A Washington State Senate bill introduced last week, Senate Bill 5351, takes aim at insurers’ arguments that their policies do not cover losses caused by COVID-19 and/or related closure orders. According to insurers, their promise to pay for business income loss caused by “direct physical loss of or damage to” property is subject to unwritten requirements: that the insured property be “structurally altered” or have suffered “distinct, demonstrable, physical alteration.” The fact that these requirements do not actually exist in commercial property policies has not stopped insurers from denying almost every COVID-19 business income loss claim in the country on these grounds.
As we have previously discussed, two Washington state superior courts have already rejected the notion that insurers can lawfully deny COVID-19 business income claims by asserting non-existent “structural alteration” or “distinct, demonstrable, physical alteration” requirements.
SB 5351 seeks to make these courts’ decisions statutory law. To that end the bill requires that:
Every property insurance policy containing a grant of coverage for direct physical loss of or damage to property shall be construed to include the deprivation of such property and the loss of the ability to use such property.
SB 5351 is a big step in the right direction. However, the legislation should be broadened: while most policies cover “direct physical loss of or damage to” property some policies drop the “of” and, therefore, read “direct physical loss or damage to” property. Insurers with the latter policy language will argue that the statute as written does not apply to their policies and, worse, that SB 5351 intentionally omitted addressing their policy language out of recognition that it does not provide coverage. To avoid such arguments, we encourage you to comment on the bill and request that the policy language it addresses be broadened. You can do by following this link: SB 5351
The industry will argue that SB 5351 is unconstitutional under the Contracts Clause of the U.S. Constitution. Not so: SB 5351 takes the same approach as a 1999 Oregon law, the Environmental Claims Assistance Act (referred to as “OECAA.”). Among other things, the OECAA mandated an interpretation of the term “suit,” an undefined term in historical general liability policies, the meaning of which was being hotly disputed in long-tail environmental cleanup coverage litigation. The Ninth Circuit held that the OECAA’s rule of construction for the term “suit” was constitutional in Anderson Bros. v. St. Paul Fire & Marine Insurance Co., 729 F3d. 923 (9th Cir. 2013), because it did not contradict an express definition in the policy. A bill similar to SB 5351 has been introduced in Oregon (HB 2730) that very closely tracks the approach of the OECAA.
SB 5351 also assists policyholders by addressing suit limitations clauses. Most commercial property policies state a policyholder must begin a coverage lawsuit within a specified period of time or risk forfeiting coverage for the claim at issue. Washington law currently forbids property insurance carriers from requiring their policyholders to file suit less than “one year from the date of loss.” The bill would extend this to “two years from the date of loss.”
Suit limitations clauses are something every Washington policyholder with a COVID-19 business income loss claims should examine. It is likely insurers will argue that the “date of loss” for Washington COVID-19 claims was sometime in February or March of 2020. Accordingly, if you are a Washington policyholder with a one-year suit limitations clause you need to either immediately file suit or enter a tolling agreement in order to completely preserve your rights with respect to your business income loss claim.