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There has, perhaps, been no catalyst for legislation more effective than COVID-19.  The deadly and omnipresent disease, commonly known as Coronavirus, has changed society in drastic and unforeseen ways.  In the span of just several months, legislation related to the pandemic has been enacted in all 50 states, and federally.[1] The legal fallout from such efforts will undoubtedly play out over many years.

Coronavirus’ human toll has been massive; its economic toll even more so. One estimate puts the monetary losses from Coronavirus in the United States at $420 billion.[2]  It is difficult to fathom such large numbers.  The projected loss is 2.6x the estimated total losses from Hurricane Katrina, and a whopping 10x Hurricane Katrina’s covered losses (that is, losses covered by an insurance policy).[3]  And just as with Hurricane Katrina, the losses must be allocated.

Insurance is one way to prospectively allocate future losses.[4]  The insured pays a premium to the insurer.  In exchange, the insurer agrees to take on the risk that the insured will incur one (or more) losses of a specified type.  In the event of the insured’s covered loss, the insurer will pay out a certain or determinable amount to the insured.  This system works well when the chance of loss is determinable, and the risk is non-systemic.  A risk is determinable when an insurer can evaluate the likelihood of it occurring within a population.  One of the most well-known and familiar types of insurance is personal lines automobile insurance.  The insurer does not know whether any particular insured will be involved in an accident, but it issues thousands or millions of policies and can determine, with surprising accuracy, what percentage of its total drivers will be involved in accidents per year, and how much those accidents will cost.[5]  A risk is systemic when one insured suffering a loss makes it more likely that many or all of the other insureds will also suffer a loss.  A flood is systemic; a car accident is not.

Coronavirus presents the worst of both worlds: the chance of loss from Coronavirus is non-determinable, and the risk is systemic.  The chances of a Coronavirus breakout were not known, and could not be known, beforehand. Black swan events, like Coronavirus, occur with such infrequency that there is not sufficient data to predict them.  The losses from the virus are systemic; one person suffering a loss (i.e. getting the disease) makes it more likely that thousands of others will suffer loss as well.  The nature of a viral pandemic like Coronavirus makes it difficult for insurers to price risk relating to such outbreaks, and insurers cannot sell coverage for risk they cannot price.

One legislative solution frequently courted, but not yet consummated, is legislation mandating that insurance policies provide coverage to individuals and businesses for losses and liability arising due to Coronavirus.[6]  Through legislation, states and Congress seek to retroactively allocate losses to insurers.[7]  The legislation varies from state to state, but in general, it takes one of two forms: requiring health insurance policies to cover testing or treatment for Coronavirus; or requiring property insurance policies to cover losses relating to Coronavirus, even if the loss would not otherwise fall within the policy’s “bodily injury” or “property damage” requirements.[8]   r example, legislation proposed in Pennsylvania would require insurance policies providing coverage for “property damage” to be construed to include loss or damage incurred due to “the presence of a person positively identified as having been infected with COVID-19; the presence of at least one person positively identified as having been infected with COVID-19 in the same municipality of this Commonwealth where the property is located; or the presence of COVID-19 having otherwise been detected in this Commonwealth.”[9]  A bill proposed in New York would nullify exclusions that allow an insurer to deny coverage “based on a virus, bacterium, or other microorganism that causes disease, illness, or physical distress or that is capable of causing disease, illness, or physical distress.”[10]  A New Jersey bill would require all in-force policies to “be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic.”[11]

These attempts are understandable.  Insurance companies are often perceived unsympathetically.  Public interaction with insurance companies is, at best, neutral, and more commonly negative.  Mandating insurance coverage does not require raising taxes or allocating public funds.   And of course there is simply human nature – isn’t this what insurance is for, to protect from disaster?  But even putting aside fundamental policy questions, legislative attempts to mandate coverage run into a major roadblock: the Contract Clause of the federal Constitution, as well as the Contract Clauses of the various state Constitutions.

State Constitution Contract Clauses

45 of the 50 state Constitutions contain Contract Clauses.[12]  Twenty-two of the state Constitutions Contract Clauses provide greater protections for contracts than does the federal Contract Clause.  Twenty-three state Constitutions provide the same protections, or fewer protections, as the Federal Contract Clause.  (The remaining five states do not have contract clauses).  While the exact protections vary from state to state, there are several common threads.  “Most state constitutions protect contracts from impairment independently from the United States Constitution,” and “a substantial majority of the state constitutions explicitly protect contracts from legislative impairment, using language similar or identical to that of the United States Constitution.” States that use the federal test as a framework for analysis often modify it to some extent, leading a “significant number of states . . . to protect private contracts from impairment under state constitution contract clauses more strongly than the Supreme Court does under the United States Constitution,” while “other states . . . apply protection equivalent to or less than the federal courts.”[13]  

The majority of states that afford greater protection against contract impairment apply heightened scrutiny within the basic framework of the federal test. This includes liberal interpretation of contract impairment, narrowly construing police power and making “an independent determination of the significance and legitimacy of the public purpose behind a statute or regulation.”[14] Also, states offer several ways for looking at the third factor of the federal test, such as “searching for less restrictive means that the state could have used to achieve its goals” and “looking closely at the actual character of a statute and its circumstances, rather than deferring to legislative determinations.”[15]

Although state court decisions are not binding on federal courts, the decisions have persuasive value, and “state court analysis of contract clause claims under a state constitution can provide insights and examples that the federal courts can consider when analyzing federal Contract Clause claims.”[16]  At the same time, many precedents “generally interpret the state and federal contracts clauses coextensively,” and apply the federal contract clause analysis with the basic framework of the federal test.[17]  Thus, the constitutionality of the proposed Coronavirus legislation will be analyzed under the federal Contract Clause.

The Federal Contract Clause 

The federal Contract Clause is the red headed step-child of Constitutional provisions: acknowledged but rarely heard from and usually misunderstood.  But it presents itself at the front, in article I:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.[18]

Unlike many of the provisions of the Constitution, the Contract Clause would appear, at first blush, to be relatively straightforward: no state may pass any law impairing the obligation of contract.  “Contract” means an agreement between parties; “impair” means to make worse.[19]  But the superficial clarity quickly gives way to ambiguity.  Nearly every law could be interpreted to impair some contractual right if the Contract Clause is read literally.  Indeed, a state statute regulating the quality of meat could be construed to impair the contractual right of a farmer to sell his product.

Consequently, the Supreme Court has limited the scope of the Contract Clause.  The Clause “limits the power of the States to modify their own contracts as well as to regulate those between private parties,” but it “does not prohibit states from repealing or amending statutes generally.”[20]  It also does not prohibit the retrospective application of laws that are remedial.   However, even a procedural or remedial statute may not be applied retrospectively if it impairs a vested right or contractual obligation in violation of a provision of the state constitution.[21]

In determining whether a state law affecting preexisting contracts violates the Contracts Clause, the threshold issue is whether the state law has operated as a substantial impairment of a contractual relationship.[22]  In determining “substantial impairment,” the Supreme Court considers the extent to which the law undermines the contractual bargain, interferes with a party’s reasonable expectations, and prevents the party from safeguarding or reinstating his rights. In considering the severity of the impairment, courts measure the height of the hurdles the state legislation must clear to withstand constitutional challenge.[23]  If the impairment is less than substantial, a diminished degree of scrutiny is required, and “if there is no impairment or only minimal impairment, a court will end the inquiry.”[24]  That is, if the impairment is not substantial, there is no Contract Clause violation.

If the state law or regulation constitutes a substantial impairment, a court will next consider the purpose behind the law.  The factors to be considered when evaluating a claim that the Contract Clause has been violated include: whether there is a significant and legitimate public purpose for the law, and whether the adjustment of rights and responsibilities of the contracting parties is based upon reasonable conditions and is of an appropriate nature.[25]  If a significant and legitimate purpose is not identified, then the state law is unconstitutional under the Contract Clause.[26]  If, on the other hand, the law has a significant and legitimate public purpose, then the court must determine whether the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the adjustment.[27]

Retroactive application of a state statute may be unconstitutional if it substantially impairs a party’s contractual obligation.  A statute which retroactively creates contractual liability where there previously had been none runs afoul of the federal Contract Clause.[28]  Legislation requiring retroactive insurance coverage for Coronavirus appears to do just that.  It alters the terms of the contract between the insurer and insured to require the insurer to provide coverage for a specific risk.  The change to the terms of the policy is to the significant detriment of the insurer.[29]  The insurer does not receive additional premium for the coverage, and does not have the ability to evaluate or opt out of the additional coverage.  The legislation alters the fundamental purpose of insurance: insurance companies collect premiums to cover the risks they know they are insuring.  The proposed legislation would require insurers to also collect premiums to cover the risks they did not agree to insure, but which may later be added by legislators.  Thus, the impairment to insurers under the proposed legislation is substantial.

Such legislation also fails the “legitimate public purpose” element of the Contract Clause.   A legitimate public purpose may be found where the legislation is invoked for the benefit of society as a whole to address a broad public problem, rather than for the benefit of a smaller, specific group.[30]  The proposed Coronavirus legislation benefits a small subset of the population – insureds whose policies exclude coverage for losses arising due to the Coronavirus.   There is arguably no broad public health benefit, only a reordering of contractual relationships among a narrow group.   The change in coverage under existing policies is not an ancillary side effect of otherwise legitimate legislation; it is the primary purpose of the legislation.  The legislation gives to the insured a benefit it did not bargain or pay for.  While legislative revival of time-barred claims may be permissible under the Contract Clause, the Coronavirus legislation proposed in various states does more than that: it creates new liability.[31]

The Coronavirus legislation proposed by various states fundamentally alters the bargain between insurers and insureds, to the substantial detriment of insurers.  Legislative attempts to mandate Coronavirus coverage, while admirable, are likely to be found unconstitutional by a court, in violation of the Federal (and potentially one or more the state’s) Contract Clause.   State legislatures seeking to allocate Coronavirus losses will need to focus their efforts elsewhere, such as on stimulus payments or the creation of central relief funds.


1 See NCSL, COVID-19 State Legislation Data Visualization,

2 See Brookings Institute, What are the possible economic effects of COVID-19 on the world economy?,

4 See Morgan Lewis, COVID-19 Business Interruption Losses: The Potential Keys to Unlocking Insurance Recovery,

6 See, e.g., Mass Sen. Bill. No. 2655 (2020); N.J. Assembly Bill No. 3844 (2020); Ohio House Bill 589 (2020); N.Y. Assembly Bill A10226B (2020); see also National Law Review, Will Legislation Require Coverage for COVID-19 Business Interruption Losses?,

7 See CMS, FAQs About Families First Coronavirus Response Act and Coronavirus Aid, Relief, and Economic Security Act Implementation Part 42, available at

8 See id.; see also National Law Review, Legislation Enabling Policyholders to Obtain Insurance Coverage for Coronavirus Claims is Constitutional Part 1,

9 See Pennsylvania Senate Bill 1114 (2020).  

10 N.Y. Assembly Bill A10226B (2020).

11 N.J. Assembly Bill No. 3844 (2020); see also South Carolina Senate Bill 1188 (2019-2020 Session) (providing substantially the same language as the New Jersey proposal).

12 Brian A. Schar, Contract Clause Law Under State Constitutions: A Model for Heightened Scrutiny, 1 Tex. Rev. L & Pol. 123, 125-129 (1997).

13 Id. at 129-132.

14 Id. at 133-35.

15 Id. at 135-36.

16 Id. at 129.

17 Soc’y Ins., 786 N.W.2d at 403.

18 U.S. Constitution, Article I, § 10, Clause 1 (emphasis added).

19 C.J.S. Const. Law § 507.

20 In re City of Detroit, Mich., 504 B.R. 97, 144 (Bankr. E.D. Mich. 2013); C.J.S. Const. Law § 506.

21 C.J.S. Const. Law § 506.

22 Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 411 (1983).

23 Id. at 411-12.

24 See Soc’y Ins. v. Labor & Indus. Review Comm’n, 786 N.W.2d 385, 403 (Wis. 2010).

25 Energy Reserves, 459 U.S. at 411-12.  

26 C.J.S. Const. Law § 508.

27 Id.

28 See Soc’y Ins. v. Labor & Indus. Review Comm’n, 786 N.W.2d 385, 403 (Wis. 2010).

29 See Energy Reserves, 459 U.S. at 411-12.  

30 See Schar, 1 Tex. Rev. L & Pol. at 134-35.

31 Compare with Schniedwind v. Am. Family Mut. Ins. Co., 157 F.Supp.3d 944, 953-54 (D. Colo. 2016).