Despite business interruption (BI) claims from the ongoing coronavirus being explicitly excluded by ISO’s “virus” exclusion, new legislation being discussed today in the State of New Jersey seeks to eliminate this, which, analysts feel would be negative for all commercial insurers.
Specifically, the New Jersey Legislature is set to propose a new law that if enacted in its current form, would force insurance firms of certain businesses to provide BI protection for COVID-19 losses, regardless if these policies have the “virus” exclusion, which is approved by the regulator.
For background, ISO adopted a mandatory exclusion for its BI policies in 2006 in an effort to prevent coverage for virus-related losses. The mandatory exclusion was approved by state regulators and bans first-party property coverage for loss or damage caused by or resulting from any virus, and clearly explains that it’s applicable to BI losses related to viruses. In fact, the ISO exclusion used SARS as an example, which like COVID-19, is another coronavirus.
However, in what’s been described as an extraordinary move, lawmakers in the state are today discussing the draft New Jersey Bill A-3844, which ultimately looks to remove the ISO “virus” exclusion and create coverage for losses from the virus, even under policies where coverage is excluded.
Essentially, the bill will provide small businesses and others impacted with some sort of financial backstop to assist with the management of the virus. However, for insurers, being forced to pay could have somewhat of a negative impact, despite the fact that the draft bill does allow insurers to recoup some of their forced payments. Furthermore, if enacted, the law would come into effect immediately and will be retroactive to March 9th, 2020.
Analysts at Credit Suisse have commented on the legislation and said that if passed into law, it can expect to be challenged in court by insurers. “Would be a negative for all commercial insurers if forced to pay,” say analysts.
It’s a valid point as if enacted, it could result in a flood of claims as anyone would be able to call on BI for the virus. It’s extremely likely that insurers would take this to court if enacted in order to protect themselves from unexpected and potentially large claims. But, if insurers in one state lost then it is more likely that other states would adopt similar legislation, which would have a truly huge impact on the industry.
With discussions around the bill reportedly set for today, insurers and reinsurers would be wise to keep a close eye on any developments as it might well not be the last piece of legislation of this kind in the U.S. over the coming weeks.
