New York State Seeks Information From Insurers About Coverage for COVID-19 Business Interruption Claims

The New York Department of Financial Services has issued a “Section 308” letter mandating a response from all property-casualty insurers authorized to issue policies of insurance in the State, seeking information about their commercial property policies with business interruption coverage, including whether business interruption claims resulting from COVID-19 novel coronavirus pandemic would be covered. Responses are due on or before March 18, 2020.

The Circular Letter focuses on two broad areas of concern: (1) the disruption to an insurer’s operations and (2) the financial risk stemming from the virus. An entity’s plan should be flexible to effectively address a range of possible effects and reflect the entity’s size, complexity and activities.

The entity’s plan addressing operational risk should be comprehensive and should address:

• preventative measures to mitigate the risk of operational disruption on the entity, its consumers and vendors;

• assessment of all facilities, systems, policies and procedures necessary to continue critical operations if staff is unavailable;

• employee protection and awareness strategies;

• assessment of the preparedness of critical third-party service providers and suppliers;

• communications plan to effectively communicate with consumers and vendors, including a forum for questions to be asked and addressed;

• governance and oversight of the plan; and

• testing the plan to ensure that the policies, processes and procedures are effective.

The entity’s plan addressing financial risks should include:

• an assessment of the overall impact of COVID-19 on reserve requirements, consumers’ ability to make timely premium payments, and resources required to timely process claims;

• analysis of the credit risk of, and exposure to, counterparties and business sectors impacted by COVID-19;

• review of the scope, size and valuation of admitted assets or other investments adversely impacted by COVID-19; and

• assessment of the overall impact of COVID-19 on earnings, profits, capital and liquidity.

The Circular Letter reiterates that the board of directors is responsible for ensuring that appropriate plans are in place and that sufficient resources are allocated to implement such plans, while senior management is responsible for ensuring that effective policies, processes and procedures are in place to execute such plans and for communicating such plans throughout the entity.

The Section 308 letter requires companies to provide to the DFS the volume of in-force business interruption coverage, civil authority coverage, contingent business interruption coverage and supply chain coverage by direct premium written and the number and types of policies written. It also directs insurers to examine the policies they have issued and explain the coverage each policy offers in regard to the coronavirus – both presently and as the situation could develop to change the policyholder’s status.

DFS indicated in the Call for Special Reports discussed above that it was authorized for that action under Insurance Law § 308. It appears here that Insurance Law § 308 also authorizes the action outlined in this Circular No. 5. Under Section 308, DFS may address to any authorized insurer any inquiry in relation to its transactions or condition or any matter connected therewith. Every corporation or person so addressed shall reply in writing to such inquiry promptly and truthfully, and such reply shall be, if required by the superintendent, subscribed by such individual, or by such officer or officers of a corporation, as the superintendent shall designate, and affirmed by them as true under the penalties of perjury.

Insurers that do not underwrite the business described in the Call for Special Report are not free and clear. DFS has instructed that such Insurers must so notify DFS in a statement signed by an officer or other authorized representative of the insurer in lieu of complying with the above.

Clark & Fox is monitoring COVID-19-related insurance issues and will keep their clients apprised of developments. If you have any questions about these New York requirements, please contact John Clark at 856-288-2404 or or Joshua Seltzer at 646-506-4709 or