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Michigan Legislature Joins Other States in Considering Business Interruption Insurance

April 29, 2020

On Friday, April 24, 2020, Representative Elder introduced HB 5739.  The bill would require insurance policies issued in Michigan that offer business interruption coverage (typically, commercial property insurance policies) to include coverage for business interruption due to the novel coronavirus (COVID-19). Under the proposed legislation, insurers must indemnify their insureds, subject to the policy limits, for any “loss of business or business interruption for the duration of the declaration of state of emergency under Executive Order No. 2020-04.” The bill applies to policies “in force on the effective date of this act.” It protects insureds with fewer than 100 full time employees. The bill has been referred to the Committee on Insurance.

Seven other states are considering similar measures. Insurers have questioned the constitutionality of such measures, arguing that they violate Article One, Section 10 of the U.S. Constitution which prohibits states from entering into any laws “impairing the Obligation of Contracts.” Policyholder advocates counter that the United States Supreme Court has long recognized that the restrictions imposed by the Contracts Clause are not unlimited and that substantial impairment of contract must be shown in order to challenge state laws on this basis.

Please contact Paula Litt plitt@honigman.com or Sara Brundage sbrundage@honigman.com with any questions.