Broker Check

Legislatures May Rewrite Business Interruption Policies

March 18, 2020

There is a real chance New Jersey will pass a law requiring insurers to cover some COVID-19 business interruption losses, despite policy wording excluding them .

First, some history. In 2006, the Insurance Services Office (ISO) issued a "Loss Due To Virus Or Bacteria" exclusion endorsement, which is now used by most insurers with ISO forms. This exclusion applies to property damage and business interruption loss. ISO chose not to offer specific coverage to bypass this exclusion, a choice which may come back to haunt them. Even without this exclusion, there must be physical damage to trigger a business interruption claim.

Now, the New Jersey legislature is considering a bill which would force insurers covering policyholders with less than 100 full-time employees to cover COVID-19 business interruption losses "Notwithstanding the provisions of any other law, rule or regulation to the contrary...". The draft bill does allow insurers to apply for reimbursement, out of an apportionment on all New Jersey insurers.

This week congressmen have written to insurance associations asking them to cover COVID-19  losses. if there is no response, we could see efforts to pass a national law.

This is a serious issue. Businesses are shut down and without some kind of reimbursement many will not reopen. What legislators and policyholders alike should do is demand insurers develop coverage for business interruption due to shutdown caused by epidemics, regardless of whether or not there is damage to property.