NYDFS Asks Insurers to Explain Benefits for Business Interruption Coverage
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NYDFS Asks Insurers to Explain Benefits for Business Interruption Coverage

Key Takeaways:

  • With the escalating coronavirus pandemic, the New York State Department of Financial Services (DFS) is calling for insurers to provide certain information related to commercial property insurance written in New York and in effect as of March 10, 2020

  • In particular, DFS asks insurers to deliver specific details on the business interruption coverage provided under those policies, related to COVID-19 coverage

  • The explanation of benefits must include specific information, which is outlined below

In the face of the coronavirus pandemic, the New York State Department of Financial Services (DFS), has called for a special report pursuant to section 308 of New York Insurance Law, obligating insurers to provide DFS certain information regarding commercial property insurance they have written in New York, as well as provide details to insureds on the business interruption coverage provided under those policies.

The letter asks insurer to advise DFS of the volume of business interruption coverage, civil authority coverage, contingent business interruption coverage and supply chain coverage they have written in New York, which was in effect as of March 10, 2020. DFS demands that insurers prepare a clear and concise explanation of benefits relating to coverage each policy offers in regard to COVID-19, and send the explanation to both their insureds and DFS. The explanation of benefits must include the following information:

  • 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. 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. 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, describe what type of damage or loss is sufficient for coverage under the policy and also describe any relevant limitations under the policy. 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, describe what type of damage or loss is sufficient for coverage under the policy. Provide the covered perils under such policy. In addition, 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? 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, provide the applicable waiting period under the insured’s policy. In addition, indicate whether the amount of time coverage remains in effect once becomes active for a given incident.

Insurers must be careful in drafting their explanation of benefits in response to DFS’s letter, given the complex and evolving coverage issues relating to losses arising from COVID-19. Negotiation with DFS regarding an insurer’s response may also be required. Consultation with coverage counsel regarding the potential impact insurers’ explanations of benefits may have on subsequent claims is recommended.

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