill says nothing about where the employees should be located. The latest bill in Pennsylvania, instead of setting a hard cap on the number of employees, states that any company that satisfies the United States Small Business Administration's criteria, or that receives SBA funding, would be covered by the proposed legislation.
Retroactivity
The bills in California, Louisiana, New Jersey, and Ohio explicitly seek to apply coverage retroactively to March 11, 2020 (Louisiana), March 9, 2020 (New Jersey and Ohio), and March 4, 2020 (California). Except for Michigan, the other bills state that the legislation shall apply to policies in effect, but are silent regarding their retroactive effect for claims or portions thereof for prior losses. The Pennsylvania bill would apply to policies in force as of March 6, 2020, and the New York bill to policies in effect as of March 7, 2020. The Massachusetts, Rhode Island, and South Carolina bills would apply to policies in force as of the date of enactment of the legislation.
The Michigan bill is ambiguous regarding its retroactive effect. Its first provision states only that policies issued or renewed after enactment must provide business interruption for coronavirus, but its second provision states that the law will apply to every business interruption policy in force on the effective date of the legislation.
The New York bill, if enacted, would mandate that insurers renew any business interruption policy that expires during the state of emergency, without a rate increase.
Funding
The New York, New Jersey, and South Carolina bills establish funds from which insurers that pay business interruption claims under the proposed legislation can seek reimbursement of those claims, and would finance those funds by collecting sums pro rata from all insurers licensed in their respective states. The Ohio and Pennsylvania bills contain similar provisions, but would collect funding only from property and casualty insurers. The District of Columbia, Massachusetts, and Rhode Island bills are even narrower, collecting sums only from insurers that write business interruption policies.
A separate bill introduced in Pennsylvania would give direct grants to businesses whose business interruption claims have been denied. The bill is sparse on details, and does not create a new funding source. Instead, it states that these grants shall be awarded "to the extent that money is appropriated" to the Pennsylvania Department of Community and Economic Development of the Commonwealth. The bill does not state whether the intended funds would come from the state or the federal government, or another source. It would, however, require that the business not lay off any employees for the duration of the COVID-19 emergency.
Requirement for Physical Damage
The Massachusetts, New York, and South Carolina bills specifically state that an insurer may not deny a claim on the basis that there was no physical damage to property. The Pennsylvania bill comes at the problem from the opposite direction. It redefines "property damage" to any individual building or property to include: "(1) [t]he presence of a person positively identified as having been infected with COVID-19[;] (2) [t]he presence of at least one person positively identified as having been infected with COVID-19 in the same municipality of [Pennsylvania] where the property is located[; or] (3) [t]he presence of COVID-19 having otherwise been detected in [Pennsylvania]."
The bill in California reaches a similar destination from a different direction. It creates a "rebuttable presumption" in all commercial business interruption policies that COVID-19 was present at and caused damage to the insured's property.
Venable is tracking these bills and any new state legislation, and we will keep this post updated.
This article was originally published on April 6, 2020. It was most recently updated on August 4, 2020, with information about bills introduced in California, Rhode Island, and the District of Columbia. It was previously updated on April 28, 2020, to add the Michigan bill. It was updated on April 20, 2020, to discuss a new bill introduced in Pennsylvania. It was updated on April 10, 2020, to add the South Carolina bill and to reflect the amendments to the New York bill. It was updated on April 8, 2020 to clarify the retroactivity provisions in the proposed legislation, and to add the paragraph discussing the bill in Pennsylvania that would give direct grants to businesses whose business interruption claims are denied.