Coverage Pointers - Volume XXI, No. 20 SE

Volume XXI, No. 20 (No. 558)
Thursday, March 12, 2020
A Biweekly Electronic Newsletter  


Coronavirus Concerns

We know you have received lots of alerts from lots of companies about the Coronavirus.  As a courtesy to you, we write to add a little more to your plate.

First of all, from our office to you and your family, we hope you are healthy and safe.  We are living in interesting times, as it is said.

Secondly, we know that many law firms and insurers are facing travel bans.  This is a time when we have to work together for our common goal of protecting our clients and our insureds. To my connections on LinkedIn, you’ve seen my post from last night, and to those who have not, we repost it here.  We are ready to help you, and we will be looking to our friends across the country for help if we need it.  Travel bans may make court appearances challenging.  Do not fret.

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To my friends around NYC and across the state (and nation). Lots of firms, ours included, are imposing travel bans as a result of the Coronavirus, We have lawyers throughout New York State that can assist you in local appearances, and I'm sure some of you can do the same for us and for each other. We have to be safe and smart. If you need help and we can provide it, just contact us and if you're willing to help in local appearances, say so.

There are good lawyers, members of FDCC, ADTA, IADC, DRI, Armadillos and others, all over the United States, who can step in for you to handle a local appearance.  If you need help identifying local counsel, we are prepared to help you identify those firms and those lawyers in any jurisdiction around the country who can handle a local deposition or a local appearance.

What Employers Need to Know about the Coronavirus

Below is a very thoughtful article by a member of our law firm, Joseph S. Brown, Esq., which discusses best practices for employers when dealing with COVID-19.  While it has nothing to do with insurance coverage, it has to do with something even more important, the health and welfare of your firms and their employees.

Read here.

Business Interruption Coverage

There have been lots of questions raised about the impact of the Coronavirus on business interruption coverage.  My friend, Rick Hammond, a partner with HeplerBroom, LLC in Chicago, wrote an excellent piece on that subject that was published by the Federation of Defense & Corporate Counsel.  Rick and his firm have given me permission to send it along to our subscribers and it is also attached, and I thank them for it.  Rick can be reached at [email protected] and at 312-205-7743.

Steve Peiper coordinates our first party practice here at the firm, [email protected].


The Coronavirus’ Impact on Business Interruption Coverage Is “Direct Physical Loss” Being Redefined?

By: Rick Hammond, Partner
HeplerBroom, LLC
Chicago, Illinois

New York DFS Guidance

Finally, the New York State Department of Financial Services has offered guidance on a number of virus-related issues.  Our Ryan Maxwell, whose column covers the regulatory beat, has put together this information for your consideration:

Read here.

Ryan P. Maxwell

[email protected]

Over the course of the past week or so, the New York State Department of Financial Services has had its hands full regarding response to the novel coronavirus (“COVID-19”) and its fallout. Below we outline some of the guidance and action taken by DFS

03/10/20       DFS Issues Call for Special Report of Business Interruption Coverages
Department of Financial Services

DFS Requires Regulated Insurance Entities Issuing Business Interruption and Related Coverage to Provide DFS and Insureds with Information About the Availability of Coverage in Light of the Global Outbreak of COVID-19

On Tuesday, pursuant to New York Insurance Law § 308, DFS issued a Call for Special Report to all authorized property/casualty insurers (“Insurers”) regarding business interruption and related coverage written in New York. Specifically, DFS has requested Insurers “to provide certain information regarding the commercial property insurance it has written in New York and details on the business interruption coverage provided in the types of policies for which it has ongoing exposure.” There is a deadline to meet these requirements on or before March 18, 2020.

DFS notes that “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.”  In conjunction with this framing, DFS provides that “[i]n 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.”

DFS provided the following action items to those Insurers underwriting business interruption and related risks:

First, each Insurer should provide to DFS the volume of business interruption coverage, civil authority coverage, contingent business interruption coverage and supply chain coverage the Insurer wrote that has not lapsed as of the date of this letter, which should be expressed in amounts of direct premium, policy types and numbers of policies written of each type.

Second, each Insurer should examine the policies it has issued and explain the coverage each policy offers in regard to COVID-19 — both presently and as the situation could develop to change the policyholder's status (i.e., is there any potential for coverage as a result of COVID-19). For each policy type, Insurers should prepare such information in a clear and concise explanation of benefits that is suitable for policyholder review. Insurers should then send such explanation to each of their policyholders of the applicable policy types. Insurers should also send copies of all such explanations to DFS, along with a representation that the explanations have been provided to the Insurer's policyholder.

The explanation provided to the policyholders requires that the insurer include, without limitation, all relevant information. Specifically, DFS advises that these explanations must provide:

  1. The type of insurance the insured holds.

  2. Whether the policy provides “business interruption” coverage, and if so,

    • A list of “covered perils”;

    • Whether the policy contains a “physical damage or loss”;

    • Whether contamination by a pandemic may constitute “physical damage or loss”;

    • A description of the damage or loss sufficient for coverage;

    • Provide the applicable waiting period under the insured's policy; and

    • The amount of time coverage remains in effect once becomes active for a given incident.

  3. Whether the policy provides “civil authority” coverage, and if so,

    • A description of the type of damage or loss sufficient for such coverage;

    • A description of any relevant limitations;

    • An explanation 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;

    • Provide the applicable waiting period under the insured's policy; and

    • The amount of time coverage remains in effect once becomes active for a given incident.

  4. Whether the policy provides “contingent business interruption” coverage, and if so,

    • A description of the type of damage or loss is sufficient for coverage under the policy;

    • A list of “covered perils”;

    • Whether the policy contains a “physical damage or loss”;

    • Whether contamination by a pandemic may constitute “physical damage or loss”;

    • Provide the applicable waiting period under the insured's policy; and

    • The amount of time coverage remains in effect once becomes active for a given incident.

  5. Whether the policy provides “supply chain” coverage, and if so,

    • Whether such coverage limited to named products or services from a named supplier or company;

    • Whether contamination by a pandemic may constitute “physical damage or loss”;

    • Provide the applicable waiting period under the insured's policy; and

    • The amount of time coverage remains in effect once becomes active for a given incident.

Notably, those 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.

03/10/20       DFS Requires Action from Regulated Insurers Amidst COVID-19
Department of Financial Services
DFS Guidance Includes Numerous Action Items for Regulated Insurance Entities Amidst the Global Outbreak of COVID-19 and Its Fallout

On Tuesday, DFS issued Circular Letter No. 5 (2020) outlining guidance to regulated insurance entities and requesting assurance with respect to operational and financial risk arising from COVID-19. Specifically, DFS seeks assurance that “all regulated entities have preparedness plans to address the operational risk, and are identifying, monitoring, and managing the financial risk, posed by COVID-19.”

To meet this request, DFS requires that regulated insurance entities submit a response to DFS at [email protected]  describing its plans of preparedness to manage the risk of disruption to its operations and the financial risk arising from COVID-19 no later than April 9, 2020. At a minimum, the plan must provide:

  1. Preventative measures tailored to the entity’s specific profile and operations to mitigate the risk of operational disruption, which should include identifying the impact on consumers and vendors;

  2. A documented strategy addressing the impact of the outbreak in stages, so that the entity’s efforts can be appropriately scaled, consistent with the effects of a particular stage of the outbreak;

  3. Assessment of all facilities, systems, policies and procedures necessary to continue critical operations and services if members of the staff are unavailable for longer periods or are working off-site, including the effectiveness and security of remote access;

  4. Employee protection strategies, critical to sustaining an adequate workforce during the outbreak, including employee awareness and steps that employees can take to reduce the likelihood of contracting COVID-19;

  5. Assessment of the preparedness of critical third-party service providers and suppliers;

  6. Development of a communication plan to effectively communicate with consumers and vendors, and to deliver important news and instructions to employees, along with establishing forums for questions to be asked and addressed;

  7. Testing of the plan to ensure that the policies, processes, and procedures are effective; and

  8. Governance and oversight of the plan, including identifying the critical members of a response team, to ensure ongoing review and updates to the plan, including the tracking of relevant information from government sources and the entity’s own monitoring program.

Moreover, from a financial perspective, regulated insurance entities must include in their risk management programs a plan to assess and monitor financial risk arising from COVID-19, including:

  1. 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;

  2. Assessment of the credit risk of counterparties and business sectors impacted by COVID-19;

  3. Assessment of the credit exposure to counterparties and business sectors impacted by COVID-19 arising from investing and other financial transactions;

  4. Assessment of the scope and the size of admitted assets or other investments adversely impacted by COVID-19 that currently are in, or potentially may move to, non-performing/delinquent status, including consideration of stress testing and/or sensitivity analysis of such assets or investments;

  5. Assessment of the valuation of assets and investments that may be, or have been, impacted by COVID-19; and

  6. Assessment of the overall impact of COVID-19 on earnings, profits, capital, and liquidity.

The adverse economic effects of COVID-19 domestically and globally are likely to continue and DFS deems it critical that each regulated entity effectively manage the effects of the outbreak and assess disruptions and other risks to its services and operations now rather than later.

Maxwell’s Minute: 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.

This is certainly not the first time Section 308 has been invoked in the property/casualty sector (See Circular Letter No. 5 [2019]).  Last year, DFS identified authorized property/casualty insurers “as a key resource in providing early assessments of losses, damages, personal injuries, and deaths arising from disasters, and plays an important role in quantifying the magnitude of losses, damages, personal injuries, and deaths, whether insured or uninsured, and in determining the appropriate response to the disaster.” That circular, similar to this one regarding COVID-19, sought assurances that authorized insurers were prepared for disasters by performing an adequate business impact analysis, which DFS noted “should identify the operational and financial impacts resulting from the disruption of business functions and processes and should consider the following, at a minimum, as relevant:

  1. the point in time when a business interruption would have a greater impact, such as a particular season or the end of the month or quarter;

  2. the amount of time before which the business interruption would have an operational or financial impact;

  3. the operational and financial impact of physical damage to buildings; damage to or breakdown of machinery, systems, or equipment; restricted access to a site or building; a utility outage; damage to or loss or corruption of information technology; and absenteeism of essential employees;

  4. resources needed for the business to continue to function at varying levels of disruption; and

  5. potential for dissatisfaction or defection by policyholders, contract holders, insureds, third-party claimants, and health service providers (collectively, “customers”).

There appears to be significant overlap in the materials sought, and last year’s business impact analysis in accordance with Circular Letter No. 5 (2019) may potentially be in large part repurposed for DFS’ latest call to action, or at least serve as a starting point.

03/06/2020   DFS Issues Guidance Regarding Cancel For Any Reason Travel Benefits
Department of Financial Services
DFS Guidance Seeks to Clarify CFAR Travel Benefits and Potential COVID-19 Coverage Under Travel Policies

Last Friday, DFS issued Circular Letter No. 4 (2020) that sought to clarify DFS’ position regarding Cancel For Any Reason (“CFAR”) travel insurance benefits and potential travel insurance coverage for COVID-19 for authorized property/casualty insurers and licensed travel insurers. DFS made clear that it is its position that:

  1. CFAR benefits may be sold in New York by an insurer if necessary or incidental to its travel insurance business;

  2. Non-insurers may also provide CFAR benefits if they are not sold as an insurance product; and

  3. COVID-19 may be a basis for trip cancellation/interruption under a travel insurance policy.

Demand for travel insurance—including CFAR benefits—has obviously increased in light of COVID-19, given concerns regarding exposure to COVID-19 during a trip. CFAR benefits, which are more expensive than standard travel insurance, provide travelers with the opportunity to cancel and be reimbursed for most travel expenses for reasons not specifically covered under standard travel insurance. Notably, “[s]tandard travel insurance policies typically provide coverage for trip cancellation/interruption due to various fortuitous events, but frequently exclude epidemics and pandemics. If epidemics or pandemics are covered, however, COVID-19 may qualify depending on how these terms are defined in the relevant policy.”

CFAR benefits do not technically qualify as insurance, since trip cancellation “for any reason” does not amount to a fortuitous event. However, CFAR benefits may be sold by an insurer if “it can demonstrate that the benefits are necessarily or properly incidental to the kinds of business that the insurer is authorized to write in New York.” But, in addition, such insurer must make CFAR benefits generally available to consumers without requiring the purchase of a standard insurance policy and similarly, any CFAR benefits purchased by a customer also purchasing standard travel insurance must be reflected in a standalone contract separate from the insurance policy. “[I]nsurers should be able to demonstrate that CFAR benefits are necessarily incidental to being able to provide a full array of consumer protections so long as those benefits are not conditioned on a fortuitous event, and are generally available and not dependent on the purchase of a standard insurance policy from the insurer.” Additionally, travel agents and other non-insurers may sell CFAR benefits so long as they do not also sell travel insurance or condition them upon a fortuitous event.

Finally, with respect to coverage under travel insurance policies for COVID-19 related cancellations, such cancellations may be covered pursuant to Insurance Law § 3452 “trip cancellation/interruption insurance”, which may provide coverage for any fortuitous reason for cancellation/interruption. Thus, authorized travel insurers may provide coverage for cancellations or interruptions due to an epidemic or pandemic—including coverage specifying COVID-19 explicitly.


Stay safe.


Hurwitz & Fine, P.C.
1300 Liberty Building

Buffalo, New York 14202
Phone: 716-849-8900
Fax: 716-855-0874

Long Island Office:
535 Broad Hollow

Melville, New York 11747
Phone: 631-465-0700
Fax: 631-465-0313

© Hurwitz & Fine, P. C. 2020
All rights reserved

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