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California Orders Premium Refunds on Policies Exposed to Reduced Risk of Loss Due to COVID-19 Pandemic and Calls for Coverage Extension for Uninsured Delivery Drivers for California Essential Businesses

April 13, 2020
Insights for Insurers

We review two significant actions recently taken by the California Department of Insurance (the "Department") in response to the COVID-19 pandemic.

Premium Refund Order

On April 13, 2020, the Department ordered insurance carriers to provide initial premium refunds for the months of March and April for the following lines of insurance: 

The order is premised upon the Department's determination that projected losses on these lines of insurance are now overstated due to the severe curtailment in the activities of policyholders under these lines (e.g., less miles driven, less business revenue, drop in payroll) and that refunds should be provided to policyholders to reflect this decreased risk of loss.

Carriers are to comply within 120 days of the April 13, 2020 bulletin.

Notably, prior to this order, many auto insurance carriers, such as Farmers, Liberty Mutual, CSAA, Progressive and American Family (and many others), had already announced plans to provide refunds and/or credits due to this perceived reduced risk of loss. The order requires refunds for all auto carriers, as well as the other lines of insurance specified above.

Further details on the April 13, 2020 order, including ways carriers may comply without prior approval of the Department, are set forth in the full text of the order.

Notice Requesting Coverage for Uninsured Essential Business Delivery Drivers

The April 13, 2020 order comes on the heels of the Department's April 9, 2020 Notice requesting insurers to not deny claims under a personal auto insurance policy solely because the insured was engaged in providing delivery service on behalf of a California essential business impacted by the COVID-19 related closures, so long as the delivery driver was operating within the course and scope of his/her duties on behalf of such essential business. 

Per the Department, essential California businesses that do not normally offer delivery service may begin to do so due to Governor Newsom's March 19, 2020 Stay at Home order.  Workers who typically do not deliver food and medications, among other essential goods, may be requested to provide delivery services temporarily using their own insured personal vehicles, which may be uninsured. For instance, personal automobile policies do not typically provide coverage for vehicles used for commercial purposes, like commercial delivery service. Further, drivers may not be covered under the commercial automobile policy issued to a California essential business. The Notice purports to addresses this concern.

In the Notice, the Department additionally requests that: 

The Department requests insurers to provide the above-described coverages as soon as possible and to continue these coverages until at least thirty (30) days after California essential businesses are no longer subject to restrictions pursuant to Governor Newsom's March 19, 2020 Order.