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Legislative Response to Business Interruption Coverage in Pennsylvania

By Julia Jacobelli, Esquire

Recently, each house of the legislature of the Commonwealth of Pennsylvania has introduced proposed legislation addressing the possibility of compelling insurance carriers to provide coverage due to the COVID-19 virus, regardless as to whether the insurance policy identifies such coverage as contained within the policy provisions.

House Bill 2372 provides in relevant part:

Notwithstanding any other law, rule or regulation, an insurance policy that insures against loss or damage to property, which includes the loss of use and occupancy and business interruption, in force in this Commonwealth on March 6, 2020, which is the date of the Proclamation of Disaster Emergency concerning the coronavirus pandemic, shall be construed to include among the covered perils under the insurance policy coverage for business interruption due to global virus transmission or pandemic.

The Bill continues:

The coverage required by this section shall indemnify the insured of an insurance policy, subject to the broadest or greatest limit and lowest deductible afforded to business interruption coverage under the insurance policy, for any loss of business or business interruption for the duration of the declaration of disaster emergency described in subsection (a).

The House Bill indicates that this section applies only to an insured of an insurance policy if the insured has fewer than 100 eligible employees in the Commonwealth. It also provides that an insurer who indemnifies such an insured, that has filed a claim for business interruption, may apply to the insurance commissioner for relief and reimbursement by the commissioner from money collected or made available “for this purpose.” These reimbursements would come from a special fund to which all insurers would be required to contribute.

In contrast, Senate Bill 1114, pertaining to insurance coverage for businesses interrupted by the mandated closures due to COVID-19, provides in relevant part:

Notwithstanding any other law, rule or regulation, a policy of insurance insuring against a loss related to property damage, including the loss of use and occupancy and business interruption, shall be construed to include among the covered perils coverage for loss or property damage due to COVID-19 and coverage for loss due to a civil authority order related to the declared disaster emergency and exigencies caused by the COVID-19 disease pandemic.

The Bill continues noting:

The coverage required under subsection (a) must indemnify the insured for losses related to the declared disaster emergency subject to the policy limits for loss of business or business interruption and subject to the maximum individual policy limits. The following shall apply:

  1. Insureds classified as a small business shall receive 100% of the policy limit for eligible claims for covered losses.
  2. Insureds not classified as a small business shall receive 75% of the policy limit for eligible claims for covered losses.

The Bill defines a “small business” as that which “satisfies the United States Small Business Administration’s criteria to qualify as a small business under 13 CFR Pr. 121” or one that “has received or will receive funding through a program administered by the United States Small Business Administration.

In contrast to the House Bill, the Senate Bill does not provide for any reimbursement to the insurers.

The constitutionality of both of these regulations will likely face challenges, due to the real concern that, particularly with respect to the proposed Senate bill, compelling payment of these business interruption claims will threaten solvency of insurance companies. There are sure to be many novel claims as businesses and insurance carriers deal with the fall out of this pandemic over the coming year.

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