Two bills were introduced in April in the U.S. House of Representatives to provide small businesses with access to business interruption insurance in the event of future national emergencies that cause business interruption like those caused by the COVID-19 pandemic. Some states also have introduced legislation calling for business interruption insurance to cover situations such as these.
Business interruption insurance compensates businesses for lost revenue when they are forced to close. About 35 percent of businesses have business interruption insurance, according to a Washington Examiner article.
One bill, H.R. 6497, is called the Never Again Small Business Protection Act and was introduced on April 24 by a bipartisan group of four representatives. The other bill, H.R. 6494, is called the Business Interruption Insurance Coverage Act of 2020 and was introduced on April 14 by a bipartisan group of 10 representatives.
H.R. 6497, the Never Again Small Business Protection Act, would require that business interruption insurance provide coverage for businesses and nonprofits for losses that stem from any federal, state or local government-ordered business shutdown after the declaration of a national emergency, according to a media release from the office of Congressman Brian Fitzpatrick (R-PA), one of the sponsors of the bill. Other sponsors are Gil Cisneros (D-CA), Will Hurd (R-TX), and Tom Suozzi (D-NY).
The bill calls for coverage for businesses that have their business interrupted for at least 30 days as long as businesses keep their employees employed and maintain their health insurance coverage.
To ensure transparency for policyholders, insurers would only be able to exclude coverage for national emergencies if the insurer has received a written statement from the policyholder that affirmatively authorizes the exclusions, or if the policyholder fails to pay premiums associated with the coverage. To provide adequate stability for insurers, the government would put in place a federal backstop that would cover the costs of insurers saving the small businesses within their communities.
IHRSA, the trade association for commercial health clubs, supports the H.R. 6497 bill.
"We, and the entire U.S. health and fitness club industry, are grateful to Rep. Fitzpatrick for introducing this common-sense legislation,” Joe Moore, president and CEO of IHRSA, said in the release. “America's 40,000 health clubs and 800,000 employees thoroughly support this legislation that will allow businesses to access their insurance when they need it most. Like an act of God, as we've recently seen, a government shutdown can devastate a business, through no fault of the business operator. This is why insurance exists. And this is why the International Health, Racquet & Sportsclub Association proudly supports this bill."
The Never Again Small Business Protection Act would require the Federal Advisory Committee on Insurance to conduct a study on the feasibility of a federal backstop for small business access to business interruption insurance. Finally, for the mandate on business interruption insurance to come into effect prospectively, the Secretary of Treasury will need to certify that an adequate federal backstop has been put in place.
IHRSA is urging members of the fitness industry to send a digital letter to their federal representatives urging them to support H.R. 6497.
The other bill, the Business Interruption Insurance Coverage Act of 2020 (H.R. 6494) was introduced to ensure that businesses who purchase interruption insurance won’t get their claims denied because of major events, such as viral pandemics, forced closures of businesses, mandatory evacuations, and public safety power shutoffs, according to a media release from U.S. Rep Mike Thompson (D-CA), who was the main sponsor of the bill.
This bill allows insurers to deny coverage if premiums have not been paid, but it does not specify that business operators must keep their staff employed or continue to cover their health insurance to qualify.
In addition, some people who oppose the bill do so because they read the bill to indicate it will be retroactive and allow business owners to recoup losses from the March and April shutdowns, but the bill itself does not clearly state that. However, in the preemption and nullification of pre-existing exclusions portion of the bill (section three), it says, "Any exclusion in a contract for business interruption insurance that is in force on the date of the enactment of this Act shall be void to the extent that it excludes losses specified in section 2(1). 4 (b)." That section notes that business interruption insurance should apply to "any forced closure of businesses, or mandatory evacuation, by law or order of any government or governmental officer or agency, including the Federal Government and State and local governments."
But the following statement from Thompson uses the phrase "future forced closures":
“Businesses who have purchased business interruption insurance in good faith and are forced to close their doors because of a major event and through no fault of their own deserve to have their claims honored. I have heard from many local businesses in my district who are getting denied and are worried about making necessary expenses, like payroll or rent, during the Coronavirus pandemic. That’s why I introduced the Business Interruption Insurance Coverage Act, a solution to future forced closures to help small business owners and their employees. Forced closures shouldn’t mean the end of the local businesses that power our economy.”
IHRSA has reached out to Thompson's office for clarity on his bill, according to an IHRSA spokesperson, to find out if it requires current insurance policies to retroactively cover COVID.
"There are a lot of questions about the constitutionality of changing current insurance contracts," she stated.
The bill was co-sponsored by Representatives Alcee Hastings (D-FL), John Larson (D-CT), Grace Napolitano (D-CA), Mike Rogers (R-AL), Jerry McNerney (D-CA), John Garamendi (D-CA), Darren Soto (D-FL), Gil Cisneros (D-CA), and TJ Cox (D-CA).
Not everyone is supportive of the business interruption insurance bills. The bills “would be like a Category 3 hurricane in every major city occurring at the same time, or a wildfire burning all across America, and we had to cover that,” Sean Kevelighan, CEO and president of the Insurance Information Institute, told the Washington Examiner. “You just can’t underwrite risk like that; it’s not affordable.”