The World Health Organization’s (“WHO”) formal declaration that the spread of the novel coronavirus COVID-19 is now a pandemic, accompanied by the United States’ Federal Government and individual states’ “state of emergency” declarations, have had a notable impact on all businesses alike as well as their insurers.
From the inception of the crisis, companies have struggled to adapt to the stark new reality of facing a global health crisis while balancing a need for “business as usual.” Many organizations, where possible, asked their work force to work remotely or “from home” to ensure their continued operations while safeguarding the health of their employees. Others, faced with the need to severely reduce their customers’ risk of exposure, modified their business model to change the way they interacted with the public, for example, by offering increased delivery or takeout options to comply with mandated social distancing directives. Most, particularly those in the service industry, were unable to adapt to a reality where they could not provide personal services to consumers and felt compelled to close.
In response to the emergency declarations and increased apprehension amongst the public, the New York Department of Financial Services (“DFS”)—the agency which regulates and supervises the activities of approximately 1,500 financial institutions and more than 1,400 insurance companies—began issuing directives to protect consumers of insurance services in New York. On March 10, 2020, DFS requested that all its regulated entities submit plans demonstrating that they have preparedness strategies in place to address operational risks posed by the outbreak and showing how they intend to manage the potential disruptions and other risks to their services and operations. Specifically, DFS requested that all regulated institutions submit a plan, as soon as possible and in no event no later than thirty (30) days from the date of the directive, detailing their proposals to manage the risk of disruption.
Barely two weeks later, as the sweeping impact of the pandemic on the public’s safety became increasingly more apparent and as governors throughout the United States executed executive orders mandating the forced closure of businesses deemed to be non-essential, businesses’ concerns evolved from minimizing disruption to outright survival as they began to face their stark reality of their inability to meet their financial obligations—including but not limited to the regular payment of wages, rent, mortgages and utilities—for the duration of the pandemic. Notably, many small “mom and pop” operations, facing an indeterminate number of weeks or even months of no incoming funds, expressed concern about meeting the deadlines and payment requirements contracted for in their insurance policies and thus, fear of losing their insurance coverage at such a critical time.
To assuage consumers’ concerns regarding the adverse consequences of their inability to comply with their contractual obligations during the pandemic, on March 20, 2020, DFS directed all entities regulated by their agency—including all insurance companies—to do their part to ease the negative consequences of COVID-19 on small businesses and consumers who are able to show they have sustained financial hardship as a result of the virus.
Insurance companies are therefore now expected to:
Offer payment accommodations for policyholders who are unable to make timely payments of premiums of fees as a result of COVID 19 related disruptions, including but not limited to (i) deferral of payments; (ii) extension of due dates; and/or (iii) the waiving of late and reinstatement fees;
Work with policyholders to avoid non-renewal of insurance policies where the policyholder is unable to timely respond to non-renewal notices;
Help policyholders avoid the cancellation of their insurance policies for (i) failure to timely pay premiums; (ii) changes in nature of the risk insured; (iii) changes that result in the insured risk no longer meeting the insurer’s underwriting standards;
Ensure that insurers have enough staff on hand to receive inquiries about benefits and coverages and/or to respond to the influx of new claims;
Prepare clear and concise descriptions of coverage benefits to be posted prominently on insurer’s websites to respond to policyholders’ inquiries;
Advise policyholders about the increased risk of scams and price gouging and advising all consumers to contact their insurance providers prior to purchasing unsolicited insurance policies or attempting to change the terms of existing insurance policies;
Ensure that policyholders do not experience disruptions of service in the event the insurers close their offices by offering policyholders other ways to manage their insurance products and submit inquiries and claims;
Provide flexibility in the submission of proof of death, disability or other conditions that trigger benefits under life insurance policies or annuity contracts;
Provide information and timely access to all medically necessary covered health care services, including testing and treatment for COVID-19;
Reach out to policyholders to alert them of the existence of the above referenced assistance being offered, whether through email, text, app or other technologies.
In addition, and to assist policyholders during this global emergency, DFS has also urged all insurance companies to accommodate policyholders where possible, and refrain from exercising rights and remedies based upon potential technical defaults under material adverse change and other contractual provisions that might be triggered by the COVID-19 pandemic. While insurance companies are being asked to forgive policyholders for failing to comply with all requirements of their policies—including the payment of premiums— and to abstain from availing themselves of the regulatory remedies available to them for non-compliance during the pandemic, DFS has assured that insurers’ deviations from standard regulatory practices will not subject them from examiner criticism. To the contrary, DFS has determined that protecting consumers and businesses during these unusual and extreme circumstances is consistent with safe and sound insurance practices and in the public’s best interest.
The continued spread of COVID-19 will undoubtedly cause a surge of requests from policyholders to excuse compliance with the requirements of their insurance contracts. While many such requests will undoubtedly be demonstrably attributable to financial hardship caused by the pandemic, every request will rise and fall on its unique set of facts and will need to be analyzed separately.
Chartwell Law’s insurance coverage attorneys remain committed to assisting their clients in these uncertain times. Should you require assistance in handling your policyholders’ requests for forbearance or compliance with regulators’ requests for modification of claims and underwriting practices, please do not hesitate to contact us.