New Massachusetts Business Interruption Insurance Bill Could Provide Lifeline to Hotels and Restaurants During the Coronavirus Pandemic

By Joshua M. Bowman

On March 24, 2020, in response to the severe financial impact of the COVID-19 pandemic on the hospitality industry in the Commonwealth of Massachusetts, State Senator James B. Eldridge filed S.D. 2888, a bill entitled “An Act Concerning Business Interruption Insurance.” I am proud to say that I worked closely with Sen. Eldridge on crafting this bill, which I believe, if enacted, would provide desperately needed financial assistance to the hospitality industry in Massachusetts.

As the name implies, business interruption insurance is a type of insurance that is intended to protect policyholders in the event of an unexpected interruption of their businesses. Who could argue that the hospitality industry is now experiencing the largest unexpected business interruption in history? However, as many hotel and restaurant owners are now learning the hard way, most policies do not cover losses resulting from viruses (such as COVID-19) or interruptions not also accompanied by property damage.

If enacted, the bill would require insurers to pay policyholders who have had their businesses interrupted as a result of the COVID-19 pandemic, notwithstanding (a) any virus exclusions or (b) policy requirements that there also be property damage accompanying such business interruption. The goal of such coverage is to make the insured party whole for all losses resulting from a “covered peril” (i.e., the event that triggers the insurance coverage), subject to the monetary limits in the policy.

The bill would apply to hotels, restaurants, and other businesses, provided that the bill only covers “insureds” with 150 or fewer full-time-equivalent employees. If enacted, the mandate for insurers to provide such coverage would be effective as of March 10, 2020, the date on which Governor Charlie Baker declared a state of emergency in Massachusetts as a result of the COVID-19 pandemic, and would end when such declaration is rescinded.

The bill allows insurers to seek reimbursement from the Massachusetts Division of Insurance for the costs of such newly mandated coverage. To fund such reimbursements, the bill grants the Commissioner of the Massachusetts Division of Insurance authority to make “one or more” assessments against domestic and foreign insurance companies licensed in Massachusetts, provided they sell business interruption insurance. The bill does not specifically proscribe the amounts of such assessments, or when such assessments may commence. Such decisions are left to the Commissioner of the Division of Insurance, although it seems likely that such assessments would not begin until after the COVID-19 crisis is over, and that they would ramp-up over an extended period of time.

Other similar bills have already been filed in New Jersey and Ohio. Moreover, on March 18, 2020, the CEO of ICSC, a large real estate trade group, wrote a letter to the Trump Administration requesting that the federal government consider a similar measure.

There is much that is not yet known about this bill. However, I wanted to update the BU community about its recent filing.

Joshua M. Bowman is a partner at Sherin & Lodgen LLP in the Real Estate and Corporate Departments, and is the Chair of the firm’s Hospitality Practice Group. Josh has substantial experience dealing with complicated issues related to commercial real estate ownership, development, finance, joint venture arrangements, acquisitions and sales, leasing, land use, licensing, management and franchise agreements, construction agreements, and food and beverage agreements. As the Chair of the firm’s Hospitality Practice Group, Josh has a particular concentration in representing owners and operators of restaurants and hotels.

In January of 2017, Josh joined the faculty at the Boston University School of Hospitality Administration as a part-time professor, where Josh teaches two courses: “The Fundamentals of Hotel Real Estate Deal” and “Hospitality Law.”  Josh is an active member of the Academy of Hospitality Industry Attorneys and the Hotel Industry Advisory Board for the New England Real Estate Journal.  Josh also serves on the boards of several non-profits and philanthropic organizations, including the Board of Trustees of Massachusetts Continuing Legal Education, Inc. (MCLE).