New York is the latest state to propose legislation intended to expand business interruption insurance coverage. Introduced by Assembly Member Robert C. Carroll and co-sponsored by eight fellow legislators, A10226 (the "Bill"), "[r]equires certain perils be covered under business interruption insurance during the coronavirus disease 2019 (COVID-19) pandemic." With this Bill, New York joins Massachusetts, Ohio and New Jersey, which also proposed similar state legislation this month.
The Bill provides in relevant part:
every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption, shall be construed to include among the covered perils under that policy, coverage for business interruption during a period of a declared state emergency due to the coronavirus disease 2019 (COVID-19) pandemic.
By these terms, insurers would be required to indemnify businesses, subject to the limits under their respectable policies, for "any loss of business or business interruption for the duration of a period of declared state emergency due to the coronavirus disease 2019 (COVID-19) pandemic." New York Governor Andrew Cuomo first declared a state of emergency on March 7, 2020, which means insurance coverage would cover losses due to COVID-19 from March 7th until the state of emergency is lifted.
If passed, the Bill would not apply to all companies. Under the Bill, the extension of business loss insurance would apply only to insureds "with less than 100 eligible employees in force on the effective date" of the bill. "Eligible employee" is defined as "a full-time employee who works a normal work week of 25 or more hours."
The Bill further provides: "[a]n insurer which indemnifies an insured who has filed a claim pursuant to section one of this act may apply to the superintendent of financial services for relief and reimbursement" from the state. The Bill explains that the superintendent of financial services will establish procedures for the submission of such claims. It also enables the superintendent of financial services to impose and collect funds from companies engaged in the insurance business to support the reimbursement fund.
As discussed in our prior alerts, the purpose of this type of legislation is to circumvent policy language that business interruption insurance applies only to physical losses and other terms, including the 2006 Service Insurance Organization ("ISO") "Exclusion for Loss Due to Virus or Bacteria" endorsement form CP 01 40 07, established in the wake of other viruses. But, there still remains a question as to the constitutionality of these efforts and whether state insurance regulators will be able to enforce this proposed legislation.
Meanwhile, instead of waiting for state legislators to take action, some state insurance regulators have taken it upon themselves to address insurance issues raised by COVID-19. The powers of state insurance regulators vary by state and so does the enforceability of their actions. In most states, insurance regulators' reactions to emergency situations like COVID-19 are treated as guidance as opposed to enforceable law.
For example, in New York, the Department of Financial Services ("DFS"), published Insurance Circular Letter No. 7 on March 19, 2020, providing, "guidance to urge all regulated entities during this outbreak to do their part to alleviate the adverse impact caused by COVID-19 on those consumers and small businesses that can demonstrate financial hardship caused by COVID-19. Some of the recommendations include, "[w]orking with consumers to avoid cancellation of insurance policies," "[i]ncreasing resources as necessary to accommodate increased claim submission and increased inquiries from consumers about policy coverage benefits," and "[p]reparing clear and concise descriptions benefits that may be triggered as the COVID-10 situation continues to evolve." In addition, DFS:
urges all regulated entities, in their capacity as creditors to businesses of all sizes, to work with and provide accommodations to their borrowers during this unprecedented global emergency to the extent reasonable and prudent, including refraining from exercising rights and remedies based on potential technical defaults under material adverse change and other contractual provisions that might be triggered by the COVID-19 pandemic.
Because DFS's statements are not law, at this time insurers are still permitted to interpret and apply their policies as drafted. Still, the message is clear. State government is pleading with insurers to "step up to the plate" and to help resolve the growing issues caused by COVID-19.
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