Oct 25, 2021

Business Interruption Insurance: Response to COVID-19 Pandemic

By Jason A. Rubin, Esq.

Business interruption insurance has always been a valuable tool to protect against a loss of income when a business is prevented from using and occupying its leased or owned premises following a casualty or physical loss. In the case of leasing, prudent landlords include a requirement in the lease for their tenant to carry business interruption insurance in an amount sufficient to cover a year (or more) of rental payments to guard against the tenant being unable to maintain rent payments due to an inability to operate its business. In situations where it is not an express requirement of the lease a tenant would be wise to maintain business interruption coverage to prevent a default for nonpayment of rent during a period following a casualty or other loss. 

Over the past year and a half when businesses were unable to continue operations as a result of government directives or orders, or other factors, relating to the COVID-19 pandemic, many businesses and by extension their landlords have learned that this vital coverage for COVID-19 related losses did not apply to such losses. The prevailing basis for the denials of coverage has been that either the claimants’ policy contained a “virus or pandemic exclusion” or that the COVID-19 pandemic did not result in a physical loss covered by the standard business interruption policy. In some cases, this has been financially devastating for businesses that were relying on their business interruption policy to help them sustain the losses incurred during the pandemic.  

The New Jersey legislature acted in an effort to provide clarity and prevent the difficult situation caused by those that were relying on such coverage to only receive a denial of a claim. On May 20, 2021, New Jersey passed a law requiring insurance companies carrying policies insuring against loss or damage to property to provide their customers with a one-page summary prepared by the New Jersey Department of Banking and Insurance (DOBI) providing guidance regarding the coverages offered by typical commercial insurance policies, including business interruption policies. A link to the summary is found below at the end of this article. Insurance companies are required to provide this summary to their customers by November 13, 2021. The intent is to provide businesses with clear information on what types of losses are covered by their policies and perhaps more importantly, common examples of what losses are not (such as business losses due to a pandemic). At a minimum, this provides businesses with a realistic view on the scope of their coverages so they can be in a position to better plan for losses caused by uninsured perils such as a virus or pandemic.

In recognition that this law perhaps does not do enough, another bill was introduced in response to the COVID-19 pandemic and was approved by the Assembly Financial Institutions and Insurance Committee in June 2021. This law would allow business interruption insurers in the state to add a rider for virus and pandemic coverage. Insurers already have the ability to file policy forms with the DOBI for approval of additional coverages, but the purpose of the bill is to expedite the approval process to allow for this crucial coverage to be available in the marketplace as soon as possible.

Every business should perform an annual review of its insurance coverages with its agent or broker to confirm that its polices are sufficient to insure against loss both ordinary and catastrophic. In light of the widespread loss caused by the COVID-19 pandemic, the importance of including a review of the scope and nature of both the business interruption insurance a business currently has in place, as well as the additional coverages that might otherwise be available, has never been more important, particularly as the marketplace evolves over the next 24 months.

Link to summary prepared by the New Jersey Department of Banking and Insurance: https://www.state.nj.us/dobi/division_insurance/propcasualty/bicsummary.pdf

For more information, contact Jason A. Rubin at jar@spsk.com or at (973) 540-7306.