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Proposed California Legislation Would Create Important Rebuttable Presumptions Supporting COVID-19 Business Interruption Coverage

As the latest in a series of similar bills introduced by the legislatures of various states, California Assembly Bill 1552 would create important rebuttable presumptions affecting the burden of proof and supporting coverage for policyholders' COVID-19-related business interruption claims.

State legislatures across the country continue to be concerned with insurers seeking to avoid their coverage obligations for COVID-19-related business interruption losses, and legislation has also now been introduced in California to address those concerns. While just one of many bills introduced by the legislatures of various states to address insurance coverage for COVID-19-related business interruption losses, this bill would not be limited to particular categories of policyholders and would create important presumptions for policyholders seeking to secure coverage for their losses. 

This month, amended California Assembly Bill 1552 ("AB 1552") was referred to the California Senate Insurance Committee. Designed to "protect the solvency of businesses that were forced to close their doors or limit business" due to the COVID-19 pandemic, AB 1552 would create three rebuttable presumptions affecting the burden of proof and supporting coverage for policyholders' COVID-19-related business interruption claims:  

  • First, with respect to coverage for general business interruption and extra expenses, a rebuttable presumption that "COVID-19 was present on the insured's property and caused physical damage to that property which was the direct cause of the business interruption." 
  • Second, with respect to coverage for business interruption due to an order of civil authority, a rebuttable presumption that "COVID-19 was present on property located within the geographical location covered by the order of civil authority and caused physical damage to that property which was the direct cause of the insured's business interruption." 
  • Third, with respect to coverage for business interruption due to impairment of ingress or egress, a rebuttable presumption that "COVID-19 was present on the property of a third party and caused physical damage to that property which was the direct cause that prevented the ingress and egress to the insured's property and resulted in the insured's business interruption." 

In addition, AB 1552 would "prohibit COVID-19 from being construed as a pollutant or contaminant for purposes of any exclusion within a commercial insurance policy unless viruses are expressly included in that exclusion policy language." While AB 1552 does not address such "virus" exclusions, their validity has also recently been called into question given potential insurer misrepresentations when obtaining regulatory approvals for their use.  

If enacted, AB 1552 would take "immediate effect" and apply retroactively to all commercial insurance policies providing coverage for business interruption that were in force and effect on and after March 4, 2020—the date on which California Governor Newsom declared a state of emergency related to the COVID-19 pandemic.  

Commercial policyholders should closely monitor proposed COVID-19 insurance legislation, which, regardless of its outcome, may provide useful insights regarding COVID-19 insurance claims.

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