NYS Council on Business Interruption Insurance

August 25, 2024

Last week Brad Lachut, director of government affairs for the Professional Insurance Agents of New York was a guest on The Capitol Pressroom to discuss challneges with existing business interruption policies and pending legislation to try to address some of the issues the exist.  Please find a summary and link to interview below.  

Note:  At the beginning of the COVID crisis (March 2020) the NYS Council drafted language and requested a bill that would ensure nonprofit businesses would benefit from BI changes rather than focusing only on for profit businesses.  That bill was A10327, sponsored by Assemblywoman Linda Rosenberg.

The interview and a summary of the legislation that recently passed in both houses is directly below.  Our summary of the bill is at bottom:

To Listen:  https://capitolpressroom.org/2024/08/20/new-york-to-greenlight-new-business-interruption-coverage/

Lead In: Traditional business interruption insurance wasn’t worth much to businesses during the pandemic, but a new form of interruption coverage being pushed by the Hocuhl administration may be more useful during a government shutdown of activities, according to Brad Lachut, director of government affairs for the Professional Insurance Agents of New York.

Summary:

  • Currently, business interruption (BI) insurance pays for losses in profits, construction costs to repair, physical loss or damage, etc. only if the business experiences a physical damage
  • Covid-19 made this confusing because businesses were affected by the pandemic, but did not experience physical damages, so claims were denied by insurers
  • Some businesses challenged these denials in court, but many failed because of the physical damage requirement and the fact that most policies exclude coverage for loss due to virus-related damages or contamination by virus
  • Some judges sided with businesses and ruled that changes from Covid-19 would be considered physical damage, so the insurance carriers that did not have virus exclusions were hit hard
    • As a result, those insurers made sure that they added that moving forward
  • Legislation was passed this session, S9481/A10342, which allows for standalone BI policy that is not tied to physical damage and extends BI insurance to cover loss of net profits when property access is prohibited by an order of civil authority
  • Lachut, however, predicts that there could be issues for businesses if the bill becomes law because virus exclusions are not mentioned in the bill language, and the bill requires that businesses close completely for coverage
  • This legislation would make BI insurance an admitted product, meaning it is approved and regulated by the State
    • Thus DFS would be authorized to come in and have control over what the product is so that BI policies are similar across the board
  • Some businesses will take the risk and not buy BI insurance, but now it may make sense for more businesses that are thinking big picture or are more risk averse
  • Lachut said he isn’t sure what the pricing will be and it may take a while for that to be figured out, but he knows that many insurance groups are in support in terms of wanting to provide this coverage
  • The idea for this legislation came from DFS which makes Lachut question what they are trying to do or solve and whether they addressing the issue at full capacity.  He also noted that since the bill language is very specific and this product was already on the market there shouldn’t be a need for DFS to develop regulations

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We see this bill as a good start.  It defines and makes business interruption insurance an authorized line of insurance that does not need to be tied to physical damage and would permit this insurance to be written in the excess line market if it is unavailable from authorized insurers. The goal seems to be to provide businesses with an option to purchase it in the event of future pandemics or other events where there may not be physical damage to the property.
We don’t see anything in this bill that limits the type of business that could purchase this insurance.   Embedded below is the new definition added to Insurance law for “business interruption insurance” which includes loss of use/profits due to a government order so that should cover another pandemic.

Brad Lachut in The Capitol Pressroom interview mentioned potential issues being if a policy has additional language for “virus exclusions” and this bill would not prohibit that so providers would need to ensure the insurance product/contract they are getting does not.  Also the definition below does require “business closure” due to one of the stated factors which could be another issue Brad noted.

We expect the Governor to sign this legislation since it is a DFS Departmental bill.

(34) "Business interruption insurance" means insurance against loss of
     6  use and occupancy, rents, and profits resulting from a business  closure
     7  due to: (A) loss of or damage to insured or neighboring property; (B) an
     8  act  or threatened act of violence while the perpetrator is on the busi-
     9  ness premises; or (C) a government order.