Business Interruption Insurance and COVID-19:  Needed Guidance For Commercial Property Insurance Policyholders Forthcoming From the New York Department of Financial Services

On March 10, 2020, the New York Department of Financial Services used its powers under Section 308 of the New York Insurance Law to compel every property/casualty insurer in the state to answer, by March 18, 2020 urgent questions that policyholders have and to provide detailed information on its business interruption insurance coverage both to the DFS and to individual policyholders.  According to the DFS:

in connection with the outbreak of the novel Coronavirus (“COVID-19”), policyholders have urgent questions about the “business interruption” coverages provided by their commercial property insurance policy. Policy terms may vary in treatment of “covered perils” and “physical loss or damage.” Coverage implicated by COVID-19 may change depending on how the situation evolves. Given the potential impact of COVID-19 on business losses, particularly concentrated effects in local communities, DFS considers Insurers’ obligations to policyholders a heightened priority. In the interest of the timely and equitable fulfillment of insurance contracts, Insurers must explain to policyholders the benefits under their polices and the protections provided in connection with COVID-19. Any Insurer that writes none of the business described herein should notify DFS in a statement signed by an officer or other authorized representative of the Insurer in lieu of complying with the provisions below.

The DFS has ordered property/casualty insurers to provide explanation to policyholders of the following questions:

– What type of commercial property insurance or otherwise related insurance policy does the insured hold?

– Does the insured’s policy provide “business interruption” coverage? If so, provide the “covered perils” under such policy. Please also indicate whether the policy contains a requirement for “physical damage or loss” and explain whether contamination related to a pandemic may constitute “physical damage or loss.” Please describe what type of damage or loss is sufficient for coverage under the policy.

– Does the insured’s policy provide “civil authority” coverage? If so, please describe what type of damage or loss is sufficient for coverage under the policy. Please also describe any relevant limitations under the policy. Please explain whether a civil authority prohibiting or impairing the policyholder’s access to its covered property in connection with COVID-19 is sufficient for coverage under the policy.

– Does the insured’s policy provide “contingent business interruption” coverage? If so, please describe what type of damage or loss is sufficient for coverage under the policy. Please provide the “covered perils” under such policy. Please also indicate whether the policy contains a requirement for “physical damage or loss” and explain whether contamination related to a pandemic may constitute “physical damage or loss.”

– Does the insured’s policy provide “supply chain” coverage? If so, is such coverage limited to named products or services from a named supplier or company? Please also indicate whether the policy contains a requirement for “physical damage or loss” and explain whether contamination related to a pandemic may constitute “physical damage or loss.” For each instance of coverage described above, please provide the applicable waiting period under the insured’s policy. Please also indicate whether the amount of time coverage remains in effect once becomes active for a given incident.

New Yorkers are fortunate that the DFS has acted quickly to get real information into the hands of business owners.  A link to the DFS March 10, 2020 industry letter is here.  Business owners would be prudent to vet any answers from insurance companies and brokers by an appropriate legal and risk consulting team to ensure accuracy.  As exposures and quarantines grow in the U.S. and internationally, policy holders will have many questions in the coming days regarding insurance, COVID-19 exposure liabilities, workers compensation & general liability claims, and reinsurance.  Dunnington’s team is ready to help.

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