On March 16, 2020, the New Jersey General Assembly passed a bill that would force property insurers to cover business interruption losses arising from the COVID-19 virus sustained by small businesses (less than 100 employees working more than 25 hours a week); a copy of the bill can be found here. Significantly, the bill would force coverage even where the insurer believes its policy should not apply. In particular, the bill provides that property policies in effect as of March 9, 2020, will be construed as providing “coverage for business interruption due to global virus transmission or pandemic,” including COVID-19. As written, the law would defeat any attempt by insurers to rely on exclusions that purport to preclude coverage for business income loss resulting from viruses, including the much-touted ISO CP 01 40 07 06 Virus or Bacteria Exclusion that insurer-side advocates have been championing as a purported bar to COVID-19 losses. The bill would provide much-needed relief to the New Jersey policyholders that are enduring the worst of COVID-19’s economic impact with the least ability to withstand it.
The law would not, however, leave insurers holding the bag for what they contend to be unanticipated risk. Insurers would be permitted to apply to the Commissioner of Banking and Insurance for relief and reimbursement from funds collected through a new “special purpose apportionment” that would be collected from insurers insuring risk in New Jersey. And, no doubt, insurers would likely pass most, if not all, of that cost on to policyholders. Consequently, the risk would be effectively redistributed across all insurers and policyholders in the state.
The New Jersey Senate still must enact the legislation, so much could change. Additionally, even if passed, insurers would likely turn to the courts to challenge the constitutionality of the law. Stay tuned for further developments.