NJ Bill Could Give Insurers Edge To Escape COVID Coverage

By Bill Wichert
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Law360 (June 18, 2021, 8:00 PM EDT) -- New Jersey Assembly members are poised to pass a bill Monday aimed at extending insurance coverage to events like the coronavirus outbreak, but experts told Law360 that it could instead give insurers another angle to add to their winning record in pandemic coverage litigation.

While the proposed legislation purports to allow insurers to start offering a policy rider that would cover "global virus transmission or pandemic, or both," carriers could wield language in the bill to make the argument that policies without such riders do not cover losses in connection with the public health crisis.

But with policy language at the center of the legal battles, that argument will probably land with a thud, attorneys said.

"To the extent it's going to be used, it would be in one of the ongoing fights about whether policies that were in place before March 2020 cover this type of loss," said Eric L. Harrison of Methfessel & Werbel, who represents insurers.

"And the argument would essentially be, 'Even the legislature has acknowledged that there's usually not going to be coverage under current policy forms for this type of loss. If not, why would they pass this bill encouraging carriers to write this additional kind of coverage?'" Harrison said.

The legislation comes as insurers continue largely to prevail in pandemic coverage lawsuits from businesses in New Jersey state and federal courts, with disputes mostly centered on the meaning of policy phrases like "physical loss of or damage" to property and the applicability of virus exclusions.

An Assembly committee advanced the measure on June 2, and it is up for a vote by the full chamber on Monday. A state Senate version of the legislation is pending.

Under section one of the bill, "an insurer which issues policies insuring against loss or damage to property, which include the loss of use and occupancy and business interruption in this state, may offer to its insureds and prospective insureds a rider to such an insurance policy which includes, as a covered peril under that policy, coverage for global virus transmission or pandemic, or both."

The bill further holds that the commissioner of the state's Department of Banking and Insurance, or DOBI, "shall, on an expedited basis, review and approve, as appropriate, any insurance policy rider submitted by an insurer and designed to provide the coverage offered pursuant to section 1 of this act."

The bill would "apply to policies of insurance issued on or after the date" when the commissioner approves such a rider.

An agency spokeswoman said insurers can already submit pandemic coverage riders to DOBI for its approval.

The Insurance Council of New Jersey, which has led industry lobbying efforts with respect to the bill, focused on ensuring that offering the riders would be optional, according to ICNJ President Christine O'Brien. The group did not seek to include language that would enable insurers to argue in litigation that the bill shows policies do not cover pandemic-related losses, she said.

Incorporating such language in the bill was "never a goal, nor was that ever discussed," O'Brien said. The legislation is "not intended to provide insurers cover from litigation," she said.

"This bill is to encourage carriers to look at New Jersey as a viable market where they could get a product approved if they deem that they could actually write that product successfully," O'Brien said.

But the pro-insurer argument could be gleaned from the language in the bill, attorneys said.

Michael Conley of Offit Kurman PA, who represents policyholders, said one could interpret section one of the bill to say "the legislators would not be saying that if [global virus transmission or pandemic] was already a covered peril."

"It's open to being twisted to make that interpretation," said Conley, who expressed concern that the bill gives insurers "something to throw into the mix that I don't think is the intent ... of this legislation, which has an admirable intent of giving policyholders options."

"From the policyholders' perspective, why should I have to spend even five minutes responding to a spurious argument?" Conley added.

Still, reading a presumption in the bill that "virus or pandemic coverage is not a covered peril already" is just wrong, Conley said.

"I don't think it would take much for a policyholder attorney to dismiss any argument by an insurance company that this legislation was a broad pronouncement on every policy in New Jersey. It doesn't say that," said Conley, adding that the legislation is not "an exhaustive summary of the types of policies that were sold into the state."

The bill, if passed, will be "another issue muddying waters in existing litigation," according to policyholders' attorney Jordan M. Rand of Klehr Harrison Harvey Branzburg LLP. In those cases where insurers make the argument that the bill shows pandemic-related losses are not covered, it will be just another issue to "clutter the case," and judges will have to examine it, Rand said.

"Based on the amount of litigation already going on and the amount of motions to dismiss already being decided, it seems like courts have enough on their plate. They don't need another issue taking time away from the real dispute, which is, 'OK, we have these words 'loss or damage.' What do they mean?'" Rand said.

Insurer-side attorney Anthony L. Miscioscia of White and Williams LLP countered that the proposition that the legislation supports the absence of pandemic-related coverage is a fair argument for insurers to make.

"I don't think it's twisting the bill or using it inappropriately or anything like that," Miscioscia said, adding that the argument would be "citing to the bill and its apparent recognition of the existing state of limited coverage and favorable court decisions."

"That's what attorneys do all the time," he added. "You look for something, whether it's policy language, legal precedent, legislative pronouncements, that are supportive of your position, your arguments. I don't think there's anything improper or untoward in doing that."

Both policyholder attorneys and carrier-side lawyers, however, seemed to agree that the argument would not pack a powerful punch in pandemic coverage litigation.

"I think the judges are going to look at the policy language and look at the case law that's already there construing it, which I think is favorable to insurers," Miscioscia said.

Conley indicated that he didn't think a judge would "put any weight at all on an insurance company's interpretation of one phrase from legislation in terms of using that to interpret a contract between a policyholder and its insurance company."

A third party's view on the broad landscape of insurance policies in a state is "not binding on the parties to the contract," Conley added.

Rand agreed that such an argument from insurers would not be persuasive to a judge, noting that "the legislature is not the body that interprets the law." That's the role of the state judiciary, he said.

"The combination of the legislature not being the appropriate body to interpret insurance policies, plus the legislature not really explicitly doing that in this bill, I think really undermines the credibility of an argument along those lines," Rand said.

Harrison said he didn't think any judge would be swayed, "one way or the other, by the existence of this legislation."

"I think judges pride themselves, as they should, on staying out of the political fray," Harrison said. "An event that occurs in the state Legislature does not define the meaning of an insurance policy."

As Harrison put it, if he were to include the argument in a brief, "it would be no more than a footnote."

--Editing by Jill Coffey.

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