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California Considers Shifting Billions in Claims to Insurance Carriers: AB 1552, a Bold Proposal by Lawmakers to Cure the Pandemic Faced by California Businesses

Author: Justin T. Ruedaflores

Guest Editor: Lynn Allen

July 8, 2020 12:23pm

Proposed by California Assemblymembers James C. Ramos (D-Highland) and Monique Limón (D-Santa Barbara), Assembly Bill 1552 (“AB 1552”) aims to provide financial relief to California businesses impacted by the COVID-19 pandemic.  After issuing a shelter-in-place order, on March 17, 2020, Governor Gavin Newsom forced many companies to scramble and find new ways of generating revenue to stay afloat during this unprecedented time. Many of these companies sought relief from their insurance carriers by filing claims under business interruption insurance policies.

Under these policies, insurance carriers may cover financial losses resulting from interruptions in a business’s day-to-day operations. However, these policies typically require direct physical loss of or damage to covered property trigger coverage and extend benefits to the insured. What makes AB 1552 so unique is that coverage, and the associated financial benefits, would now be made available without the requisite direct physical loss of or damage to covered property. By creating a rebuttable presumption that COVID-19 was not only present at a business’s property, but that its presence resulted in direct physical damage to or loss of the property, AB 1552 essentially provides automatic financial assistance to companies with an applicable business interruption policy.

Critics call the latest effort by California lawmakers unconstitutional. Further, they claim that its application would re-write existing insurance policies to cover events not previously contemplated by insurers or their insureds.  They argue that the move could overwhelm their financial resources by extending coverage to claims where premiums were not previously collected.  At the same time, proponents argue that the current pandemic has caused an interruption to the day-to-day operations of many businesses, and despite the absence of property damage, coverage should be extended to companies who purchased one of these policies. Additionally, proponents also point to the costs of these policies, which can range from a few thousand dollars to several hundred thousand dollars per year.

With over 271,000 confirmed cases of COVID-19 in California, which quickly seems to be spiraling out of control, insurance carriers will seemingly have an uphill battle to challenging the rebuttable presumption in AB 1552, as currently contemplated.  Although it seems highly unlikely that AB 1552 will garner the requisite votes needed to become law, this proposal is just another bold step by lawmakers to provide relief to Californians during these unprecedented times. At Tyson & Mendes, we will continue to monitor this and other developments in this ever-changing landscape.  Please, stay tuned.

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