By Jeannie O'Sullivan

Law360 (May 7, 2021, 3:42 PM EDT) -- A New Jersey proposal that would force insurers to cover business losses stemming from the COVID-19 pandemic is likely dead amid industry pushback and concerns about the reach of public policy during the unprecedented health crisis, experts say.

Lawmakers were split on Assembly Bill 3844, which applies to companies with fewer than 100 full-time employees, though nonetheless advanced it during a March 2020 legislative committee hearing that took place just days before Gov. Phil Murphy issued an executive order shutting down nonessential businesses. More than a year later, A3844 has yet to be posted for a full Assembly vote.

McCarter & English LLP partner Sherilyn Pastor, who represents policyholders, thinks the bill likely isn't going anywhere. Although she thinks the bill would validate policy terms as they're written, she said lawmakers are likely grappling with whether the legislation might be attempting to create new terms.

"There would be some that would say that it's helping the policyholder so it doesn't have to spend time and money seeking to enforce the provision, versus others who may be concerned that it could be used to rewrite an insurance policy," said Pastor, who chairs the Newark, New Jersey-based firm's insurance recovery, litigation & counseling practice.

The Insurance Council of New Jersey and an affiliated group, the American Property Casualty Insurance Association, were among the business organizations that formally opposed the bill. The association cited "serious concerns" that such a policy would create requirements that weren't contemplated in the original issuances of the policies, and estimated that claims could exceed $10 billion per month in the Garden State alone.

ICNJ Vice President Gary La Spisa II suspects the bill is no longer being discussed. He told Law360 that the New Jersey bill's sponsors, all Democrats from the state's Assembly, seemed "open" to the group's perspective, which, in addition to the association's concerns, is that any public policy arising from pandemic insurance coverage questions should be crafted at the federal level, if at all.

One example is the Pandemic Risk Insurance Act of 2020, a bill pending in a House committee that would require coverage for future pandemics, but wouldn't apply to the current public health crisis. By contrast, the New Jersey bill would be retroactive, which drew protest from ICNJ.

"I think that policymakers recognize that this is a global event that probably requires a national solution," La Spisa told Law360.

As the Garden State and New York became known as the nation's coronavirus epicenters in the initial months of the pandemic, courts in those regions were initially pummeled with civil rights complaints by businesses fighting the shutdown orders.

But the dockets ultimately began filling up with actions by companies that were denied business interruption coverage by insurers who cited the virus exception, and alternatively said the pandemic didn't lead to the physical property loss that would trigger coverage.

The novel nature of the issue wasn't lost on members of the New Jersey Assembly Homeland Security and State Preparedness Committee, which gave the bill 4-1 passage during a hearing 14 months ago.

"This is a time that is new to all of this, so we all have to pull together to ensure that all New Jerseyans are taken care of," Assemblywoman Angela V. McKnight, D-Hudson, said before voting to advance the bill.

Assemblyman Antwan L. McClellan, R-Cape May/Cumberland, cast a "no" vote, although he didn't say why during the hearing. Attempts to reach him through a New Jersey Assembly Republicans spokesperson were unsuccessful.

In a comment that suggested amendments to the bill had been proffered, Assemblyman Gary S. Schaer, D-Passaic, indicated that he was open to amending the bill "to get a more cohesive intent."

The bill was slated for a full Assembly vote later that day, but ended up being held, according to a New Jersey Assembly Democrats spokesperson. None of the bill's primary sponsors were available for interviews to discuss the reasons for holding the bill.

Measures similar to A3844 have failed in Maine, Oregon and Washington, and other proposals are pending in California, Illinois, Massachusetts, New York, Pennsylvania, Texas and Rhode Island, according to APCIA's latest count.

The New Jersey bill's standstill is no surprise to Bramnick Rodriguez Grabas Arnold & Mangan LLC attorney Carl Salisbury, a policyholder attorney currently representing a group of YMCA's battling insurers for pandemic-loss coverage. One indicator that the bill is likely doomed is the lack of an identical bill in the Senate, he said.

"It's been our experience that it's really very tough to get a policyholder-favorable bill through the New Jersey legislature and signed into law," Salisbury told Law360.

Among the New Jersey bills that Salisbury has seen fail was a 2013 measure that would create a private right of action for policyholders to fight unfair claim practices by insurers, such as excessive delays in settling claims. The New Jersey Unfair Claims Settlement Practices Act has no provision allowing policyholders to sue, leaving it up to the state's attorney general to bring such an action. Salisbury said he's unaware of an attorney general ever doing so.

Another unsuccessful Garden State measure Salisbury recalled was also introduced in 2013 and would have eliminated anti-concurrent causation clauses, which allow insurers to deny claims for an event that was prompted by a combination of covered and non-covered clauses. Like A3844, it was never posted for full vote, according to Salisbury.

Though it looks like policyholders seeking pandemic insurance coverage likely won't find reprieve in the New Jersey Legislature, Salisbury said there's hope they could fare better in the Garden State judiciary.

In addition to following the general jurisprudence that ambiguous policy terms should be construed in favor of the policyholders, and policy exclusions should be interpreted narrowly, the Garden State is also home to case law like the 2009 published decision in Wakefern Food Corp. v. Liberty Mutual Fire Insurance Co. The Wakefern panel held that a group of ShopRite stores was entitled to coverage for losses sustained during a four-day power outage because the policy term "physical damage" was ambiguous.

If the Garden State courts apply the state's insurance jurisprudence "in a way that's consistent with essentially all past precedent, then eventually New Jersey insurers are going to have to pay," Salisbury said.

--Editing by Emily Kokoll and Kelly Duncan.

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