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California Assembly Bill 1552 – Near Miss or Cautionary Tale for Insurers?

Posted on: November 11th, 2020

By: Ryan Greenspan

As fear of the novel coronavirus and COVID-19 continues to grip the world, an array of government rules, restrictions, and guidelines have been imposed. Some businesses have been operating at a limited capacity and some have closed outright. In March of this year, California’s governor issued one of the strictest orders in the country, defining what is an “essential” and a “non-essential” business and then ordering all so-called “non-essential” businesses to shut down indefinitely. The governor has since permitted certain businesses to re-open to varying degrees.

Many businesses are now seeking to recoup their losses by making claims under insurance policies that provide for business interruption coverage.

Courts around the country have already weighed in on the applicability of business interruption insurance, but this past summer, California Assembly members James C. Ramos and Monique Limon introduced Assembly Bill 1552 (“AB 1552”). Typically, business interruption insurance is available when the insured can prove direct, physical loss or damage to covered property. AB 1552 was different from other, similar bills introduced in such states as Massachusetts and New York because it would have created a rebuttable presumption that the novel coronavirus was present at a business’s property and resulted indirect, physical damage to or loss of property. Bills introduced in other states would have simply mandated coverage, which would make those bills subject to constitutional challenges from insurers. AB 1552’s rebuttable presumption was an attempt to withstand a constitutional challenge.

On June 26, 2020, AB 1552 passed in the California State Assembly by a 77-0 margin. However, it was unable to garner further support and was pulled from consideration before receiving a vote in the State Senate. With the California Legislature currently in recess until January 2021, there is no chance that such a bill, in any form, will be passed in 2020. 

While insurers operating in California may have dodged a proverbial landmine, the governor’s forced closures continue, and many believe that when the California state legislature reconvenes in 2021, a form of AB 1552 revised to attract Senate support may be introduced. Its significant support in the State Assembly is likely to keep the possibility alive for 2021.

If you have any questions about AB 1552 or business interruption insurance practices in California, please contact Ryan Greenspan at [email protected].

Additional Information:

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

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