The California State Senate has just amended Assembly Bill 1552 to create certain rebuttable presumptions having to do with COVID-19-related business interruption claims and disputes. In its original form, the legislation was written to adopt or revise a model curriculum in Native American studies, which is certainly a far cry from insurance regulation. In any event, Michelman & Robinson explains what it could mean for insurers if this bill, as amended, is passed and signed into law.
Q. What types of insurance policies does the legislation cover?
A. The bill concerns all commercial insurance policies that provide coverage for business interruption in the state of California.
Q. If it passes, what would be the net effect of the law as it pertains to business interruption coverage?
A. In business interruption coverage claims and disputes—those involving business interruption that occurred during the coronavirus-related state of emergency declared by Governor Newsom—there would be a rebuttable presumption created by the bill (if passed) that (1) COVID-19 was present on the property in question, (2) it caused “physical damage” to that property, and (3) directly caused the business interruption at issue.
Q. How does the bill, as written, impact business interruption policies that exclude viruses?
A. The bill prohibits COVID-19 from being construed as a “pollutant” or “contaminant” for purposes of any policy exclusion. Nonetheless, the legislation does nothing to change or otherwise impact business interruption policies that specifically exclude claims arising from “viruses.”
Q. If signed into law, would the legislation be retroactive?
A. Yes, the bill is written to apply retroactively to all commercial insurance policies in effect on and after March 4, 2020 (assuming, of course, that the policies in question provide coverage for business interruption).
Q. Does the bill address business interruption due to an order of civil authority?
A. Yes, in business interruption coverage claims and disputes—those involving business interruption that occurred due to an order of civil authority—there would be a rebuttable presumption created by the bill (if passed) that (1) COVID-19 was present on property located within the geographical location covered by the order of civil authority, (2) it caused “physical damage” to that property, and (3) directly caused the business interruption at issue.
Q. Is it likely that the bill passes in the Senate and is signed into law?
A. No, at least not in its current form. Having said that, Native American tribes carry significant influence in California (remember, the amendment is tacked onto legislation that concerns Native American studies). As such, the chance of passage, which requires a 2/3 vote in favor of the proposed law, is always possible. Having said that, we will continue to track this bill and provide updates as it winds its way through the legislative process.
This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.