The Volokh Conspiracy

Mostly law professors | Sometimes contrarian | Often libertarian | Always independent

Volokh Conspiracy

The Most Important Coronavirus-and-the-Law Issues

... have to do, I think, with business insurance law (and in particular with the interpretation of business insurance contracts).


Many businesses are doubtless already scrambling to figure out if their insurance policies cover business interruptions of various sorts stemming from the coronavirus. For some, it could be the difference between staying in business and going bankrupt; I expect it will likewise sharply affect the economy as a whole, as well as unemployment. It's not the sort of thing most of us think about (I regret to say that I didn't start thinking about such matters until I married an insurance lawyer) but it's hugely important.

I was reminded of this because my colleagues at Mayer Brown LLP (the firm with which I consult on a part-part-part-time basis) circulated this item, which they kindly allowed me to pass along:

NYDFS Instructs Insurers to Provide COVID-19 "Explanation of Benefits" for All Business Interruption Coverage and Report to NYDFS on Operational and Financial Preparedness

by David W. Alberts, Kara Baysinger, Stephanie Duchene, Matthew J. Gaul, Philip A. Goldstein, Lawrence R. Hamilton, David Heales, Francis R. Monaco & Sanjiv J. Tata

The New York Department of Financial Services (NYDFS) issued two broad communications to the insurance industry on March 10.

"Explanation of Benefits" for Business Interruption Coverage

Citing the "potential impact of COVID-19 on business losses," NYDFS issued a letter instructing all property and casualty insurers that provide business interruption and related coverage in New York to send a "clear and concise explanation of benefits" to all commercial policyholders. The explanation must include the following information:

  • A description of the policyholder's commercial property insurance or related coverage.
  • Whether the policy covers "business interruption" and a list of the covered perils under the policy.
  • Whether the policy includes "civil authority" coverage, the type of damage or loss required for coverage and, specifically, whether impairment of the policyholder's access to property in connection with COVID-19 is sufficient for coverage.
  • Whether the policy includes "contingent business interruption" coverage and a list of the covered perils under the policy.
  • Whether the policy includes "supply chain" coverage and whether such coverage is limited to named products or services from a named supplier.
  • Whether business interruption, contingent business interruption or supply chain coverage requires "physical damage or loss" and whether contamination related to a pandemic may constitute "physical damage or loss."
  • The required waiting periods under the policy.

The letter also instructs insurers to provide copies of each explanation of benefits to NYDFS along with certain statistical information about the volume of business written with the described coverage, both in terms of number of policies and premium, by March 18. If an insurer does not write any business interruption coverages, then an officer or other authorized representative of the insurer is required to provide a signed certification to NYDFS that the insurer writes none of the business described in the letter.

The NYDFS letter is titled "CALL FOR SPECIAL REPORT PURSUANT TO SECTION 308, NEW YORK INSURANCE LAW," but, in directing insurers to proactively provide explanations of benefits to policyholders, the letter goes beyond the authority to demand information from insurers found in Section 308….

Operational and Financial Preparedness

The Department also issued a Circular Letter to all "regulated insurance entities" demanding extensive information on their operational and financial preparedness for the effects of COVID-19. Responses are due by April 9, 2020.

I'm positive we'll be hearing a lot more about this.