Alabama Department of Insurance Issues Recommendation to Carriers Related to Cancellation and Non-Renewal During Covid-19
Prepared by John W Johnson II
March 31, 2020
On March 30, 2019, the Alabama Department of Insurance issued Bulletin No. 2020—05 which makes recommendations to carriers for handling cancellation and non-renewal during uncertain economic times as a result of the COVID-19 health crisis. Specifically citing the potential of insureds’ inabilities to make premium payments, the Department recommended the following measures:
- Relaxing due dates for premium payments,
- Extending grace periods,
- Waiving late fees and penalties,
- Allowing premium payment plans which will avoid a lapse in coverage,
- Expanding automobile coverage to allow personal vehicles to be covered while delivering food, medicine, or other essential services for commercial purposes.
Of concern, the recommendation states that “A policy may be canceled or non-renewed for legally recognized reasons or policy provision other than late or failure to pay premiums.” The obvious problem with these recommendations is that (1) cancellation and non-renewal are governed by the insurance contract and/or statute(s) and (2) relaxing these laws or contractual obligations and rights can lead to inconsistent enforcement of policy terms. If the insurer agreed to adopt one of these recommendations in a particular case, the effect would be to rewrite the policy by agreement of the parties. On the other hand, if a carrier does not accommodate a non-paying or slow-paying policyholder based on this recommendation, it may face subsequent claims for not accommodating its insured if the insured is involved in what would otherwise have been a coverage-triggering event but for lapse or cancellation.
In addition to the problems created by late-paying or non-paying insureds, insurers are faced with pressure to cover risks that would not otherwise qualify for coverage under certain policies. For example, the Department’s recommendation that carriers consider insuring commercial automobile risks under personal insurance policies does not contemplate the vastly different underwriting criteria, risks assumed, and the premium differential between personal and commercial auto policies. Automobile carriers are not alone, as business insurers are facing increased pressure to cover business continuity claims due to COVID-19, which, for fair reasons, were not considered by most to qualify under standard-form business interruption coverage and were not included in the underlying analysis.
The uncertain length of time personal and business economic interests are impacted by COVID-19 compounds the problem. There is no set end date for insurers to go back to enforcing the bargained-for terms of the policies that have been issued and for which a premium has been paid based on calculated risks. The fact is that forcing carriers to assume risk or cover perils for which no premium has been paid could lead to another financial crisis – insurer insolvencies.
There is no easy solution to the problems insurers and insureds face, but a better solution may be for insurers to set their own guidelines to at least create consistency in applying policyholder accommodation should each individual insurer so choose.
You can read the Bulletin here: Alabama Department of Insurance Bulletin
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