California Insurance Commissioner Orders Fair Investigation
Business Interruption Claims Amid COVID-19
The rise in Business Interruption Claims
The world, including the US, continues to grapple with the COVID-19 pandemic. The unprecedented health crisis has forced people to stay indoors and work-at-home. The coronavirus is bringing businesses to a screeching halt and the production cycle at a standstill across industries.
Due to the sharp decline in revenue, many businesses are seeking to invoke business interruption insurance claims to make up for the loss of income in these challenging times.
However, the California Department of Insurance (CDI) has received numerous complaints from insurers affected by COVID-19 that certain insurance companies are refusing to investigate their business interruption claims upon receiving a notice of claim. Also, some companies are dissuading policyholders from filing COVID-19-related business interruption claims.
Business Interruption Insurance Coverage
The California Department of Insurance (CDI) offers optional coverage to businesses to protect them against income loss or other losses caused by any incident that interrupts normal business operations. Both large and small business in California can purchase business interruption insurance
- on a stand-alone basis,
- as a part of their business policy, or
- as a part of their comprehensive multi-peril insurance (commercial policy)
Commissioner Lara and CDI’s Response to Complaints
In response to the many complaints from businesses, stakeholders, and public officials, California Commissioner Ricardo Lara and the CDI have taken action. They issued a notice on April 14, 2020, to all insurance companies, brokers, agents, and other Department licensees.
The notice requires the concerned authorities to comply with all legal obligations – contractual, statutory, and regulatory – as outlined in the California Fair Claims Settlement Practices Regulations (Regulations).
These regulations ask the carriers to immediately acknowledge all claim notices, in this case, business interruption claims, event cancellation claims, etc., but no more than 15 working days upon receipt of a claim. Commissioner Lara has ordered insurance companies and licensees to fairly investigate all business interruption claims and provide all “services, coverage, and benefits,” to the policyholders.
Overview of the Notice
The existing regulations in California and the notice from the California Department of Insurance (CDI) requires companies to:
- immediately acknowledge the notice of claim, but in no event more than 15 working days upon the receipt of claim notice
- comply with the contractual, statutory, regulatory, and all legal obligations for all insurance claims (written or otherwise)including, but not limited to, event cancellation claims, business interruption insurance claims, and other COVID-19-related claims filed by businesses in California
- provide the policyholders with all necessary instructions, forms, and assistance, including but not limited to, clearly specifying the information the policyholder must provide concerning the proof of claim and begin the necessary investigation of the claim
- Immediately accept or deny the business interruption insurance claim, wholly or partly, but in no event more than 40 days upon receipt of the claim proof. The claim file must clearly state the amount of the claim that an insurer accepts or denies unless the claim gets denied in its entirety.
The California Department of Insurance (CDI) puts great emphasis on businesses to review their policy extensions, applicable deductibles, and coverage limits. Businesses must contact their insurance providers to know the extent of coverage they offer as each company has a different policy and insurance coverage. You can read the full notice here.