COVID 19 State Action on Premium Grace Period

At least twenty-five states have requested (a few have required) insurance companies to implement a grace period for individual and business policyholders to pay insurance premiums so that insurance policies are not canceled for nonpayment of premium.

The requested grace periods are intended to be applied to premiums due after the initial premium has been made to secure coverage. They are not intended to change the terms of the issued policy or be considered a forgiveness of the premium. Rather, it merely grants the policyholder an extended grace period for the payment of premium due without penalty or interest. Not all insurance companies are abiding by the requested grace periods and if granted, the grace periods may be limited to only certain policyholders. The fifteen states that have issued this request or directive: AL, AR, CA, CT, FL, GA, IN, KS, MD, MA, MO, OH, OK, OR, PA, NJ, NM, NY, SC, TN, TX, VA, WA, WV, WI.

For information on a particular insurance company's response, please reach out to your insurance consultant.


State Action on Business Interruption Insurance Coverage

We are seeing an emergence of state legislative activity seeking to redefine certain terms in insurance contracts (most notably, property) in order to “re-engineer” the coverage to respond to non-physical damage claims arising out of the Covid-19 pandemic. Thus far, Ohio, Massachusetts, New Jersey and New York have introduced legislation. The consequences are profound to both sides (policyholders and insurers), both in the magnitude of the potential insurance recoverables currently uninsured, and the threat to insurer insolvency caused by a catastrophic loss that was never modeled or priced for an insurer/reinsurer’s balance sheet.

Generally, the bills require every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption, be construed to include among the covered perils under that policy, coverage for business interruption due to the COVID-19 pandemic during the state of emergency. Thus, the bills would force insurers to pay for losses which, in the first place, do not constitute “direct physical loss or damage” to covered property, and seem to require payment despite the presence of a policy’s unambiguous Virus exclusion.

The bills have some limitations. For example, three states’ provisions apply to policies issued to insureds with 100 or fewer employees, while Massachusetts’ bill applies to insureds with 150 or fewer full-time equivalent employees in Massachusetts. The bills also limit such coverage to cover only the period in which we are under a state of emergency, defined by each bill.

All the bills include a provision whereby the insurers may seek reimbursement from funds collected for this purpose; however, such funds will be collected through an assessment to insurers engaged in the business of insurance . . . in an amount as necessary to recover amounts paid to insurers who submit claims for reimbursement insurer.

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