On March 24, 2020, Massachusetts introduced Bill S.D. 2888, aimed at forcing insurance companies to cover business interruption losses caused by COVID-19. The purpose of Massachusetts’ Bill S.D. 2888 is to require insurance companies in Massachusetts “to provide business interruption insurance coverage to their insured in connection with the COVID-19 pandemic.” Bill S.D. 2888 requires that business interruption policies be construed to provide coverage for “business interruption directly or indirectly resulting from the global pandemic known as COVID-19” occurring during the declared state of emergency in Massachusetts. Similar legislation has been filed in New York, New Jersey and Ohio. Other states are likely contemplating similar bills.
If enacted, Bill S.D. 2888 would explicitly override two specific policy provisions which are common to business interruption policies in Massachusetts: (i) the exclusion for losses due to virus or bacteria and (ii) the policy requirement that there be physical damage to covered or other relevant property. The bill states that “no insurer in the commonwealth may deny a claim for the loss of use and occupancy and business interruption on account of (i) COVID-19 being a virus (even if the relevant insurance policy excludes losses resulting from viruses); or (ii) there being no physical damage to the property of the insured or to any other relevant property.” The Bill would allow that the coverage provided remains subject to “any maximum length of time set forth in the policy for such business interruption coverage.”
Bill S.D. 2888 applies only to business interruption policies in effect in Massachusetts on the effective date of the act, and under the Massachusetts bill, the insurer would be liable for payments only to the policy’s monetary limits. In addition, Bill S.D. 2888 applies only to policies issued to businesses with 150 or fewer eligible employees. If passed, an insurer paying out a business interruption claim would be permitted to apply to the Commissioner of Insurance for “relief and reimbursement from funds collected and made available” for the purpose of the bill.
We expect that Bill S.D. 2888 will be met with heavy opposition by the insurance industry, which will undoubtedly raise questions about the constitutionality of such legislation, and the ability of the legislature to re-write existing contracts. Whether such opposition will prevent passage of the bill, or if passed by the legislature, cause the bill to be overturned by the courts, remain open questions. It is likely however, that if passed, insurers will ask that the effect of the bill be stayed while the legal challenges are in progress.
We will monitor the status of this legislation in Massachusetts and other states and keep you apprised of any developments. Rubin and Rudman is committed to helping our clients through these extraordinary times. If you have questions about this alert, please contact any of the following attorneys or your Rubin and Rudman legal professional.