It is undoubtedly that Covid-19 influenced the insurance industry around the world resulting in a considerable litigation initiated by insurers to recover linked losses with the government’s mandated closures for non-essential businesses. The question that remains is how will the insurance industry and state governments respond to the Covid-19 judicial case?
New York responded rapidly by signing Bill No. A10342 in the law, which authorizes the sole coverage of business termination. Specifically, the new law allows the insurers to link the insurance policies of the interruption of business that do not require physical loss or prerequisite for coverage damage. The law came into force, as revised, on January 12, 2025, and is codified in section 1113 of the New York Insurance Law Closing orders. Although section 1113 (a) (35) is new, it raises the question of how insurers should answer this new law and whether it will affect the presence of the market in New York, an already high -risk market for insurers.
Traditional business interruption insurance has been created to help secure in the recovery of lost profits and income caused by a covered loss if the loss interrupts normal business operations. Importantly, for a loss to be covered under most traditional business interruption policies there must be direct physical loss or damage to the covered property.
The traditional situation that requires physical loss or damage to the covered property proved fatal to insurers seeking to recover the economic losses caused by Covid-19. Insurers across the country were able to overcome the claims of termination of the Covid-19 business relying on the simple language of their policies, which required physical loss or damage to the covered property. As described in many of the Covid-19 cases, the economic losses arising from the government-mandated closures do not constitute direct physical loss or damage to the covered property and thus have not been covered.
For example, the New York Court of Appeal, New York’s highest court, ruled that Covid-19, a virus, did not result in physical loss or damage to restaurants as required by politics. see Consol Break Operations, Inc. v. Westport Ins. bulk41 NY3D 415, 423 (2024). Specifically, the court ruled that “direct physical loss or damage requires a material change or complete and continuous removal of the insured property that the applicant has not claimed.” Id. within Consolidated restaurant operations includedThe insured demanded coverage under his “risk” property policy that covered business interruption losses “directly resulting from direct physical loss or damage” for the subsequent loss of income. Id. Calling the rules of interpreting the contract in New York, the court concluded that “direct physical loss” requires more than loss of use; Requires complete, complete departure ”and direct physical loss must cause business interruption losses to be covered. see Id. at 429. The court further estimated that the temporary presence of Covid-19 at the insured location is insufficient to meet the requirements of “direct physical loss or damage”, for Covid-19 to be a “direct physical loss or damage “The property was supposed to be replaced, changed or really damaged. see Id. in 434.
Afterwards, New York codified section 1113 (A) (35), which authorizes the insurer to remove the prerequisite for the damage to the physical property found in traditional business interruption insurance. Section 1113 (a) (35) is expressed in the respective section:
(a) Types of insurance that may be authorized in this state, depending on the other provisions of this chapter, and their purpose shall be set out in the following paragraphs. The power to make any type of insurance against loss or damage to property must include the power to provide all legitimate interests in such property and to ensure the loss of use and occupation, rents and profits resulting from them. . .
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(35) “Providing Business Interruption” means providing the loss of use and occupation, rents and profits coming from the business closure due to: (a) loss or damage to insured or neighboring property; (B) an act or a threatened act of violence while the perpetrator is in the business premises; or (c) a government order.
NY Ins. Law § 1113 (a) (35) (2025). Of particular importance, it is that the law determined the “providing business termination” to include coverage of loss of use and occupation and profits coming from closure due to government orders without demanding direct physical loss or damage.
Therefore, insurers should consider whether to continue to sell traditional coverage of business interruption or choose to sell the business interruption that removes the prerequisite for physical damage to the coverage. While the requirement of physical damage under traditional business interruption is a prerequisite for coverage and was a king in insurers coverage positions during the Covid-19 litigation, offering coverage of business interruption that removes the requirement of physical damage can provide insurers to Increase revenue through higher premiums and expansion in the New York market.
After all, the reality is that the insurers should evaluate if they are willing to provide a business interruption coverage that does not require physical damage, and if the paid premiums exceed the risks. Currently, it is unclear whether financial profit exceeds the potential risks involved in removing the prerequisite of physical damage. However, Zelle LLP continues to monitor developments around section 1113 of New York Insurance Law (A) (35) and its effects on the market.