California Insurance Commissioner Extends Order for Insurers to Partially Refund Premiums

This is an update to Michelman & Robinson's previous report about California Insurance Commissioner Ricardo Lara’s bulletin (Bulletin 2020-3) to insurance companies requiring the return of premiums to businesses and consumers in an effort to provide financial relief during the coronavirus crisis. By way of a new bulletin (Bulletin 2020-4) issued today (May 15, 2020), Commissioner Lara has extended his prior mandate directed at all admitted and non-admitted property and casualty and workers’ compensation carriers doing business in California. M&R explains the scope of Commissioner Lara’s updated directive here.

Q. What is the purpose of the commissioner’s latest bulletin (Bulletin 2020-4)?

A. Today’s bulletin (1) clarifies what is required of insurance carriers under Bulletin 2020-3, issued April 13, 2020, and (2) extends the relevant time period for that previous bulletin.

Q. What did the prior premium-related bulletin (Bulletin 2020-3) call for?

A. By virtue of local and statewide stay-at-home orders that have curtailed policyholders’ personal and commercial activities, the projected risk and loss exposure across a variety of insurance lines have become overstated or misclassified. In response, Commissioner Lara in Bulletin 2020-3 ordered all insurers doing business in California to make an initial partial premium refund for the months of March and April as quickly as possible (but in no event later than August 11, 2020) to certain California policyholders.

Q. What exactly does Commissioner Lara’s new bulletin (Bulletin 2020-4) clarify?

A. Bulletin 2020-4 clarifies that prior Bulletin 2020-3 does not require full, 100% refunds of premiums for the months of March and April. It does, however, compel insurers to provide partial refunds, taking into account only the portions of premiums for the months of March and April where projected loss exposures of certain policies have become misclassified or overstated. Further, Bulletin 2020-3 provided that if the COVID-19 pandemic continued into and beyond May, a subsequent bulletin would be issued to insurers. Commissioner Lara has done just that with Bulletin 2020-4.

Q. What does Bulletin 2020-4 say about extending the time for premium reductions?

A. Consistent with California Governor Gavin Newsom’s May 7 order transitioning California into Stage 2 of the so-called Pandemic Resilience Roadmap—all the while keeping the state’s stay-at-home order in effect—Commissioner Lara’s latest bulletin extends the directive in Bulletin 2020-3, requiring carriers to reduce premium in the affected lines of insurance through May 31, 2020. Remember, Bulletin 2020-3 only contemplated the months of March and April.

Of note, if the stay-at-home order in California continues into June and beyond, the commissioner will issue additional directives to ensure premiums continue to accurately affect policyholders’ exposure to loss.

Q. To put Bulletin 2020-4 in proper context, what were the directives in Bulletin 2020-3?

A. The prior bulletin requires insurers issuing policies in the following lines of insurance to provide affected California policyholders with a notification of the amount of their partial refunds, a check, premium credit, reduction, return of premium, or other appropriate premium adjustment, no later than August 11, 2020:

  • Workers’ compensation
  • Commercial multi-peril
  • Commercial liability
  • Medical malpractice
  • Commercial automobile
  • Private passenger automobile
  • Any other insurance line where the risk of loss has fallen substantially as a result of the COVID-19 pandemic.

In addition, carriers must provide explanations of the basis for the adjustments, including any changes to the classification or exposure basis of affected policyholders.

Q. Do the premium-related bulletins require insurers to report anything to the California Department of Insurance?

A. Yes, affected insurers must report to the CDI no later than June 12, 2020 all actions taken and contemplated future actions to refund partial premium in response to or consistent with the bulletins. The required reporting must now also include information with respect to any premium adjustments for May 2020, in addition to March and April.

The CDI provided a Microsoft Excel workbook, which can be found here, for insurers to use for their reports, which are to be submitted to the Rate Specialist Bureau at [email protected].

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.