Client Alert: Business Interruption Insurance Coverage: Federal Legislation May Be On The Way

Client Alert: Business Interruption Insurance Coverage: Federal Legislation May Be On The Way

Insurance coverage for business interruption losses caused by the COVID-19 pandemic is the subject of proposed legislation in New York and a number of other states, as well as several lawsuits already commenced by insureds (see our other Client Alert about NY’s proposed legislation here). But whereas those efforts are largely directed at requiring insurers to provide coverage under existing business interruption insurance policy provisions – an uphill battle strongly resisted by the insurance industry – the US Congress is in the early stages of taking a different approach with proposed legislation that would create a new coverage mechanism specifically designed to address losses arising from a pandemic.

The proposed legislation, preliminarily called the Pandemic Risk Insurance Act of 2020 (“PRIA”), would create a Federal program of shared public and private compensation for business interruption losses resulting from any “pandemic or outbreak of communicable disease.” It would essentially consist of a reinsurance program administered by the Department of Treasury for commercial property and casualty insurers. The federal reinsurance coverage would be triggered when industry losses exceed a $250 million threshold, with aggregate losses capped at $500 billion per year for both insurers and the government. Insurers that participate in the program would be charged an annual premium for such reinsurance coverage. In return for this federal assistance for pandemic losses, insurers would agree to make business interruption insurance coverage available for insureds on terms that are not materially different from those applicable to existing business interruption coverage. Insurer groups maintain that most commercial property policies do not provide coverage for business interruption losses arising from the COVID-19 pandemic. If enacted, the PRIA would provide a public-private insurance scheme for needed coverage to businesses while limiting the exposure of insurers in unprecedented circumstances such as those currently being experienced during the COVID-19 pandemic. Although the PRIA is in only a preliminary stage in Congress, we will continue to report on its progress and its potentially significant implications for business owners in New York and across the country.