THE TIP OF THE ICEBERG
Massachusetts Senate Bill No. 2888, March 24, 2020
“An act concerning business interruption insurance”
On March 24, 2020 Senate Bill No. 2888, “An act concerning business interruption insurance,” was introduced in the Massachusetts state senate. This is the first legislation of its kind to be proposed within the six New England states. Massachusetts joins New Jersey and Ohio in doing so. We write to alert you about it in case this kind of legislation starts to proliferate across the New England region, and to let you know that we are looking at how the industry can best respond.
The stated purpose of the proposed legislation is “to require certain insurance companies in the commonwealth to provide business interruption insurance coverage to their insured in connection with the COVID-19 pandemic, [and] therefore it is hereby declared to be an emergency law, necessary for the immediate preservation of the public safety, health and convenience.”
A summary of the key elements of the proposed legislation is set forth below.
1. The proposed legislation requires insurers to provide business interruption regardless of whether the terms of the insurance policy requires it to do so.
The proposed legislation would apply to “every policy of insurance insuring against loss or damage to property, notwithstanding the terms of such policy (including any endorsement thereto or exclusions to coverage included therewith) which includes … the loss of use and occupancy and business interruption … [and] shall be construed to include among the covered perils under such policy coverage for business interruption directly or indirectly resulting from the global pandemic known as COVID-19, including all mutated forms of the COVID-19 virus.”
Insurers would be prohibited from denying “a claim for the loss of use and occupancy and business interruption on account of (i) COVID-19 being a virus (even if the relevant insurance policy excludes losses resulting from viruses); or (ii) there being no physical damage to the property of the insured or to any other relevant property.”
2. The proposed legislation applies only to insureds with 150 or fewer full-time employees, for as long as the state of emergency declared by Massachusetts’ governor on March 10, 2020 remains in effect.
The act would apply “only to policies issued to insureds with 150 or fewer full-time-equivalent employees in the commonwealth, and which are in force on the effective date of this act, or that become effective prior to the date on which executive order number 591 is rescinded by the governor.” Executive Order 591 was issued by Massachusetts Governor Charlie Baker on March 10, 2020. It declares a state of emergency in the Commonwealth as a result of the coronavirus pandemic and remains in effect by its terms until such time as the Governor declares that a state of emergency no longer exists.
3. The proposed legislation would allow insurers to seek reimbursement from the Commissioner of Insurance under a regulatory scheme, but does not provide any details about the extent of available reimbursement or how the reimbursement process would work.
The proposed act would allow insurers to apply to the Massachusetts Commissioner of Insurance “for relief and reimbursement from funds collected and made available for such purpose as provided in Section 3 of this act.” The act requires the commissioner to “establish procedures for the submission and qualification of claims by insurers.”
Section 3 of the Act authorizes the commissioner to make assessments “against all licensed domestic companies and foreign companies in proportion to their net premiums written and annuity considerations in the commonwealth as shown in the annual report of each of said insurers filed with the Division of insurance. Said assessment shall reimburse the commonwealth for funds appropriated for such reimbursement.”
No details are provided in the proposed legislation about the extent of available “relief and reimbursement,” or how the reimbursement process would work.
4. A violation of the proposed legislation would appear to constitute an “unfair or deceptive act or practice in the business of insurance” under M.G.L. ch. 176D.
The final piece of the proposed legislation (Section 4) simply states: “For the avoidance of doubt, this act is subject to Chapter 176D of the General Laws.” Chapter 176D concerns Unfair Methods of Competition and Unfair or Deceptive Acts or Practices in the Business of Insurance.
Again, however, no details are provided about how the particular provisions of Chapter 176D relate to or be impacted by the proposed legislation.
5. The Tip of the Iceberg
On March 18, 2020 eighteen members of the Congress of the United States wrote a letter to several insurance industry groups in which they urged insurers “to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage.” Those industry representatives responded that same day, advising federal lawmakers that “[b]usiness interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.” See, Insurers Reject House Members’ Request to Cover Uninsured COVID Business Losses, Insurance Journal, March 20, 2020. Click here for a link to the article.
As noted above, Massachusetts joins New Jersey and Ohio in proposing legislation designed to force property damage insurers to provide business interruption insurance benefits regardless of the insuring agreement’s basic requirement of direct physical damage to the insured’s property, and regardless of whether the policy expressly excludes such coverage.
Legislation of this kind raises constitutional and other legal issues, the resolution of which will significantly impact the insurance industry and our nation’s economy. Faced with a large volume of claims, it remains to be seen whether courts in the New England region and elsewhere would favorably receive arguments similar to those successfully advanced to the South Carolina Supreme Court, for example, in Harleysville Insurance Company v. State of South Carolina, 736 S.E.2d 651, 658 ff. (S.C. 2012) (holding that statute retroactively modifying the definition of “occurrence” in general liability insurance policies was unconstitutional, and could only have prospective effect).
The efforts now taking place in Massachusetts, New Jersey and Ohio are just the tip of the iceberg. It may presage an effort to eliminate by legislative action the “virus” exclusions that were adopted by the casualty insurance industry in the wake of the SARS epidemic in 2003. We expect to see other states and possibly the U.S. Congress propose similar legislation.
Sulloway & Hollis, PLLC is actively monitoring these efforts, and the response to them. We will keep you advised, but please reach out to us directly if you have questions in the meantime.