Bill aims to help small businesses with interruption claims

Washington lawmakers have introduced a bill that would help small businesses seeking to recover COVID-19-related claims under business interruption insurance policies.

SB. 5351 would codify some protections extended by recent court rulings in favor of policyholders.

The Washington bill would also give small businesses an additional year to challenge the denial of COVID-19 business interruption claims by insurers, beyond the current one-year limit.

In a statement Wednesday, insurer groups said they strongly oppose SB. 5351 and that mandating retroactive business interruption coverage could undermine the state's economic recovery.

"This legislation is likely unconstitutional. We will aggressively defend against any attempt to undermine contracts, or violate basic due process, government takings, and contracts clauses of the U.S Constitution, as well as the Washington State Constitution,"  the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, and the Northwest Insurance Council said in the statement.

The Washington development follows moves last year by lawmakers in several states to introduce bills that would force insurers to retroactively cover business interruption claims due to COVID-19.

The pandemic triggered a deluge of business interruption lawsuits as businesses sought insurance coverage for government-mandated closures during the pandemic. 

The text of SB. 5351 states that many of the small businesses in Washington, ordered to cease or limit operations under the state of emergency declared by the governor on Feb. 29, 2020, “hold insurance policies that include coverage to replace income lost due to loss of or damage to the business premises or other business property.”

“However, insurers are broadly denying claims under those policies, arguing that ‘loss’ and ‘damage’ are synonymous and that no claims are merited absent a showing of actual physical damages to the premises,” SB. 5351 states.

Washington state and federal courts recently examined this issue and have ruled “clearly and unambiguously” that the words “loss” and “damage” hold distinct meanings under Washington law in the context of business interruption insurance policies and should not be interpreted to render one word, the bill states.

“The legislature intends to codify this interpretation to provide greater clarity,” according to the bill.

“Courts in our state have ruled recently that insurance companies should not be allowed to deny legitimate claims based on a strained reading of the policy language,” Washington Democratic Sen. David Frockt, a co-sponsor of the bill,  said in a statement.

The bill was read and referred to the committee on business, financial services and trade.

More insurance and risk management news on the coronavirus crisis here.