I. Policyholder Relief and Related Accounting Treatment
 

Nearly every state has taken some action over the past nine weeks to provide relief to policyholders suffering hardship due to the COVID-19 pandemic. These actions include orders and bulletins requiring or requesting that insurers extend grace periods and impose moratoria on the cancellation, non-renewal or termination of insurance policies due to non-payment of premiums (and waive associated late fees), reduce premium payments to reflect a reduction in risk due to business closures and stay-in-place orders, and generally exercise leniency in enforcing deadlines for filing claims notices, proofs of loss, and other documentation. The scope and specific requirements of these orders and bulletins vary across states, with some states simply requesting that insurers provide policyholder relief and other states mandating it.
 

Grace Periods Extensions. To date, approximately 18 states have issued mandates requiring that insurers provide extended grace periods due to COVID-19, while another 29 states have requested that insurers voluntarily extend grace periods. California was one of the first states to act when, on March 18, the California Department of Insurance (CDI) issued a bulletin requesting that all insurance companies provide their policyholders with at least a 60-day grace period to pay insurance premiums. New York and other states soon followed. In accordance with executive orders issued by the Governor of the State of New York, the New York Department of Financial Services (NYDFS) issued emergency regulations requiring insurers to grant premium payment relief to New York consumers and small businesses experiencing financial hardship due to COVID-19. On March 30, NYDFS issued an emergency regulation imposing a 90-day grace period with respect to covered life insurance policies and annuity contracts and a 60-day grace period with respect to covered property/casualty insurance policies. NYDFS issued a separate emergency regulation on April 7 that extended the grace period for covered health insurance policies to the later of the expiration of the applicable contractual grace period and 11:59 p.m. on June 1, 2020. Both of these regulations were set to expire on May 7, 2020, but have been extended until June 6, 2020. Meanwhile, some states are allowing their moratoriums on cancellation and nonrenewal to expire without extension.

 

Premium Reductions. On April 13, California was again one of the first states to act, when the CDI issued a bulletin directing all insurers to refund a portion of insurance premiums they have charged California policyholders for specified lines of insurance, including commercial automobile, workers' compensation, commercial multi-peril, and commercial liability, commensurate with the reduced levels of activity caused by the state-wide stay-in-place order. The bulletin provides that insurers are permitted to refund premium without prior approval from the CDI if they (1) apply a uniform premium reduction for all policyholders in an individual line of insurance, or (2) reassess the classification and exposure bases of affected risks on a case-by-case basis. On May 12, the New Jersey Department of Banking and Insurance (NJDOBI) issued a nearly identical bulletin requiring all property & casualty insurers doing business in New Jersey to begin issuing premium refunds as soon as practicable, but no later than June 15, 2020. Insurers who can demonstrate that their existing rates are not excessive, inadequate, or unfairly discriminatory, or otherwise contend that they should not be subject to the premium refund mandate, are required to notify the NJDOBI and provide supporting documentation by June 1, 2020. Separately, the NJDOBI issued an order requiring insurance groups to submit monthly reports containing all actions taken, and contemplated future actions, to reduce premiums consistent with the bulletin. The first report is due to the NJDOBI by June 1 and must include monthly and overall totals for the following: aggregate premium prior to, and subject to, application of refunds or adjustments; aggregate premium refunds and adjustments; the number of in-force policies, and number of policyholders receiving refunds or adjustments. Insurance groups with more than $20 million in written premiums for 2019 for all property & casualty lines combined are also required to provide reports on New Jersey claims and premium activity for 2019, the first half of 2020 and bi-weekly going forward until September 15.

To date, California and New Jersey are the only states that have mandated such premium refunds, but many other states have issued bulletins or public statements requesting that insurers take similar steps. And insurers have answered. In an April 23 Press Release, the New Hampshire Department of Insurance thanked two dozen insurance groups, representing more than 90% of the written auto insurance premium in New Hampshire, for instituting voluntary premium refund programs that will return approximately $32 million to New Hampshire consumers either as a credit towards future premiums or a cash refund.

Application to Insurers. Insurers seeking to implement policyholder relief measures face a patchwork of state requirements and a myriad of potential regulatory issues. For example, the scope of some state bulletins is explicitly limited to insurers writing certain lines of business, while other bulletins are arguably applicable to all insurers doing business in the state. In states where a bulletin’s scope is unclear, there may be questions as to whether excess and surplus lines policies, which are not subject to rate filing requirements and in some states are not subject to standard cancellation and non-renewal notice requirements, are subject to the mandate. State orders also vary as to whether grace periods must be extended for all policyholders or only policyholders who can demonstrate financial hardship due to COVID-19 (and if the latter, what sort of proof the insurer may require to verify the hardship). For example, the New York emergency regulations referenced above require insurers to accept a sworn statement from the policyholder as proof of financial hardship.
 

In addition, some state orders provide that policies may be retroactively cancelled to the original premium due date if premium is not paid following the end of the grace period, while other orders are silent or expressly require that coverage be maintained throughout the grace period. Insurers implementing these policyholder relief measures must also ensure that they are implemented fairly and consistently across policyholders, or risk violating state unfair trade practice laws. Some states have issued general guidance to insurers outlining the types of relief measures that will not be considered to violate these laws (if specific conditions are met), while other states are requiring insurers to submit any proposals for policyholder relief for prior review by the state insurance department.
 

Another issue that insurers have to consider is the potential impact these measures will have on their financial statements, including admitted asset treatment for premium receivables and proper accounting for premium refunds. Typically, premium receivables more than 90 days past due are not eligible for admitted asset treatment on an insurer’s statutory financial statements. However, the NAIC Statutory Accounting Principles (E) Working Group has issued interpretive guidance (INT 20-02) temporarily extending the “90-day rule” through September 29, 2020, for policies that were current prior to March 13, 2020 (the date the US federal government declared a state of emergency). The Working Group has also issued five additional proposals for COVID-19-related accounting guidance, which were exposed for public comment through May 1, 2020. With respect to accounting treatment for premium refunds, proposed INT 20-08T provides that premium refunds that are outside of policy terms should be reported as a reduction of premium (and not as an expense.)
 

II. NAIC Data Call on BI Coverage
 

Following separate information requests from California, New York, and Washington, the NAIC has issued a data call to all US property/casualty insurers that wrote BI coverage in the US in 2019 or 2020. The data call is intended to assist state insurance regulators in analyzing “the financial condition of commercial insurers to understand which insurers are writing business interruption coverage, the size of the market, the extent of exclusions related to COVID-19, and claims and losses related to COVID-19.” The data call includes both admitted and non-admitted domestic insurers, but does not include alien insurers, life or health insurers, monoline financial guaranty, mortgage guaranty, title, fidelity, non-medical professional liability insurers, or reinsurers. It follows a request from NAIC President, Director Ray Farmer (SC) that states refrain from issuing separate information requests on BI coverage issues until the NAIC could prepare a single, nationwide data call.
 

Insurers subject to the data call were expected to receive individual letters on May 8. They will be required to respond to the data call in two parts using prescribed templates that must be submitted electronically through the NAIC Regulatory Data Collection (RDC) application. The first part, which requests information on premiums and policies written, will only be reported once and is due May 22, 2020. The second part, which requests claims and loss information, must be reported monthly, with the first submission reflecting cumulative data through June 8 due June 15, 2020, and mid-month filings thereafter through November 19, 2020. 
 

The data call requires reporting on a group basis with separate reporting for Business Owners Policies and all other policies that include BI coverage (including commercial multiperil policies). For premiums and exposures, it requires a break-out for small, medium, and large businesses (defined by number of employees) and asks for premiums, the number of inforce policies, the percentage of policies with a physical loss requirement, and percentage of policies with a virus exclusion. For the claims and loss report, it requires reporting of the number of COVID-19 related reported claims, the number of closed claims with and without payment, and paid and incurred losses. The instructions and reporting forms can be found here. 
 

The NAIC data call is being issued amidst significant legislative and regulatory pressure for insurers to pay BI losses despite what their policies say. As of the date of this alert, bills that would mandate retroactive BI coverage have been introduced in multiple states, and BI-related federal legislation has also been introduced. For more information on these proposals and discussion and analysis of COVID-19-related BI coverage issues, see our Legal Alert: Legal and Regulatory Developments - Business Interruption Insurance for COVID-19 Related Losses.
 

The NAIC has developed an information request template for state insurance regulators to use in collecting information from US insurance groups and legal entities on their preparation for and exposure to COVID-19. As reported in our prior legal alert, New York was the first state to issue such a request, when on March 10 NYDFS issued a letter to all New York-licensed insurers requesting assurance they have preparedness plans to address the operational risk posed by COVID-19 and are identifying, monitoring, and managing the related financial risk. Since that time, nearly every state has issued a similar request to insurers domiciled in their state based on the NAIC template.
 

Like the New York request, the NAIC template requests information related to (1) the operational impact of COVID-19 and steps taken by companies to implement an effective Business Continuity Plan and/or COVID-19 response plan to support ongoing operations, and (2) the financial impact of COVID-19 on company solvency and steps taken by companies to both assess their exposures and address any concerns identified. The NAIC template was prepared such that it can be submitted on a group basis to an insurance group’s Lead State regulator (if applicable), although certain requests are required to take legal entity impacts into consideration. The template states that information received through the template will be treated as confidential and will be shared with other state insurance departments through the NAIC's Master Information Sharing and Confidentiality Agreement to reduce the need for duplicative and overlapping information requests.
 

IV. COVID-19 as a Covered Workplace Injury
 

A growing number of states have enacted or proposed legislation, or have issued executive orders or regulatory guidance, declaring that COVID-19 illnesses sustained by workers or specified classes of workers, such as first responders, healthcare workers and workers who continue to work during the pandemic because they are deemed essential, to be workplace injuries that are compensable under state workers’ compensation laws and policies. Typically, workers’ compensation policies would not cover illness sustained by an employee during the course of employment unless a causal link between the workplace and the illness is established by evidence. However, with a growing push for businesses to reopen and workers to return to the workplace, states are taking action to assure employers (and their employees) that they will be protected if and when they return to work. While well intentioned, these state actions (like the proposed expansion of BI coverage noted above) threaten the assumptions that underpin the pricing of workers’ compensation insurance policies.
 

Most recently, on May 6, the Governor of the State of California issued an executive order that establishes a rebuttable presumption that any COVID-19-related illness of any employee will be presumed to arise out of the course of employment for purposes of awarding workers’ compensation benefits if all of the following requirements are satisfied:

This presumption applies to injuries occurring through July 5, 2020, and all workers’ compensation insurance carriers writing policies that provide coverage in California, self-insured employers, and any other employer carrying its own risk, including the State of California. The American Property Casualty Insurance Association (APCIA) has issued a statement opposing the order, noting that it is overly broad and jeopardizes the stability of the California workers compensation system.