Hurricane season in the Atlantic ends in November, but it’s the time frame starting in January that could have a lasting impact on property insurers. In the aftermath of last October’s Superstorm Sandy, the New York State Assembly passed several insurance reform bills during its last session that addressed consumer sentiment. Significantly, it focused on legislation that would have prohibited insurer reliance on anti-concurrent causation (ACC) insurance clauses to deny coverage for property damage caused in part by an otherwise excluded flood event.
The ACC bill, A. 7455-A, was designed to have prospective effect, applying to all policies issued or renewed immediately after the law’s approval by the state Senate and governor. A similar bill, A. 7452-A, applied to business interruption coverage. Under the ACC bill, insurers issuing policies with ACC clauses would have had to disclose to prospective policyholders when the clauses could be triggered and, in those circumstances, whether causation must be proximate or remote. The Senate approved a less drastic measure, S. 5798, which would have required the Department of Financial Services to conduct a study of ACC clauses in homeowners insurance policies regarding sewer backup coverage. The bill called for the Legislature to make an informed decision regarding the appropriate future treatment of these clauses in policies for sewer backup insurance coverage.
While neither the Assembly nor the Senate was able to reconcile their respective proposals before the legislative session ended in June, lawmakers may revisit the issues when they reconvene in January for the second half of its 2013-14 term.
If the rest of the 2013 hurricane season proves uneventful, the New York Legislature may not have the political incentive to revisit these proposals. However, should a Sandy-like storm hit New York again and cause widespread damage, insurers likely will find significant consumer and legislative support for similar laws. If any of the bills are enacted into law, insurers may need to revise their policy forms and re-evaluate their underwriting guidelines, claim handling processes and rate structure. Some of these changes would require the approval of the New York Department of Financial Services.