As we reported in February 2021, legislators in the State of Washington continue to promote legislation that would attempt to create business interruption coverage for policyholders who have been affected by COVID-19 stay-at-home orders. In 2021, state senators introduced Senate Bill 5351, a short bill that would have (among other things):
- Instituted a minimum two-year contractual suit-limitations provision for all first-party property insurance policies;
- Mandated that coverage grants 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;” and
- Applied retroactively to causes of action related to the Washington Governor’s February 29, 2020, proclamation declaring a state of emergency due to COVID-19.
Legislators in Olympia failed to pass SB 5351 out of the Committee on Business, Financial Services & Trade before the end of the 2021 legislative session, effectively killing the bill. As of January 10, 2022, the bill’s sponsors have reintroduced SB 5351 in its original form to the same committee for a new round of hearings.
Hearings for SB 5351 have not been set, but if 2021 was any indicator, we expect them to be heated. Supporters of the original bill were desperate to create a statutory scheme that would help business owners impacted by COVID-19, as policyholders faced repeated setbacks in litigating business interruption claims. Since the bill was originally introduced, that national legal trend has only escalated, with insurers routinely winning COVID-19 business interruption lawsuits based on the most reasonable interpretation of standard policy language. Meanwhile, supporters of SB 5351 never allayed critics’ fears that the bill represented an unconstitutional assault on the freedom to contract, or that it risked creating a flood of otherwise-excluded claims that insurers would not have the capacity to pay under their current reserve models.
Similar legislative efforts were made in a number of other states throughout 2021. However, as with the initial spate of COVID legislation in 2020, effective lobbying by the insurance industry convinced legislators that these efforts to retroactively mandate coverage would create constitutional, legal, and actuarial consequences that were too risky to gamble on, even during the COVID-19 pandemic.
