The Aftermath of Covid-19 – New York’s Expansion of Business Interruption Coverage | Zelle LLP

New York’s Business Interruption Policy Shift: A Boon or Bust for Insurers?

teh COVID-19 pandemic triggered a surge in litigation against insurance companies, as businesses sought to recover losses incurred due to government-mandated shutdowns.Now, New York has taken a bold step to address this issue by enacting legislation that fundamentally alters the landscape of business interruption insurance.

Enacted on January 12, 2025, Bill No. A10342 allows insurers to offer standalone business interruption coverage without the prerequisite of direct physical damage to covered property.This new law, codified in New York Insurance law Section 1113(a)(35), directly challenges the traditional framework of business interruption insurance and raises crucial questions about its impact on both insurers and policyholders.

The Traditional Business Interruption Model

Traditionally, business interruption insurance has provided financial assistance to businesses experiencing lost profits and income due to covered events that disrupt operations. However, this coverage typically comes with a critical clause: direct physical loss or damage to insured property. This requirement proved to be a significant hurdle for businesses seeking coverage for losses stemming from government-mandated shutdowns during the pandemic.

“Direct physical loss or damage requires a material alteration or a complete and persistent dispossession of insured property, which petitioner has not alleged,” stated the New York Court of Appeals in the landmark case of Consol. Rest. Operations, Inc. v. Westport Ins. Corp., 41 N.Y.3d 415, 423 (2024). In essence, the courts upheld the traditional interpretation of business interruption policies, finding that economic losses resulting from government restrictions did not constitute direct physical damage to property.

New York’s Game Changer: Section 1113(a)(35)

Recognizing the gap in traditional coverage, New York state lawmakers introduced and enacted Section 1113(a)(35) of the New york Insurance Law. This new provision defines “business interruption insurance” to encompass losses stemming from closures mandated by government orders, without requiring the presence of direct physical damage.

“Business interruption insurance” means insurance against loss of use and occupancy, rents, and profits resulting from a business closure due to: (A) loss of or damage to insured or neighboring property; (B) an act or threatened act of violence while the perpetrator is on the business premises; or (C) a government order. N.Y. Ins. Law § 1113(a)(35) (2025).

Challenges and Opportunities for the Insurance Industry

this legislative shift presents both challenges and opportunities for insurers operating in New York. On the one hand,eliminating the physical damage requirement could expose insurers to a wider range of risks and potentially increase their liability.

Conversely, it presents an opportunity to expand market reach by offering a more thorough product that better serves the evolving needs of businesses. Insurers will need to carefully evaluate their risk appetite and pricing strategies to determine if offering this new type of business interruption coverage is a viable option.

Looking Ahead: A New Era for Business Interruption Insurance?

The passage of New York’s legislation signals a potential paradigm shift in the business interruption insurance landscape. As othre states monitor the impact of this change, we may see a wider adoption of similar policies nationwide. The insurance industry faces the challenge of adapting to this new reality and providing tailored solutions that effectively address the unique risks faced by businesses in today’s dynamic surroundings.

How do insurers like ABC Insurance plan to balance the need to attract new customers with responsible risk management in the context of New York’s expanded BI coverage?

New York’s Business Interruption Policy Shift: A Boon or Bust for Insurers?

an Interview with Karen Simpson, SVP of Commercial Lines at new York-based ABC Insurance

Archyde News Editor: Karen, thank you for joining us today to discuss the recent changes in business interruption (BI) insurance policies in New York. Let’s dive right in.How has the traditional BI model shaped the insurance landscape until now?

Karen Simpson: Thank you for having me. Traditionally, BI insurance has focused on providing coverage for profits lost due to disruptions caused by direct physical damage or loss to a business’s property.This approach has been the industry standard, with courts consistently upholding this interpretation, as seen in the Consol. Rest. Operations, Inc. v.Westport Ins. Corp. case.

New York’s New Legislation: A Game Changer

Archyde news Editor: Now, New York has enacted legislation that decouples BI coverage from physical damage requirements. how does this new law, Section 1113(a)(35), impact the BI insurance industry?

Karen Simpson: Section 1113(a)(35) broadens the definition of BI insurance to include losses resulting from government-mandated closures, without needing direct physical damage. This change essentially opens up new avenues for insurers to cater to businesses’ evolving needs. However, it also presents unique challenges and exposures, as insurers will need to assess and price these new risks wisely.

Navigating Challenges and Opportunities

Archyde News Editor: Clearly, this shift presents both opportunities and challenges for insurers like yours. Can you elaborate on the strategic considerations insurers must address when deciding whether to offer this new type of BI coverage?

Karen Simpson: Insurers must carefully evaluate their risk appetite and pricing strategies. On one hand, expanding BI coverage could attract more customers and differentiate our offerings. However,we must ensure we can manage the increased liability responsibly.This might involve refining underwriting processes, revisiting actuarial models, or increasing reinsurance protection. Each insurer will need to find the right balance between growth and risk management.

Looking Ahead: The Future of BI Insurance

Archyde News Editor: As other states watch New York’s experiment with this policy change, do you anticipate a wider adoption of similar policies nationwide? If so, what innovations might we expect to see in the BI insurance market?

Karen Simpson: I beleive we’re at the dawn of a new era for BI insurance. As businesses face increasing risks, both tangible and intangible, I expect insurers to innovate and develop tailored solutions. We might see packages bundling BI with other coverages, parametric triggers for certain perils, or even new BI insurance products designed specifically for emerging risks. The key will be remaining agile and responsive to our clients’ needs.

Archyde News Editor: Karen, thank you for sharing your insights on this crucial topic. It’s clear that the BI insurance landscape is evolving rapidly, and both insurers and policyholders must stay informed to navigate these changes successfully.