NY DFS Issues Emergency Regulations for Looting and Vandalism Claims

On June 5, 2020, the New York State Department of Financial Services (DFS) issued an emergency regulation aimed at assisting insureds who sustained damages from the looting and vandalism that has taken place throughout the state in recent days. The regulation, Amendment Seventeen to 11 NYCRR 216 (Regulation 64), requires New York State-regulated insurance companies to accelerate the adjustment and payment of insurance claims submitted by businesses and individuals who suffered damage as a result of “riot” and “civil commotion.” The regulation, which can be found here, is principally meant to reduce the time period that an insurer may commence an investigation from within 15 business days of receiving notice of claim to six business days, as well as establish notice, proof, reporting and mediation protocols.

As noted below and in the regulation, insurers are required to promptly investigate and process insurance claims submitted as a result of riot and civil commotion within very strict time frames. In addition, the regulation:

1. requires that regular notices be sent to the insureds;
2. allows claimants to make immediate repairs to certain parts of damaged real property, if necessary, to protect health and safety, and to submit proof of loss by photographs or video recordings, without inspection;
3. offers claimants the option to resolve disputes through an impartial mediation process, to be paid for by the insurer, which process also has strict notice requirements; and
4. establishes a protocol whereby insurers must report their weekly progress in resolving these claims.

The regulation applies to any claim filed on or after May 30, 2020, for damage to real or personal property, or other liabilities for damage or injury to persons or property resulting from a riot or civil commotion in New York. See N.Y. Comp. Codes R. & Regs. tit. 11, § 216.5 (a)(1). In connection with notice of claims submitted after May 30, 2020, insurers must conduct an investigation by June 5, 2020, or within six business days of receiving notice of the claim, whichever is later. Further, insurers must also furnish to every claimant a written notification detailing all items, statements and forms, if any, that the insurer reasonably believes will be required to process the claim. In addition, “[w]here necessary to protect health or safety, a claimant may commence immediate repairs to the exterior windows, exterior doors, and, for minor permanent repairs, exterior walls of real property.”

The regulation also requires insurers to relax requirements regarding exhibiting damaged property by providing that such requirements “may be satisfied” by the submission of “reasonable proof of loss documentation of the damaged or destroyed property (without the need for a physical inspection), including photographs or video recordings; material samples, if applicable; and inventories, as well as receipts for any repairs to or replacement of property.”

If an insurer needs more time to determine whether a claim should be accepted or rejected, it must notify the claimant within 15 business days after receipt of proof of loss and all requested information. The notice must include the reasons additional time is needed for investigation and the anticipated date a determination on the claim will be provided, including, where the insurer requires a physical inspection, the reason for that inspection. In addition, where a claim remains unsettled, insurers must, every 30 days from the date of the initial letter setting forth the need for further time to investigate, send a letter setting forth the reasons additional time is needed and the anticipated date a determination will be made.

The regulation also requires insurers to submit a written report to the DFS superintendent of any claims for which notice of acceptance or rejection of the claim has not been given within 15 days after receipt of proof of loss. Specifically, the regulation provides that where an insurer has not notified a claimant in writing of its acceptance or rejection of a claim within 15 business days after receipt by the insurer of a properly executed proof of loss and all items required, the insurer must submit to the superintendent a report specifying:

1. the date of the loss;
2. the date the claim was filed;
3. the date a properly executed proof of loss and all items required were received;
4. the estimated amount of the loss;
5. the reason given for the extension;
6. the anticipated date a determination will be provided to the claimant;
7. the number of extensions requested on that claim; and
8. the zip code where the loss occurred.

The reports must be submitted on the Tuesday of each week that the insurer has any such claims. See § 216.6 (c)(3)(iii).

Finally, the regulation adds a new Section 216.13, entitled “Mediation.” The mediation section applies to a claim filed under the emergency regulation by an individual or “small business,” which is defined as “any business that is resident in this State, is independently owned and operated, and employs 100 or fewer individuals.” Id. § (a).  The mediation section provides that insurers must send claimants written notice of their right to request mediation, either (i) at the time of denial; (ii) within 10 business days of the date that the insurer receives notification from a claimant that the claimant disputes a settlement offer, where the difference between the positions is $1,000 or more; or (iii) within two business days after the date that is 45 days after the insurer has received a properly executed proof of loss and all requested items, provided that the insurer has not offered to settle the claim prior to such date. See § (b).

In addition, if, prior to June 5, 2020, an insurer denied a claim or a claimant disputed a settlement offer, and the claim remains unresolved as of June 5, 2020, then insurers must provide such notice by June 19, 2020. The mediation notice must inform claimants of their right to request mediation and shall provide, among other things, instructions on how the claimant may request mediation, including the name, address, phone number and fax number of an organization designated by the superintendent to provide a mediator.

If a claimant requests mediation, insurers must, within three business days, forward the request to the designated organization.  Insurers must also pay the designated organization’s fee for the mediation within five days of receiving a bill from the organization. Insurers shall not be required to attend a mediation for: (i) a dispute in property valuation that has been submitted to appraisal or a claim that is the subject of civil litigation by the insured against the insurer; (ii) any claim that the insurer has reason to believe is a fraudulent insurance act; or (iii) any type of dispute that the designated organization has excepted from its mediation process. In addition, designated mediation organizations must require that “a settlement agreement prepared during a mediation shall include a provision affording the claimant a right to rescind the agreement within three business days from the date of the settlement,” provided that the claimant has not cashed or deposited any settlement check or draft.

This emergency regulation may require New York insurers to either increase claims staff or redeploy existing personnel in order to comply with shorter response times. The pressure placed on insurers may be eased to some degree by the “reasonable proof of loss” standard, which is intended to forego a physical inspection in lieu of the submission by insureds of video recordings and photographs of the damage. While insurers might prefer a physical scene inspection, dispensing with this requirement should be a time-saver. Also, the regulation does not preclude a physical inspection of the insured location for those insurers who can complete the inspection within the specified time periods. In addition, where an insurer believes that a physical inspection is necessary, it may require one, provided the insurer complies with the applicable notice requirements regarding a need for more time to investigate the claim, if any.

Interestingly, the mediation provision carves out an exception for those claims submitted to the appraisal process, pursuant to the terms of the policy. Thus, to the extent a claim involves only a disagreement over the monetary amount of the loss—and does not implicate questions of coverage under the terms of the policy—the appraisal remedy remains available to insurers and policyholders alike.

This article is meant to be informative and should not take the place of a careful reading of the regulation. We will continue to monitor developments with regard to this and other regulations issued by the DFS. Please feel free to contact any member of the Rivkin Radler Insurance Coverage team if you have any questions about this emergency regulation or related coverage matters.