On March 6, 2020, the New York Department of Financial Services (“NYDFS”) issued Insurance Circular Letter No. 4 (the “Circular Letter”) addressing the ability for insurance companies to offer “Cancel for Any Reason” or “CFAR” benefits in the state. The Circular Letter clarifies the ability for both insurance companies as well as insurance agents to offer CFAR benefits in New York and, while not directly overruling prior guidance, the Circular Letter substantially expands opportunities for insurance companies to offer CFAR coverage in the state in light of the Novel Coronavirus pandemic.
Under New York Law, an insurance company may only engage in the business of insurance and “in other kinds of business to the extent necessarily or properly incidental to the kinds of insurance business it is authorized to do in [New York].” N.Y. Ins. Law § 1113(a). Because CFAR benefits are generally not viewed as an insurance products because consumers may cancel trips or other plans for reasons that are not fortuitous, CFAR products can only be offered if they are considered “incidental” to an insurance company’s provision of insurance. Back in 2010, under OGC Opinion No. 10-02-06 (the “Travel Opinion”), the NYDFS found that CFAR coverage “is not incidental [to an insurance product]. Rather, it stands in place of trip cancellation/interruption insurance because it covers cancellation for any reason at all” and accordingly could not be written by insurance companies.
The Circular Letter directly recognizes the Travel Opinion and, while it does not claim to expressly rescind it, the Circular Letter clearly now lays out a path for insurance companies to permissibly offer CFAR coverage. In particular, the Circular Letter notes that, in order for an insurance company to offer CFAR coverage, it “must make CFAR benefits generally available to consumers, without requiring the purchase of a standard insurance policy from the insurer” and, if CFAR coverage is offered in conjunction with a standard travel insurance policy, “CFAR benefits must be reflected in a standalone contract that is separate from the insurance policy.”
As many standard travel insurance policies in the marketplace today exclude coverage for epidemics and pandemics, New York’s reassessment of its position on this matter reflects the reality that there is a real demand in the industry for products, such as CFAR benefits, to help protect consumers from making the uncomfortable choice of losing money or putting their lives at risk. However, insurance companies must be careful to not run afoul of New York’s anti-inducement and tying restrictions by bundling insurance policies with CFAR products unless the bundle properly complies with New York law. We will continue reporting on further developments as they relate to this matter and New York’s responses to the COVID-19 pandemic.
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