New Jersey Bill Requiring Insurers Explain BI Policies Lands on Governor’s Desk
A New Jersey bill that requires insurers issuing business interruption policies in the state provide policyholders with a summary of coverage for loss of use and occupancy of a commercial property has passed the state Senate and Assembly. It now awaits Governor Phil Murphy’s signature.
The bill – A-4805 – was introduced in October of last year and aims to achieve greater transparency between insurers and their clients during the ongoing COVID-19 pandemic.
If passed, it requires that The New Jersey Department of Banking and Insurance publish on its website a one-page summary of common insurance clauses regarding coverage for loss of use and occupancy of a commercial property and business interruption that may be used in a commercial insurance policy.
According to the bill, the summary is required to be published on the department’s website within 90 days of the legislation’s enactment. It should be developed through a public stakeholder process and be written in easily understandable language, as well as include information concerning common coverage triggers, examples of perils typically covered and a summary of common exclusions.
The bill also says a statement reminding policyholders their insurance policy may not cover pandemics or viruses should be “in a prominent place in the summary.”
Under the bill, authorized insurers are required to provide this summary to potential clients as well as any policyholder seeking renewal of a policy that provides coverage for loss of use and occupancy of a commercial property and busines interruption in New Jersey. Any insurer issuing this type of policy in New Jersey that is in effect on the date the summary is published on the department’s website is considered an authorized insurer under the bill. The summary should be delivered to each policyholder either in writing or electronically within 90 days of its publication on the department’s website.
The bill’s primary sponsors are Assemblyman Roy Freiman, Assemblyman P. Christopher Tully and Assemblyman Joe Danielsen.
The American Property Casualty Insurance Association (APCIA), a national insurance industry trade association, expressed its support for the bill, saying it provides an opportunity for insurers to better educate consumers about their insurance policies.
“Insurers are committed to helping their customers fully understand their business interruption policies and the coverage options available to them, especially in the midst of a pandemic,” Alison Cooper, vice president of state government relations for APCIA, said in a prepared statement.
This bill comes amid an ongoing effort between insurers and policyholders to find clarity regarding pandemic-related business interruption coverage.
Early in the pandemic, The New York State Department of Financial Services (DFS) made a similar effort toward transparency on this issue by instructing insurers to submit details of business interruption policies provided to insureds, as well as the coverage each policy offers regarding COVID-19.
The instructions were issued on March 10, 2020, to property/casualty insurers authorized in the state and asked insurers to send business interruption coverage explanations to each of their policyholders as well as to DFS, along with a representation that the explanations have been provided to policyholders.
“Given the potential impact of COVID-19 on business losses, particularly concentrated effects in local communities, DFS considers insurers’ obligations to policyholders a heightened priority,” DFS stated in its instructions to insurers last year.
New York and New Jersey aren’t the only states tackling the business interruption issue as it relates to the pandemic. A number of states have gone so far as to consider bills that would mandate business interruption insurers cover COVID-19-related losses, Insurance Journal previously reported.
In 2020, 16 states considered bills like this, but they were either defeated or not acted upon, according to APCIA figures.
An Insurance Journal survey found that the states with proposals pending in 2021 include California, New Jersey, New York, Oregon, Texas, Rhode Island and Pennsylvania. One state, Washington, recently defeated its 2021 measure.
While they differ in approach and language, the state proposals seek to require any commercial property insurance policy to cover business interruption losses due to global virus or pandemic. The bills seek to apply coverage retroactively to 2020 coronavirus claims and typically only apply to small businesses.
The insurance industry has pushed back against measures like this, saying the pay out for these losses would come at too high of a cost for the industry.
“While we’re sympathetic to the community, we support the carriers in saying that this was never intended,” Jason Ernest, CEO of professional trade association Insurance Agents & Brokers, told Insurance Journal last year.
He said this is because it’s difficult for insurers to predict the extent of impact for a virus of this type, and therefore, price the risk accordingly.
“When insurance is put in place, there’s a lot of data that predicts what’s going to happen, and it is priced accordingly,” he said. “If these types of [virus-related business interruption] claims were to be considered, the pricing would just be way out of line for what an average consumer would be able to afford to take on a risk of this type.”
Alexandra Roje, partner in Lathrop GPM’s insurance recovery practice, previously told Insurance Journal she believes taxpayers, insurers and policyholders will need to all share in bearing the risk from COVID-19.
“The impact and burden of COVID-19 on the U.S. economy is so large and so ubiquitous that it simply cannot be shouldered by any single source,” she said. “As a result, the question is not whether the burden is better handled by one entity or another; it is whether it can be handled at all. To that end, everyone, including insurers, needs to participate in the solution.”