Business Interruption Insurance — Potential Relief for Insureds

April 9, 2020Alerts

New Jersey businesses were turned upside down on March 9, 2020, when Gov. Phil Murphy signed an order declaring a State of Emergency in response to the COVID-19 outbreak. Executive Order 107 took effect on March 21, 2020 and mandated, among other things, closure of all non-essential businesses in the state. This unfortunate interruption has caused businesses to suffer tremendous economic damage, resulting in layoffs, pay reductions and in some cases business closures. As a result, many New Jersey business owners are looking to their business interruption insurance policies to see what relief, if any, they are entitled to.

Business interruption insurance compensates a business owner for lost income in the event the company must vacate its premises due to disaster-related damage covered under property insurance policies, such as in a flood or fire. Essentially, business interruption insurance covers revenue the company would have earned, but for the disaster-related damage. However, after the SARS outbreak of 2003, New Jersey passed legislation permitting insurers to exclude losses resulting from a virus from business interruption insurance. This has recently led insurers to decline business interruption claims due to the COVID-19 pandemic, leaving business owners with little to no recourse.

On March 16, 2020, New Jersey lawmakers proposed new legislation, Assembly Bill No. 3844, that would require insurers providing business interruption coverage to pay for losses, even when the terms of the policy contains the aforementioned “virus exclusion.” The proposed bill, if passed, will apply to policies insuring against loss or damage to property, which includes loss of use and occupancy and business interruption. It would apply only to policies issued to insureds with fewer than 100 eligible employees in the state of New Jersey.

This proposed bill would provide a mechanism by which certain businesses could recover losses incurred as a result of the COVID-19 pandemic from their insurer if their business interruption insurance policy was in force on March 9, 2020, the date on which the State of Emergency was declared. It would remain in effect until the State of Emergency is lifted.

As the issues regarding the proposed legislation remain fluid, we will keep you updated with relevant information regarding this potential new relief for New Jersey business owners. In the meantime, if you have any questions regarding a possible business interruption claim, please contact us.