New Jersey and New York Signal Intent to Force Coverage for COVID-19 Business Losses; Other States Will Follow Suit


By: Erin Lamb and Marc Shrake

Both New Jersey and New York have taken steps toward attempting to force coverage of business losses related to COVID-19. In New Jersey, Assembly Majority Leader Louis Greenwald and Assemblyman Roy Reiman have introduced Assembly Bill 3844. As written, the bill would force insurers to provide coverage for claimed business losses alleged to be caused by COVID-19, under policies that were in effect on March 9, 2020 (the date that New Jersey declared a state of emergency). If successful, these state governments would be taking an extraordinary step that not only changes the terms and conditions of an existing contract, but also creates coverage ex nihilo for virus-related losses expressly bargained between the contracting parties, and underwritten, to be excluded from coverage.
Back in 2006, ISO adopted a mandatory exclusion for such losses that specifically referenced the SARS (also a coronavirus) epidemic. Obviously, then, since at least that time purchasers of insurance, and agents, were on notice of such risks — which include damage and loss caused by COVID-19 — and the fact that they are not covered under the bargained-for terms and conditions of the insurance coverage.
The New Jersey bill seeks to wipe all of this out. The bill would apply to insureds with fewer than 100 eligible employees in New Jersey. (It defines “eligible” as “full-time employees who work more than 25 hours or more in a normal workweek.”) It is unclear whether the new bill would eliminate the requirement that there be direct physical loss of damage to covered property, or on an arguably more limited basis, void application of the 2006 Virus exclusion. The New Jersey bill is up for discussion on the floor of the Assembly today, March 16, 2020.
In New York, the Department of Financial Services ordered all authorized Property/Casualty Insurers to provide them with details on business interruption coverage for all business owner policies, commercial multiple peril policies, and specialized multiple peril policies. The letter instructed insurers that DFS considered their obligations to policyholders under business interruption policies a “heightened priority.” The letter demanded that every insurer provide DFS with its volume of business interruption coverage, civil authority coverage, contingent business interruption coverage, and supply chain coverage, including direct premium amounts, policy types, and numbers of each type of policy written. Each insurer is additionally instructed to prepare information regarding COVID-19 coverage not only as of today but “as the situation could develop to change the policyholders’ status.” Insurers were instructed to consider whether there was any potential for COVID-19 coverage.
It is notable that these steps are being taken in two states with major industries (including all shipping through the East Coast’s largest port) that have already suffered COVID-19 losses from the shutdowns in China, Asia, and now Europe. They have filed claims for those losses under some of these policies and have been denied. Policyholders have been marshaling their own resources and lobbying organizations to push to transfer their business risks, including having their losses paid for by insurance companies for reasons other than an arm’s-length, bargained-for agreement in place that would obligate the insurers to do so in exchange for a policy premium tied to the risk of loss being transferred.
Other states impacted by the COVID-19 outbreak, especially California and Washington, are also likely to try to spread the costs of the COVID-19 business losses to other businesses and entities who did not cause the loss and who did not contract to, were not paid to, did not expect to, and are not obligated to take on such risks.
In addition, FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients. Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments. For more information about the Task Force, click here.
You can also contact your FMG relationship partner or email the team with any questions at