N.Y.: Proposed legislation would expand business interruption coverage

May 22, 2024

Business interruption was the insurance buzzword for much of the COVID-19 pandemic. Many business owners closed their businesses without experiencing physical damage to their property.  

Insureds who sought coverage for interruption of their businesses discovered the lack of physical damage meant they had no coverage. To address that issue, a bill (A.10342) has been reported out of the New York state Assembly Insurance Committee, that would expand the scope of business interruption insurance.  

Current state of business interruption insurance 

Under current policies, business interruption insurance typically covers loss of net profits only when a covered peril, such as a fire, causes “direct physical loss of or damage to” the insured property, resulting in a closure or reduction in business operations.  

Some business owners purchase additional coverage that applies if they are forced to close by an order of civil authority. However, this coverage typically requires physical damage to a neighboring property that makes it unsafe for the business to operate. 

What would the legislation do? 

Decoupling from physical damage: The bill would decouple business interruption from a physical damage requirement. It would authorize business interruption insurance that is not contingent on physical damage to the property. This change would allow business owners to receive coverage for loss of net profits in situations when closures are mandated by civil authorities for reasons other than physical damage, such as health crises or safety threats. 

Excess line market authorization: The bill proposes an additional amendment that would permit this type of business interruption insurance to be written in the excess-line market if it is not available from authorized insurers. The excess-line market is known for offering specialized insurance products that are not typically covered by standard policies, providing more flexibility and options for businesses seeking comprehensive coverage. 

A note on the bill’s sponsor: Typically, a bill is introduced by a member of the Assembly. However, A.10342 was introduced by a committee—the Committee on Rules. When legislation is introduced by the Committee on Rules, it usually indicates that the legislation is significant, has leadership support, and is being fast-tracked through the legislative process. 

What happening in the Senate? 

A.10342 was reported out of the Assembly Insurance Committee on May 15, 2024. S.9481, the Senate same-as bill, currently sits in the Senate Insurance Committee. Since that committee is not scheduled to meet again this session, it seems likely that the Senate Rules Committee will consider the bill this legislative session. 

Bradford J. Lachut, Esq.
PIA Northeast

Bradford J. Lachut, Esq., joined PIA as government affairs counsel for the Government & Industry Affairs Department in 2012 and then, after a four-month leave, he returned to the association in 2018 as director of government & industry affairs responsible for all legal, government relations and insurance industry liaison programs for the five state associations. Prior to PIA, Brad worked as an attorney for Steven J. Baum PC, in Amherst, and as an associate attorney for the law office of James Morris in Buffalo. He also spent time serving as senior manager of government affairs as the Buffalo Niagara Partnership, a chamber of commerce serving the Buffalo, N.Y., region, his hometown. He received his juris doctorate from Buffalo Law School and his Bachelor of Science degree in Government and Politics from Utica College, Utica, N.Y. Brad is an active Mason and Shriner.

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