On March 9, 2020, New Jersey Governor Phil Murphy declared a state of emergency based on the COVID-19 pandemic. Shortly thereafter, on March 21, 2020, Governor Murphy signed Executive Order 107 which, among other things, requires all non-essential New Jersey businesses to close and operate remotely. Even those essential business that are permitted to remain open must take steps to only have employees at the workplace who are necessary for the operation of the business.
The impact of this Executive Order, as well as similar orders across the country, has been substantial, with many businesses having to engage in layoffs, furloughs, and wage and/or hour reductions for employees in order to continue to operate. Clearly, the state of emergency in New Jersey and across the country is proving to be devasting to businesses of all varieties.
While the newly enacted Coronavirus Aid, Relief and Economic Security Act, or CARES Act, provides vehicles for business to obtain loans, it is anticipated that many businesses will be looking to the “business interruption” coverage in their business owner insurance policies to provide coverage for losses sustained due to the impact of the coronavirus. Generally speaking, business interruption coverage replaces lost income and continuing expenses in the event that business is interrupted due to “physical damage” caused by certain events, such as a fire, flood, hurricane or other natural disaster.
However, there are limitations to the breadth of business interruption coverage. Particularly relevant to current events, business interruption insurance typically excludes coverage for “virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
In anticipation of insurance carriers denying claims for business interruption coverage due to the coronavirus, the New Jersey Assembly introduced Bill A-3844 on March 16, 2020 which, if passed, would require that any property insurance policy that includes business interruption coverage be construed to include coverage for business interruption losses due to “global virus transmission or pandemic.” The proposed bill is limited to policies that were in effect on March 9, 2020, the date on which Governor Murphy announced a state of emergency, and to businesses with 100 or fewer full-time employees in New Jersey. Further, given the purpose for which the bill was proposed, it is expected that the need to establish “physical damage,” as that term is generally understood, will not be required.
The bill would also permit insurers who pay business interruption claims to apply to the New Jersey Department of Banking and Insurance for reimbursement. The bill proposes that the funds to reimburse insurers will come from a fund to which all insurers covering risks in New Jersey would be required to contribute.
Not surprisingly, the bill received vigorous opposition from insurers and the bill never made it out of the Assembly due to discussions over proposed amendments. Insurance carriers and lawyers representing their interests have raised many issues with the proposed bill, including that the legislation would retroactively interfere with existing contracts and that carriers never assessed the risk involved in providing such coverage when setting premiums.
Lawmakers maintain that the bill is still on the table for discussion and supporters of the legislation continue to push for a vote. If passed, the legislation will most certainly be followed by claims for coverage too numerous to count. Correspondingly, litigation over coverage issues relating to business interruption policies will also most assuredly follow. Even while this bill is still being considered, law firms have already instituted actions in New Jersey seeking to force carriers to provide business interruption coverage for businesses affected by the COVID-19 pandemic. In this regard, three class action suits have been filed in the District of New Jersey in recent days on behalf of restaurants that were denied business interruption coverage. Similar suits have been filed in other states as well.
Donnelly Minter & Kelly will continue to track news relating to this issue, will provide updates as necessary, and will be ready to handle any coverage questions that may arise. If you have any questions at all, please reach out to us.