Coronavirus Insurance Legislation: Retroactively Over-Riding Policy Exclusions

A bill has been introduced in the New Jersey legislature to eliminate – on a retroactive basis – the application of virus or pandemic exclusions to coronavirus / COVID-19 claims.  The global virus transmission or pandemic exclusion was generally added to business interruption policies starting in 2006 and later approved by state regulators in New Jersey and other states throughout the country.  The bill would force insurers of certain businesses to provide coronavirus / COVID-19 coverage even though policies contained a virus / pandemic exclusion.  As written, the bill purports to spread the cost of the retroactive nature to insurers that did not write business interruption coverage.

The proposed bill overrides the 2006 ISO form CP 01 40 07 06, titled “Exclusion for Loss Due To Virus Or Bacteria.”  The exclusion bars first-party property coverage for “loss or damage caused by or resulting from any virus . . . that induces or is capable of inducing physical distress, illness or disease” and generally applies to business interruption.  The bill would also override the similar exclusion from American Association of Insurance Services form FO 0675 10 06.

The law would apply to policies in effect on March 9, 2020 issued to policyholders with less than 100 New Jersey “eligible employees” (defined as working 25 or more hours a week).  Insurers forced to pay claims despite a virus exclusion in their policy would be able to file for reimbursement with the Commissioner of Banking and Insurance.  The bill creates a fund to be paid out of a new fund collected from all insurers writing New Jersey risks.  As such, it theoretically transfers the costs to nearly all insurers in the state.  If the bill passes, state and federal constitutional challenges are likely, if not assured.

Federal-level legislation to address the potential lack of insurance for coronavirus / COVID-19 risks are also being proposed.  For example, Congresswoman Maxine Waters (CA) introduced the Pandemic Risk Insurance Act that appears to be modeled on the Terrorism Risk Insurance Act (TRIA), which provided a federal reinsurance pool to limit insurance industry losses.

Due to the exigent circumstances, more such proposed legislation is ensured.  For more information related to the proposed New Jersey bill, Click Here.  For more information related to Congresswoman Waters’ plan, Click Here.