COVID-19, also referred to as the novel coronavirus, has created significant economic losses for New Jersey’s businesses. In an effort to find some economic relief from COVID-19, companies are searching for ways to mitigate the damage, such as pursuing potential state and federal government aid options, and by reviewing their insurance policies for potential coverage. The New Jersey legislature is currently considering Bill A3844, which, if passed, would offer relief for qualified companies carrying business interruption insurance.

Business interruption insurance is a form of insurance that covers loss of business income after certain types of disasters. While property insurance only covers the physical damage to the business, business interruption insurance covers the loss of potential profits that a business might have otherwise earned. In addition to lost income during a disaster, business interruption insurance may also cover costs associated with fixed operating expenses, temporary relocation, wages, taxes, and loan payments.

The Insurances Services Office (“ISO”) is an insurance industry advisory organization based in Jersey City, New Jersey, that provides statistical and actuarial services to insurers, reinsurers, agents, insurance regulators, and other governmental entities, companies, and individuals in the property/casualty insurance marketplace.  As part of its services, ISO helps develop standard insurance forms and programs, and assists insurance companies with complying with state regulatory requirements.

Back in 2006, ISO submitted form CP 01 40 07 06 to regulators, which was approved. CP 01 40 07 06 is titled “Exclusion of Loss Due to Virus or Bacteria” and, amongst other items, acted as an insurance policy endorsement that would bar coverage for “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease. The exclusion in this endorsement applies to all coverages provided…including (if any) property damage and business income coverages.”  The straightforward endorsement’s wording appears to bar business interruption coverage for COVID-19 related claims.

On March 16, 2020, Bill A3844 was introduced to the New Jersey State Assembly and referred to the Assembly Homeland Security and State Preparedness Committee. Bill A3844 provides that:

Notwithstanding the provisions of any other law, rule or regulation to the contrary, every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption in force in this State on the effective date of this act, shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic, as provided in the Public Health Emergency and State of Emergency declared by the Governor in Executive Order 103 of 2020 concerning the coronavirus disease 2019 pandemic.

Effectively, Bill A3844 requires insurers to cover certain COVID-19 related losses if the policy covers business interruption, regardless of the CP 01 40 0706 endorsement. This required coverage would only apply to policies issued to insureds with less than one hundred (100) employees. Furthermore, any insurer indemnifying an insured for COVID-19 related business interruption claims will be entitled to apply to the New Jersey Commissioner of Banking and Insurance Relief (the “Commissioner”) for reimbursement.  If the legislation is passed, the Commissioner will reimburse each insurer based on the proportion of the net written premiums received by the insurer for insurance written or renewed in New Jersey during the immediately preceding calendar year when compared to the sum total of all such net written premiums received by all companies writing insurance or coverage within New Jersey for the prior calendar year. Bill A3844 is written so as to be retroactive to March 9, 2020, and would apply to insurance policies in full force and effect as of such date.

If signed into law, Bill A3844 would provide significant relief for New Jersey companies through requiring coverage for certain COVID-19 claims.

Although it is unclear whether Bill A3844 will be signed into law, companies with business interruption insurance should begin documenting various COVID-19 related expenses that may be eligible for coverage if Bill A3844 should be signed into law. This will ensure that the company can quickly file a claim in the event of the bill’s passage.

In evaluating any possible business interruption or other complicated insurance claim (including, for example, environmental claims), it is important to keep in mind that New Jersey also recognizes a Reasonable Expectations Doctrine. Insurance policies are generally deemed by the courts of New Jersey to be contracts of adhesion, meaning that there are no negotiations between the insurance company and the insured over the specific policy language. (Rather, the insured must accept the policy on a “take it or leave it” basis.) Courts thus recognize that contracts of adhesion are subject to special rules of interpretation. When there is ambiguity in an insurance policy, courts can interpret the policy to align with the reasonable expectations of the insured, even if a detailed reading of the insurance policy language might state a contrary meaning.

For these reasons, business interruption insurance coverage is an area that should be reviewed with an experienced insurance coverage attorney to best protect your business.

If you have further questions about the status of Bill A3844 and how it might impact your business or other questions about business interruption coverage or any insurance coverage issue, send us a message.  Earp Cohn P.C.’s experienced team is here to assist you.