Insurer Group Warns About California Bill Mandating Business Interruption Coverage

The American Property Casualty Insurance Association is opposing legislation that would create a rebuttable presumption that the COVID-19 virus caused property damage triggering business interruption coverage in commercial liability policies.

The just amended Assembly Bill 1552 would retroactively rewrite business interruption insurance contracts to cover losses for which insurers never collected premiums, David A. Sampson, president and CEO of the APCIA said.

The bill, originally introduced last year as an education bill, was amended this week. It states:

“This bill, with respect to a policy of commercial insurance that provides coverage for business interruption, would create specified rebuttable presumptions affecting the burden of proof in a case in which the insured alleges that the business interruption was due to the COVID-19 pandemic and occurred during the period of the state of emergency declared by the Governor due to the COVID-19 pandemic. Specifically, the bill would create certain rebuttable presumptions that COVID-19 was present on specified property and caused physical damage to that property which was the direct cause of the business interruption.”

This bill would declare that it is to take effect immediately as an urgency statute.

“This legislation is likely unconstitutional,” he said. “We will aggressively defend against any attempt to undermine contracts, or violate basic due process, government takings, and contracts clauses of the U.S Constitution, as well as the California State Constitution.”

Commercial property insurance policies that include business interruption coverage generally are not intended to cover disease or pandemic related losses. Business interruption insurance covers the financial impact of an interruption to the normal course of business caused by physical damage to a commercial property.

“Since viruses, like COVID-19, do not cause physical property damage, they are not typically covered under this insurance,” Sampson said. “In the vast majority of cases, insurers did not price policies to include such coverage, and policyholders did not pay premiums to have this coverage.”

Lloyd’s of London estimates that the pandemic will cost the industry $107 billion in covered claims globally. Hurricane Katrina caused the greatest insured loss in U.S. history, roughly $54 billion in today’s dollars, while all losses from the Sept. 11, 2001 terrorist attacks were roughly $48 billion.

“Mandating retroactive business interruption coverage to include COVID-19 losses that were never intended to be covered by the insurance contract would undermine the ability of insurers to meet their promises and pay claims on all existing insurance policies,” Sampson said. “This could cause more harm to California’s economic recovery.”