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Robert W. Hogeboom, Esq.
(213) 614-7304
Samuel J. Sorich, Esq.
Hinshaw & Culbertson LLP
(916) 448-2800


On July 29-30, 2020, Sam Sorich and I attended the American Property Casualty Insurance Association (APCIA) seminar and benefitted from the information put forward at two of the sessions relating to issues that we have been following closely. We have prepared an article on the two seminar sessions.[1] The article addresses a number of issues related to COVID- 19, as well as the California wildfires and its related issues over the last couple of years.

What COVID-19 means for the Property/Casualty Insurance Industry

I. COVID-19 Implications on Insurance Coverages

A. Business Interruption.

The impact of COVID-19 on business interruption (BI) coverage depends on policy language. BI may not cover all circumstances that result in loss of revenue or loss of business. Policy wording and exclusions are critical.

Generally, BI coverage requires direct physical loss or damage to property. Most BI policies follow the ISO form that excludes loss or damage caused by viruses. However, there are manuscript forms in the market.

BI policies are tightly drafted, but that does not mean that there will be no litigation. In fact, we have seen a flood of lawsuits challenging policy terms and exclusions. COVID-19 losses to insureds have been enormous and insureds are motivated to pursue all avenues to seek reimbursement for their losses. We need to follow the court decisions that interpret BI policy provisions.

Attorneys representing BI insureds are putting forward arguments that COVID-19 produces direct physical loss or damage to property. Some plaintiff attorneys are arguing that the government “stay-at-home” orders override the virus exclusion in BI policies. These are just examples of the various theories that are being put forth in lawsuits that seek coverage under BI policies.

Meanwhile, there has been a push in some state legislatures to pass bills that declare that COVID-19 is covered by existing BI policies. So far, the legislation has not advanced very far, and no retroactive BI coverage bill has been signed into law. But the legislation needs to be monitored.

B. Event Cancellation.

Event cancellation insurance (ECI) coverage may not cover all unforeseen circumstances that result in event cancellation. Policy wording and exclusions are critical.

ECI policies may limit coverage to one of the following list of situations:

  • adverse weather
  • natural disasters
  • war, terrorism, or riots
  • non-appearance by speakers or performers
  • labor disputes

ECI policies that cover “all causes” may cover cancellations due to a communicable disease outbreak, such as COVID-19. Timing is important here. It is critical to find out whether the policy was purchased before COVID-19 broke out.

C. Travel Insurance.

Travel insurance coverage may not cover all unforeseen circumstances that result in trip cancellation.

Most travel insurance policies do not cover “foreseen events.” The key question is when did COVID-19 become a foreseen event.

Some policies specifically exclude coverage for travel issues related to pandemics, whether “foreseeable” or not.

Some travel insurers provide coverage in certain situations related to COVID-19, such as those travelers who contract COVID-19 or those who planned to travel to countries most impacted by COVID-19 during certain time periods.

Fewer people are traveling. This is having a significant impact on insurance premiums for travel insurance.

D. General Liability.

The impact of COVID-19 on general liability coverage varies based on the type of the business enterprise.

Businesses that are deemed to be non-essential (restaurants, bars, hotels) have seen a marked reduction in third-party liability claims.

But businesses that are deemed to be essential have seen a spike in claims. An example is grocery stores. People are stuck at home. They are cooking at home more. As a result, they are making more trips to grocery stores.

It is expected that there will be more claims for having contracted COVID-19 at an insured premises. Proving these claims may be difficult. But they still have to be defended under general liability policies.

E. Auto and Homeowners. 

COVID-19 has changed how we use our automobiles and our homes. These changes are affecting risk.

People are spending more time at home. Home has become a school and an office. People are remodeling their homes to address new needs.

People are driving less. This has decreased the number of accidents and the number of auto insurance claims.

F. Directors & Officers.

Directors & Officers insurance coverage protects directors and officers of companies from claims for breach of fiduciary duty. The manner in which a company responds to COVID-19 could affect the company’s market value which, in turn, could lead to claims against directors and officers for breach of their fiduciary duty.

The US Securities and Exchange Commission has ordered publicly traded companies to file disclosures detailing COVID-19’s impact on their operations.

II. California Department of Insurance 2020 Bulletins and Notices relating to COVID-19

A. March 18: The Commissioner issued a Notice calling for all insurers to provide a 60-day grace period for the payment of premiums and asking insurers not cancel policies during the grace period. This applies to both admitted and non-admitted insurers and all lines of

Further, the Notice requests that that agents and other insurance businesses take steps to accept premium payments without requiring in person office visits in order to protect the safety of workers and customers.

B. March 26: Insurers were asked to complete the Business Interruption Survey which seeks information about the business interruption coverage and the frequency of the use of virus exclusions in business interruption The responses to the survey showed that most business owner policies had not only business interruption coverage, but also had the corresponding virus exclusion. The intent of the survey was to obtain a better understanding of the scope of the coverages and exclusions in the marketplace.

C. April 3: The Commissioner’s Notice calls on insurers not to enforce deadlines for policyholders to complete repairs, to submit claim information, or to perform duties under their insurance policies until 90 days after the COVID-19

The California Department of Insurance (CDI) had been receiving complaints that insurers were insisting that the insureds who suffered losses in the November 2018 wildfires, must continue to repair and rebuild their homes during the COVID-19 crisis in order to obtain replacement costs and additional living expenses.

Laws that went into effect before 2018 allow insureds 36 months to complete repairs and also allow the obtaining of an additional 6-month extension for good cause.

D. April 6: The Commissioner’s Notice reminded insurers that all workers affected by COVID-19 while on the job, are eligible for workers’ compensation benefits regardless of their immigration status and that this includes workers engaged in health care, emergency services, food production, sales and deliveries.

E. April 9: The Commissioner’s Notice provided guidance to insurers on motor vehicle coverage for delivery drivers for businesses that are deemed to be essential during the COVID-19 crisis. The CDI position is that the current extraordinary circumstances make it impractical and untimely to require the drivers to obtain temporary coverage for a limited The CDI requests private passenger auto insurers not deny a claim relating to an essential delivery service.

F. April 13: Bulletin 2020-3 orders auto insurers and insurers writing other lines to make premium refunds for March and April that remedy loss exposure projections that are now overstated or misclassified because of the reduction of risk related to the COVID-19 emergency. Insurers were required to submit their premium refund plans to the CDI by June 14. 

G. April 14: The Commissioner’s Notice reminded insurers of the requirements to accept, forward, acknowledge and fully investigate all business interruption insurance claims related to COVID-19. The Notice stemmed from complaints that claims were not being investigated and were just being summarily denied. Insurance Commissioner Ricardo Lara felt that a Notice was appropriate in order to ensure that claims would be looked into.

H. May 15: The Commissioner’s Notice was a follow-up to the March 18 Notice on the 60-day grace period for the payment of premiums. This Notice requests the extension of the grace period to July 14, If an insurer implements the July 14 grace period, July 14 would be the operative date for the 10-day notice of written cancellation.

I. May 15: Bulletin 2020-4 supplements Bulletin 2020-3. Bulletin 2020-4 requires premium refunds for the month of May, in addition to March and April.

J. June 17: The Commissioner issued his Order approving amendments to the California Workers’ Compensation Uniform Statistical Reporting Plan and the Experience Rating The Statistical Plan changes require the tracking of claims related to COVID-19. The Experience Rating changes exclude claims based on a COVID-19 diagnosis from the calculation of the experience modification.

K. June 25: Bulletin 2020-8 extends the premium refund directives and reporting requirements set forth in Bulletins 2020-3 and 2020-4 to include premium refunds for the month of June and to include premium refunds for subsequent months if the COVID-19 pandemic continues to result in projected loss exposures remaining overstated or misclassified.

Insurers are required to submit to the CDI information regarding the premium refunds provided to policyholders for June, and for July and August if conditions warrant, no later than October 1, 2020.

If conditions warrant premium refunds for the months of September, October, and November, insurers will be required to submit information regarding premium refunds for those months to the CDI no later than January 1, 2021.

III. Review of actions since the issuance of the CDI Bulletins and Notices

A. Virus Exclusion.

Ken Allen believes that insurers constituting approximately 70% of the market are using the ISO exclusion for virus and bacteria. Ken Allen also believes that approximately 30% of the market do not have the exclusion in place.

In March, the CDI saw a number of new filings which included the virus exclusion. Commissioner Lara has concluded that this is not the appropriate time for the approval of the virus exclusion. The situation may change, but for the present time form filings that include the virus exclusion will be withheld by the CDI.

B. Rate Filings.

There were approximately 250 filings for rate increases pending before the CDI in March. The CDI has sent letters to the insurers that submitted rate increase filings asking the insurers whether in light of the COVID-19 mandated premium reductions, the insurers wished to decrease the requested increase, keep the filed request in place, or withdraw the filing. Approximately 30 insurers have withdrawn their filings. Some insurers reduced the amount of their filed rate increases.

Given the fact that it is unknown how the COVID-19 emergency is affecting loss experience, the CDI is very concerned that without some certainty regarding loss experience, decisions on requested rate increases could result in the approval of excessive rates. As a result, the CDI is holding off the approval of filed rate increases at the present time.

C. Premium Refunds. 

The CDI is reviewing the premium refund reports, which insurers were required to submit by June 14 pursuant to Bulletins 2020-3 and 2020-4. The CDI has determined that 48 insurers failed to submit reports. Letters have been sent to those insurers asking for an explanation why the reports were not submitted.

The review of the reports on private passenger auto insurance premium refunds for March, April and May revealed that auto insurers refunded more than $1 billion to policyholders. In addition, insurers reduced future rate increases by $180 million.

Some insurers made refunds across the board of 15%, 20% or 25%. The CDI is examining these refunds. If the CDI determines that any of these refunds are not adequate, insurers will be contacted.

The CDI has just begun its review of commercial lines for premium refund reports.

(Mostly) Non-Covid-19 California Insurance Litigation and Regulatory Update

A. Insurance Commissioner's COVID-19 Premium Refund Orders

Private passenger auto insurance business is the most publicized aspect of COVID-19 premium refund orders. The Commissioner’s orders allow insurers to avoid making a prior approval rate reduction filing and instead refund premium to their insureds to account for the reduction of driving if insurers reclassify exposures or reduce the exposure base (e.g. miles driven) to reflect actual or anticipated exposure. Most insurers made COVID-19 refunds without making new prior approval rate filings. Many auto insurers made across-the-board refunds of 15%, 20%, or 25%.

The initial refunds were based on indications that the “stay-at-home” mandates resulted in fewer miles being driven. Fewer miles driven seemed to result in a reduction in the frequency of accidents. However, in May insurers started seeing an increase in the severity of accidents. With fewer drivers on the road, drivers were driving faster and more recklessly. This caused a questioning of the assumptions underlying the initial refund orders.

The rescinding and reinstatement of stay-at-home orders make it difficult to determine what premium refunds are appropriate, or even if any refunds are warranted. Each auto insurer will have to carefully examine the available data on frequency and severity.

The premium refund orders apply to commercial multi-peril (CMP) policies. Many CMP policies include coverage for business interruption which typically requires direct physical loss or damage to property. Most CMP policies include the ISO exclusion for losses caused by COVID-19 Despite these restrictions on business interruption claims, plaintiff lawyers are filing business interruption lawsuits against small and large insureds. The lawsuits will have to be defended. These defense costs will counter at least some of decrease in commercial losses related to COVID- 19 stay-at-home orders.

This year the California Legislature initially considered a bill that would have created a rebuttable presumption that COVID-19 resulted in physical loss or damage. AB 1552 would retroactively apply to business interruption insurance policies. However, the Senate Insurance Committee recently announced that it will not approve the bill. So it appears the bill is dead. This year’s legislative session will end on August 31.

As Deputy Commissioner Ken Allen explained in an earlier session of this conference, the CDI is reluctant to approve any rate increases while COVID-19’s impact on insurance losses is still being determined.

B. Wildfires

California homeowners and their homeowners insurers were besieged by wildfires in 2017- 2019. Eight of the 20 most destructive wildfires in California history occurred in 2017 and 2018.

The worst was the “Camp Fire” in Butte County above Sacramento which covered 153,336 acres, 18,804 structures, and resulted in 85 deaths. The wildfires in 2017 and 2018 eclipsed the total California homeowners insurance profits for the past 30 years. As a result, homeowners insurers have pushed for rate increases. The CDI has applied strict scrutiny to the rate filings.

The current rate regulatory formula for the review of homeowners insurance rate filings does not allow insurers to account for the costs of reinsurance. The inability to factor reinsurance expenses into the rate regulatory formula depresses rates. The CDI has at least two justifications for not allowing the consideration of reinsurance costs. First, reinsurance rates are not subject to Proposition 103’s prior approval rate requirements. Second, the reasonable cost of reinsurance is difficult to determine.

California’s rate regulatory formula for homeowners insurance also does not allow for the use of wildfire catastrophe modeling. Instead, the formula allows a CAT loading based upon a review of a carrier’s most recent 20-year experience. However, this approach fails to reflect a homeowners insurer’s actual CAT exposure. The reality is that homeowners insurers have a large exposure to loss that cannot be accurately recognized by the restricted CAT loading in the current rating formula.

Insurance data alone is not able to adequately reflect emerging wildfire risks and trends in climate change. Catastrophe models that incorporate sophisticated research and the analysis of extensive data remedy the shortcomings inherent in the exclusive use of insurance data to project future wildfires. The CDI should allow the use of these catastrophe models in the rate regulatory formula.

C. 2019 Commissioner Wildfire Non-Renewal Moratorium

The inability to obtain adequate homeowners insurance rates has been a major factor in creating insurance availability issues in many parts of California.

Commissioner Lara attempted to address insurance availability in December 2019. Pursuant to a statute enacted in 2018 which was authored by the Commissioner when he was a state senator, the Commissioner issued a Bulletin on December 18, 2019, which imposed a one- year moratorium on the cancellation or non-renewal of homeowners insurance policies covering property located in or adjacent to areas where there has been a declared wildfire state of emergency, if the cancellation or non-renewal is based solely on the fact that the insured structure is located in an area in which a wildfire has occurred. The moratorium required carriers to rescind any notices of cancellation or non-renewal if the policies were cancelled or non-renewed after the declaration of the state of emergency.

In the press release which accompanied the issuance of the moratorium Bulletin, the Commissioner acknowledged that the moratorium was not a permanent solution to insurance availability issues. The Commissioner explained that the moratorium was intended to “allow time for stakeholders to come together to work on lasting solutions [to] help reduce wildfire risk, and stabilize the insurance market.”

D. CID Attempt to Expand the Fair Plan

Commissioner Lara also looked to the Fair Plan to address homeowners insurance availability issues. The Fair Plan is the market of last resort for homeowners and property insurance. The Fair Plan only writes coverage for certain perils.

In November 2019, Commissioner Lara issued an order seeking to amend the Fair Plan’s plan of operation to require it to offer expansive coverages similar to a comprehensive HO-3 insurance policy to include items such as liability and incidental workers’ compensation coverage. The intent of the order is to expand the Fair Plan to assist consumers who are have difficulty obtaining a HO-3 policy.

The Fair Plan is the market of last resort for “basic property insurance;” it is not intended to sell comprehensive property insurance coverage, such as the HO-3 policy. The express public policy goals of the Fair Plan are to encourage the maximum use of the voluntary market and to assure the stability of the property insurance market. Requiring the FAIR Plan to offer the HO-3 policy is contrary to these public policy goals.

Extending the Fair Plan’s coverage authority to include the HO-3 policy would significantly increase the Fair Plan’s operating costs, would also have an adverse impact of the “Difference of Condition” insurance market, and would have an adverse impact on the voluntary insurance market.

The validity of the Commissioner’s Fair Plan order is being litigated. The Superior Court has issued a preliminary injunction on the current enforcement of the order while the matter is being litigated.

E. Legislation

There are several bills pending before the Legislature which are intended to address homeowners insurance availability issues. AB 2167 and its companion bill SB 292 merit special attention. Insurance companies and insurance agents are supporting the bills. The Insurance Commissioner and consumer groups are opposed to the bills.

AB 2167 and SB 292 would create an Insurance Market Action Plan (IMAP) aimed at encouraging homeowners insurers to write coverage in counties that are experiencing homeowners insurance availability problems. An insurer that makes an IMAP filing for a qualifying county would have to commit to achieve a market penetration rate that is no lower than 85% of the insurer’s statewide market penetration rate. An insurer’s IMAP rate filing would receive expeditated review by the Commissioner. An IMAP rate filing would be allowed to include the insurer’s net costs for reinsurance and would be allowed to be based on a complex catastrophe model.

The Legislature will debate AB 2167 and SB 292 in August. This year’s legislative session will end on August 31.

F. Super Group Exemption Update

Insurance Code section 1861.16 requires insurers to sell the Good Driver Discount Policy from the company within the insurer group with the lowest-rated policy for the coverage.

Subsection (c) of section 1861.16 creates a “super group” exemption from the lowest rate requirement. The lowest rate offer does not apply when a group includes separately operating companies. In order to qualify for the exemption, the insurers in the group must be separately managed and must have an independent rate and cost structure.

Whether an insurer group meets the criteria for the super group exemption has been the focus of CDI examinations and there has been litigation challenging insurers’ compliance with section 1861.16. A class action challenging Nationwide’s status as a super group was filed in federal court. The court sought the Insurance Commissioner’s position. Commissioner Lara responded that the plaintiffs’ allegations against Nationwide were unfounded. This could stand for the proposition that the CDI’s approval of a super group exemption for an insurer creates a safe harbor, but it remains to be seen whether that will be the case.

Super group decisions are made on a case by case basis. Instead of relying on case by case decisions, there needs to be clear regulatory guidance on satisfaction of the super group requirement. In addition, insurers should be protected against retroactive challenges to previously approved super group exemptions.


* Robert Hogeboom is a capital partner at Hinshaw & Culbertson, LLP and is the Senior Regulatory attorney. He was formerly the Senior Regulatory attorney with Barger & Wolen, LLP, which merged with Hinshaw on 2014. Mr. Hogeboom was President of the Federation of Regulatory Counsel in 2000.

* Sam Sorich runs the Sacramento office for Hinshaw & Culbertson, LLP. Mr. Sorich focuses his practice on expanding the firm’s presence and relationships in Sacramento, particularly with the Department of Insurance and other state agencies. Mr. Sorich was also the President of the Association of California Insurance Companies (ACIC) from 2004 to 2011.

[1] This article summarizes “What COVID-19 Means for the Property/Casualty Insurance Industry” with speakers Ken Allen, Deputy Commissioner, Rate Regulation Branch, California Department of Insurance and Kara Baysinger, Partner, Mayer Brown LLP and “(Mostly) Non-COVID-19 California Insurance Litigation and Regulatory Update” with speakers Spencer Kook, Partner-in-Charge of Los Angeles, Hinshaw & Culbertson LLP and Vanessa Wells, Partner, Hogan Lovells LLP.