New York businesses now have access to business interruption insurance policies that do not require physical damage to trigger coverage, according to AM Best.
A new state law, enacted in September 2024, allows for these stand-alone policies to cover closures resulting from specific incidents.
The legislation expands coverage beyond traditional business interruption policies. These traditional policies typically require “direct physical loss” from events like fires before claims can be filed. This requirement has been a key factor in court decisions denying COVID-19-related business interruption claims in New York and elsewhere.
The new law allows businesses to file claims if they are forced to close due to damage at their own location or a neighboring property.
It also permits claims for closures caused by an act or threatened act of violence when the perpetrator is on the premises. Closures mandated by government orders also qualify for coverage under the new law.
The legislation allows these stand-alone policies to be offered by excess lines carriers if authorized insurers do not provide the coverage.
The law’s summary indicates that excess lines insurers have expressed interest in underwriting policies for active shooter incidents. Such incidents were previously difficult to cover under conventional business interruption insurance.
Business closures due to damage at neighboring properties have presented challenges under existing policies. Endorsements that extend coverage for civil authority orders often exclude claims when the affected property is not owned by the insured. The new law intends to address these coverage gaps.
AM Best’s attempts to secure comments from industry trade groups and the New York Department of Financial Services, a supporter of the legislation, were unsuccessful.
How might this change in coverage affect risk management strategies for businesses? Share your thoughts in the comments.
