NOTE: This guest blog post is by Holly Soffer, Esq., a policyholder attorney and General Counsel to the American Association of Public Insurance Adjusters.

While many of us are working at home, we have more time to spend analyzing and contemplating the roles of the government and the insurance industry in responding to the coronavirus crisis. This blog post is an extension of that opportunity.

New Jersey has been floating a bill, sponsored by Assembly members Roy Freiman, Louis D. Greenwald, and Annette Chaparro, which would mandate that:

[E]very policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption in force in this State. . . shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic. . . .1

The bill then goes on to provide a recovery fund for those companies which will be paid into by all insurers (and presumably the government).

At first (and second) glance, this bill seems fanciful, unlikely to get out of committee, not able to pass muster from a constitutional change, and not advisable on many levels. But, with time to contemplate, and for the sake of argument, what if it weren’t? As the owner of a small business, as well as being general counsel to a national association of public insurance adjusters (AAPIA), and as someone who has the privilege of working with the absolute best of the policyholder advocates, I can see a rainbow here, as well as a possible legal argument for the bill.

The very valid arguments against a bill such as the one in New Jersey, begin with the idea that government would be interfering and reforming contracts long after they were agreed upon by the parties. That contractual interference is fundamentally unfair and violates both common law and statutory law regarding contracts and may even have some due process or other constitutional implications.

But isn’t this type of contractual reformation and interference already happening? Arguably the New Jersey bill that seeks to reform the policy to provide coverage is re-writing the contract after the fact, but when requiring landlords not to collect rent, and banks not to foreclose, isn’t that government interference with contract also altering the terms of contracts after the fact?

The Department of Housing and Urban Development announced that it is suspending all evictions and foreclosures until the end of April. The Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to do the same for a minimum of sixty days. What about the Note signed by the parties? Isn’t that a contract?

The National Multifamily Housing Council published a release on March 22, 2020, asking for a 90-day period for a halt on evictions by apartment owners and landlords for renters who were experiencing job loss or reduction in income due to COVID-19. The publication Motley Fool,2 published a list of local governments that have halted such evictions and foreclosures. After seeing those lists, I ask the same question about the change in the terms of the contract after the fact. Arguably the New Jersey law that seeks to reform the policy to provide coverage is re-writing the contract after the fact, but when requiring landlords not to collect rent, and lenders not to foreclose—among other limitations—aren’t those the same types of interference with contract and alteration of terms after the fact?

Maybe.

In the end, altering insurance policies retroactively probably isn’t a good idea, but it’s not as fanciful as it seems on the surface.

Stay well,

Holly K. Soffer, Esq.
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1 New Jersey Assembly Bill 3844.
2 https://www.fool.com/millionacres/real-estate-market/articles/cities-and-states-that-have-paused-evictions-due-to-covid-19/