New Jersey Legislature Considering Bill To Force Insurers To Pay COVID-19 Business Interruption Claims Expressly Excluded By ISO’s “Virus” Exclusion

https://www.jdsupra.com/legalnews/new-jersey-legislature-considering-bill-23908/

As economic losses from the COVID-19 pandemic continue to mount, there has been much discussion about the potential availability of insurance, especially under Business Interruption policies. In 2006, ISO adopted a mandatory exclusion for its Business Interruption policies designed to preclude coverage for virus-related losses. The New Jersey Legislature is now trying to eliminate it.

According to the State’s website, on Monday, March 16 at 11:00 a.m., the Legislature will begin discussion of draft New Jersey Bill A-3844. If enacted in its current form, that law will force Business Interruption insurers — despite a "Virus" exclusion in their policies — to provide coverage for this crisis, and then spread that financial burden via a new special purpose apportionment on other, non-Business Interruption carriers insuring New Jersey risks.

ISO "Virus" Exclusion

While the current pandemic is new, the potential that policyholders would look to their business interruption insurance to cover COVID-19-related losses is not. Over a decade ago, the insurance industry took action to curtail insurance coverage for the next pandemic, including of the coronavirus type.

As we discussed in our earlier alert, in 2006, ISO submitted, and state regulators approved, form CP 01 40 07 06, titled "Exclusion for Loss Due To Virus Or Bacteria". That 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." The form specifically states that it applies to, among other things, "business income," i.e., business interruption. (The American Association of Insurance Services filed a similar exclusion in 2006, FO 0675 10 06, which also is used by some insurers.)

The ISO "Virus" exclusion clearly states that it applies to business interruption losses related to viruses. Indeed, ISO made explicit reference to SARS — another coronavirus — in its filing with state regulators.

Proposed New Jersey Legislation

Despite the existence and use of the "Virus" exclusion — approved by state regulators years ago — the New Jersey Legislature is taking the extraordinary step of proposing a new law to not only impose virus coverage on insurers that specifically excluded it, but also apparently on insurers that did not write first-party business interruption coverage at all. If enacted in its current draft form, the law would force insurers of certain businesses to provide business interruption coverage for COVID-19 losses, even though policies may have the regulator-approved "Virus" exclusion.

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