It is now a little more than 6 weeks since Governor Wolf ordered the closure of all non-life-sustaining businesses on March 19, 2020. Since then, many small businesses have notified their insurance carriers of their business interruption claims for loss of business income and expense. The insurance companies are uniformly denying these claims based, in part, upon a “Virus Exclusion” contained in the policy. Consequently, small businesses are faced with the decision whether to retain a lawyer to sue their insurance companies. That decision becomes a function of whether your insurance policy terms create an opening for an interpretation which favors coverage being afforded.
A common question being asked by small business owners is whether the state or federal government will enact legislation which will require the insurance companies to cover business losses arising from the closure order despite the presence of a “Virus Exclusion” in the insurance policy. The answer, on the state level is, it is possible, but uncertain.
What new legislation has the PA General Assembly proposed?
Answer: Senate Bill No. 1114 known as the “COVID-19 Insurance Relief Act” (“the Act”).
Has the Act been adopted by the Legislature and signed into law by the Governor?
Answer: No, the Act is still being considered by the Banking and Insurance Committee.
What is the essential purpose of the Act?
Answer: To temporarily require insurance companies to insure against business interruption due to damage to the business, which includes the loss of use and occupancy of the business premises as a result of the Governor’s closure order, pursuant to the following provision:
Section 4. Relief
(a) Covered Perils – 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
Which businesses would be covered and to what extent?
Answer: A small business as defined by the Small Business Association (SBA) or a business which has received an SBA loan – which includes PPP loans – would be eligible for 100% of its loss, up to the policy limits. Any other business would be eligible for 75% its loss, up to the policy limits.
What is the potential legal impediment to passage of the Act?
Answer: It may be unconstitutional for the state legislature to negate the terms of a contract between an insurance company and its insured, for example, the Virus Exclusion contained within the terms of the insurance contract.
What is the Legislature’s rationale for avoiding a constitutional challenge?
Answer: The Legislature has the right to impair contract rights, pursuant to its police powers, when “the Legislature has a significant and legitimate public purpose, such as remedying a social or economic problem” that is necessary for the good of the public.
If the Act is passed, and its constitutionality is subsequently challenged, which court would preside over the challenge?
Answer: The PA Supreme Court would have jurisdiction to hear any such challenge. This would expedite resolution of the challenge which would not have to rise through the various levels of the court system over a long period of time. The Supreme Court’s decision would be final.
Which Business Owner insurance policies would be affected?
Answer: All active insurance policies with effective dates prior to March 6, 2020.
If, as a small business owner, you have been advised by an attorney to sue your insurance company for having denied your claim, should you refrain from doing so pending the passage of the Act?
Answer: No, because it is far from certain that the Act will pass. You need to protect your business interests in every way available to your business. If the Act is signed into law, you can always withdraw your lawsuit.