That businesses have seen a sharp—and in some instances, total—decline in revenue due to the coronavirus crisis is something we all continue to grapple with. Indeed, the stay-at-home and similar orders in place throughout the nation have served to bring commerce to a screeching halt across industries. Consequently, business owners are turning to their insurance portfolios, seeking to invoke business interruption coverage—to the extent they have it available to them—to compensate for mounting losses of income and the like.
In a previous alert, Michelman & Robinson addressed business insurance coverage potentially triggered by COVID-19, anticipating an uptick in related claims that, in fact, has come to fruition. And with the surge of business interruption claims activity has come complaints to the California Department of Insurance that some insurance companies and producers are either dissuading policyholders from pursuing such claims or refusing to open and investigate them upon receipt of proper notices.
In response, California Insurance Commissioner Ricardo Lara has just issued a notice to ensure that all agents, brokers, insurance companies, and other licensees accept, forward, acknowledge, and fairly investigate all business interruption insurance claims submitted by businesses. Commissioner Lara’s notice is sure to raise questions from insurers and producers doing business in the Golden State, which M&R answers as follows:
Q. What is the basis of the commissioner’s notice regarding business interruption insurance?
A. Commissioner Lara points to the California Fair Claims Settlement Practices Regulations (Regulations) that require carriers to acknowledge all claims notices—written or otherwise—immediately, but in no event more than 15 calendar days after they are received. The Regulations also state that the failure of an insurance or claims agent to transmit a notice of claim to an insurer promptly will be imputed to that insurer (though this does not apply to policies issued pursuant to the California Automobile Assigned Risk Program).
It is based upon this regulatory guidance that Commissioner Lara has premised his notice that, at its core, is simply a reminder as to how insurance companies and producers are to respond to business interruption claims made in the wake of the coronavirus pandemic.
Q. According to Commissioner Lara's notice, what steps must an insurer take once it receives a notice of claim seeking coverage for losses due to COVID-19-related business interruption?
A. As with any claim and pursuant to the Regulations, a carrier, upon receipt of notice, must provide a policyholder with the necessary forms, instructions, and reasonable assistance regarding its business interruption claim. Thereafter, an investigation must be commenced (if necessary), and that investigation has to be conducted diligently, thoroughly, fairly, and objectively. Of note, an insurance company or its representatives cannot seek information that is not material to the resolution of any claim dispute before determining whether the claim will be accepted or denied, either in whole or in part.
Q. What must be done upon completion of the requisite business interruption claim investigation?
A. By way of his notice, Commissioner Lara cites to the Regulations in reference to an insurer’s post-investigation obligations. More specifically, upon completion of a diligent, thorough, fair, and objective investigation, the carrier must accept or deny the given business insurance claim, in whole or in part, immediately, but in no event more than 40 days after receipt of the proof of claim. In so doing, the amount of the claim accepted or denied by the insurer needs to be clearly documented in the claim file (unless the claim has been denied in its entirety).
Q. Are there any particular requirements that an insurance company must abide by if it denies a business insurance claim?
A. Yes, if a business interruption claim is denied, in whole or in part, the carrier must communicate the denial in writing to the policyholder listing all the legal and factual reasons for its decision. Again, this requirement is stated in the Regulations and applies to all claims, not only those related to business interruption coverage.
Q. What is the takeaway from Commissioner Lara’s notice?
A. Truth be told and by way of his notice, the commissioner has not articulated to insurance companies and producers anything they do not (or should not) already know. Essentially, the directive simply shines a light on the ongoing duty of carriers and those associated with them to comply with their contractual, statutory, regulatory, and other legal obligations in connection with all California insurance claims, including those seeking coverage for losses due to business interruption caused by COVID-19. Likewise, Commissioner Lara instructs insurers and producers not dissuade policyholders from filing associated claims notices.
Q. Beyond CDI directives, are there any changes on the horizon to the laws related to business interruption insurance coverage?
A. Perhaps. On Tuesday (April 14, 2020), Congressman Mike Thompson, who represents California's 5th Congressional District (which includes all of Napa and parts of Contra Costa, Lake, Solano and Sonoma Counties) introduced the Business Interruption Insurance Coverage Act (H.R. 6494), a bill that—if passed into law—would greatly limit the ability of insurance companies to deny business interruption claims going forward. By way of his legislation, Congressman Thompson seeks to ensure that policyholders that have purchased business interruption coverage are protected in the event of viral pandemics like COVID-19, as well as closures or evacuations mandated by government officials and power shut-offs. Toward that end, the bill in its current form would bar insurers from implementing virus exclusions, with certain exceptions.
It is important to understand that, having just been introduced, this legislation is in the very early stages, and even if it does eventually become law, the bill would not apply retroactively to policyholders who have had their coronavirus-related businesses interruption claims denied.
This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.
