Bill Would Force Insurance Co. to Pay Coronavirus ‘Business Interruption’ Claims

California Assembly members James Ramos (D-San Francisco) and Monique Limón (D-Santa Barbara) are pushing legislation that would force insurance companies to pay coronavirus-related “business interruption”claims they have been denying.

AB 1552 would be retroactive to March 4 and would create certain “rebuttable assumptions” for the insured parties, meaning if they simply asserted something the burden of proof would fall to the insurers to prove it is not true.

At issue are the claims under “business interruption” policies that Ramos says insurers have been unfairly rejecting. According to his website business interruption policies are very broad and cover “losses due to interruptions in business operations because of direct, physical loss or damage due to a disaster or harm outside the business owner’s control.”

But Allstate says on its website that business interruption policies provide for a replacement of lost income due to a specific “covered peril.”

It sounds like the legislation is trying to re-write insurance policies to cover a problem nobody could have anticipated. As American Property Casualty Insurance Association spokeswoman Nicole Ganley told the California Globe, “Our position is that pandemics are uninsurable. This was not contracted for in the policies and [the] premium was never collected for it.”

The bill says: “With respect to coverage for general business interruption and extra expenses, a rebuttable presumption applies that COVID-19 was present on the insured property and caused physical damage to that property which was the direct cause of the business interruption.”

In a statement on his website Ramos said that, “Small business owners and others have long paid costly rates to protect their restaurants, bakeries, gyms, shops and other enterprises if unexpected circumstances forced them to shut down.”

“Some businesses are new and some are generations old, but COVID-19 threatens all their futures as they confront employee layoffs and closures. They urgently need the insurance protections for which they paid as quickly as possible. Leaving this decision to the courts will take time that businesses cannot afford if they are to survive.”

Limón said that the legislation is needed because of the havoc that corona unleashed. “AB 1552 allows the much-needed conversation between the Legislature and insurance companies during these unprecedented times. No one, including business owners and insurance companies, anticipated the changes we are seeing, and many of our local small businesses are struggling to make ends meet as the pandemic continues.”

Ramos contended that insurers are “denying claims without a fair investigation, even though insured businesses paid premiums for decades.”

He noted that in April Insurance Commissioner Richard Lara, citing numerous complaints, issued an order that insurers investigate claims related to corona fairly.

In response to the legislation the American Property Casualty Insurance Association told its legislative offices that, “commercial insurance policies, including those with business interruption coverage, specifically exclude coverage for communicable diseases or viruses such as COVID-19 and have never covered viral exposures.”

The industry group also contends that the legislation forcing insurers to pay for something not in policies is unconstitutional because courts have ruled that the government can not interfere with private contracts.

Nicole Ganley vowed that the APCIA would vigorously fight the legislation. She said her group would “aggressively defend against any attempt to undermine contracts, or violate basic due process, government takings and contracts clauses.”

An important distinction needs to be addressed: are the claims over “Coronavirus business interruptions” or state-imposed business shutdowns, and the subsequent claims arising from those? The virus did not cause businesses to close; in California, the governor issued the orders.

AB 1552 would be heard by the Senate Insurance Committee, but no hearing date has been set.