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Another State Follows New York, Demanding Insurers to Explain Their Business Interruption Coverage in the Wake of COVID-19

Insurance Coverage and Bad Faith Alert | March 27, 2020
By: Joshua A. Mooney

Another state has joined the ranks of New York’s Department of Financial Services (NYDFS) in demanding that insurers report (1) what business interruption coverage it has issued in the state, and (2) what are its perimeters in connection with COVID-19 cases. Is it a surprise that the state is Washington, another jurisdiction hard-hit by the COVID-19 outbreak?

In a March 25, 2020 letter to all “authorized property and casualty insurers,” Washington’s Insurance Commissioner has required that the insurers “provide certain information regarding the commercial property insurance it has written in Washington State and details on the business interruption coverage provided in the types of policies for which it has ongoing exposure.” In a separate letter, the Commissioner also orders that “[b]etween March 25, 2020, and May 9, 2020, no property and casualty insurer shall cancel a policy issued for nonpayment of premium, unless specifically directed to do so by the insured.”

In the March 25 letter requiring information about business interruption coverage, the Commissioner requires the following from each insurer by April 1, 2020:

  • That “the volume of business interruption coverage, civil authority coverage, contingent business interruption coverage and supply chain coverage” is written by the insurer and in effect on March 15, 2020. The data should be reported in amounts of direct written premium, policy types and numbers of policies written of each type; and
  • Following an examination of its policies, an explanation of “the coverage each policy offers in regard to COVID-19 – both presently and whether the situation could develop to change the policyholder's status (i.e., is there any potential for coverage as a result of COVID-19)."

The Commissioner requires the explanation of coverage to be “clear and concise,” and sent to each policyholder. Insurers also are expected to certify that such explanations have been sent.

The explanations of coverage sent to each policyholder should include:

  • The type of commercial property insurance or otherwise related insurance policy the insured holds.
  • Whether the policy provides “business interruption” or “business income” coverage, and if so, provide the "covered perils" under the policy.
  • For “business interruption” or “business income” coverage, whether the policy requires “physical loss or damage,” and if so, explain whether contamination related to a pandemic may constitute “physical loss or damage.” Also, it should describe what type of damage or loss is sufficient for coverage under the policy.
  • Whether the policy provides “civil authority” coverage, and if so, describe what type of damage or loss implicates coverage under the policy. The explanation also should describe “any relevant limitations under the policy,” and whether a civil authority prohibiting or impairing the policyholder’s access to its covered property in connection with COVID-19 implicates coverage under the policy.
  • Whether the policy provides “contingent business interruption” coverage, and if so, what type of damage or loss implicates coverage under the policy. The explanation also should identify the “covered perils” under the policy, indicate whether the policy requires “physical loss or damage” and explain whether contamination related to a pandemic may constitute “physical loss or damage.”
  • Whether the policy provides “supply chain” coverage, and if so, whether the coverage limited to named products or services from a named supplier or company? The explanation also should indicate whether the policy requires “physical loss or damage,” and explain whether contamination related to a pandemic may constitute “physical loss or damage.”

For each instance of coverage described above, insurers also are expected to provide “the applicable waiting period under the insured’s policy,” and “indicate whether the amount of time coverage remains in effect once becomes active for a given incident.” Responses should be sent to Policy@oic.wa.gov with subject line “COVID 19 SPECIAL REPORT_NAIC #”. The Commissioner’s letter states that the “subject line is considered part of the submission requirements.”

If you have questions or would like further information, please contact Joshua A. Mooney (mooneyj@whiteandwilliams.com; 215.864.6345).

As we continue to monitor the novel coronavirus (COVID-19), White and Williams lawyers are working collaboratively to stay current on developments and counsel clients through the various legal and business issues that may arise across a variety of sectors. Read all of the updates here.

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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