State Insurance Departments Respond to Recent Midwest Flooding

Following the devastation wrought in several Midwestern states by recent floods, the insurance departments of Illinois, Indiana, Iowa, and Wisconsin issued bulletins requesting, imposing, or reminding insurers of certain protections for insureds in their respective states. These bulletins are summarized in the article, and links to the complete bulletins are provided. Several important questions about the applicability of these bulletins remain.

Regulatory Action in Affected States

Illinois
For Illinois policyholders affected by the disaster, the Illinois Division of Insurance has (among other actions) issued the following directives to all insurers licensed or authorized to transact business in Illinois:

A moratorium on policy cancellations and non-renewals. Any cancellation or non-renewal issued on or after June 10, 2008 must be withdrawn with no lapse in coverage. No new cancellations or non-renewals will be allowed for affected policyholders until August 18, 2008.
Insurers must extend any deadlines for action by an insured (e.g., submission of claim of loss or bills) at least 60 days beyond the last date allowed in the contract.
Insurers must not cancel or refuse to renew policies respecting affected property due to “increase in the risk originally accepted” or due to “geographical location of the risk.”
Insurers must post all actions taken to implement these directives on their Web sites.

Indiana
For policyholders in the impacted areas, Indiana has (among other actions) issued the following directives:

A 60-day moratorium on cancellations of any insurance policy in effect for any policyholder residing within the impacted areas. This moratorium applies only to cancellations/non-renewals for failure to pay premiums during the 60-day period. Cancellations/non-renewals for other reasons may still be made pursuant to statutory notice requirements.
Penalties attaching to late payment of premiums are suspended.

View the complete Indiana bulletin here: http://www.state.in.us/idoi/files/Bulletin_163.pdf

Iowa
Iowa has “requested” that all insurance companies authorized to transact business in Iowa, regardless of the line of insurance, implement the following with regard to their insureds who have been affected by the recent flooding:

Provide each insured an optional 60-day interest-free deferral for all premium payments due in the month of June.
Provide a 60-day extension on contractually defined time limits with respect to various required actions of the insured.

Wisconsin
While Wisconsin has yet to issue any type of moratorium on cancellation or non-renewal of insurance policies, it has issued a stern and detailed reminder of the statutory notice requirements for non-renewal or renewal with altered terms. This perhaps signals that the Commissioner of Insurance will closely scrutinize post-flood renewals and strictly enforce the statutory notice requirements.

View the complete Wisconsin bulletin here: http://oci.wi.gov/bulletin/0608renew.htm

General Points
Viewed collectively, the actions taken by the Illinois, Indiana, Iowa, and Wisconsin insurance authorities reveal a shared concern that insureds may be unable to make their required premium payments (whether due to logistical or financial reasons) and/or that insurers may take action to cancel or not renew coverage because of new concerns over the nature and location of the risk.

Nothing in the directives or bulletins draws a distinction between property/casualty and life/health insurers. Indeed, concern about the logistic or financial ability to make premium payments would be equally applicable in all contexts.

There is perhaps some ambiguity as to whether the bulletins and directives apply only to “licensed” insurers transacting business in these states. Illinois asserts that its directive applies to entities “licensed or authorized” to transact insurance business in the state. Such language may bring surplus lines and reinsurers into the mix. Indiana states that its directive applies to “all insurance companies,” drawing no distinction between licensed and unlicensed entities. Iowa states that its bulletin pertains to all insurance companies “authorized” to transact business in the state. This typically would be interpreted to mean all licensed companies, but we query whether this is the Iowa department’s intention.

Finally, it appears from the language of these bulletins that they are intended to apply to both commercial and personal lines insurers. While this is clear in the bulletins issued by Indiana, Iowa, and Wisconsin, it is perhaps less clear in Illinois, where the bulletin’s protections are said to benefit insurance “consumers.” Some may read this as Illinois’ intent to target individual, personal lines consumers as opposed to commercial lines consumers. However, the principal concerns of these departments (i.e., the insured’s inability to pay premiums and/or policy cancellation due to the nature and location of the risk) are equally applicable in both the personal lines and commercial lines setting, and thus it seems Illinois intends for its bulletin to apply to both.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our insurance clients and our colleagues.

Please contact your Foley attorney if you have any questions about these issues or want additional information regarding insurance matters:

Authors and editors:

Thomas R. Hrdlick
Milwaukee, Wisconsin
414.297.5812
thrdlick@foley.com

A. John Richter
Milwaukee, Wisconsin