Locke Lord QuickStudy: California Insurance Commissioner Lara Orders Insurance Companies to Refund Premiums to Policyholders Affected by COVID-19

In a Bulletin issued today, April 13, Commissioner Ricardo Lara ordered insurers in California to provide partial refunds of premiums paid in March, April and possibly May (and beyond) for the following lines of business:

Private passenger automobile insurance Commercial automobile insurance Workers’ compensation insurance Commercial multiple peril insurance Commercial liability insurance Medical malpractice insurance Any other line of coverage where the measures of risk have become substantially ‎overstated as a result of the pandemic

The Commissioner’s Bulletin states that “The COVID-19 pandemic has severely curtailed activities of policyholders in both ‎personal and commercial lines. As a result, projected loss exposures of many insurance ‎policies have become overstated or misclassified. This is especially true for policies ‎where premiums are based partly on measures of risk such as number of miles driven, ‎revenue, and payrolls which have all dropped significantly because of COVID-19.‎”  It further provides as the basis for the Bulletin, a Petition for Hearing received from the Consumer Federation of California Education Foundation (CFC) on March 23, 2020, ‎to redress excessive ‎automobile insurance rates and premiums caused by the COVID-19 pandemic.‎

Commissioner Lara not only agrees with the CFC that risk for loss for private passenger automobile (PPA) insurance is lower due to the COVID-19 pandemic, but also recognizes that the reductions in risk extend to other lines of business beyond PPA insurance.  We do not believe that the Commissioner held a Hearing on this matter nor is there any reference in the Bulletin to what evidence he considered in arriving at his decision.  Furthermore, the Bulletin provides no cites to the statutes or regulations that provide the Commissioner with authority to issue the Order.

The Bulletin does provide additional guidance with how insurers may comply with the Order and gives them up to 120 days from the date of the Bulletin to provide the refunds.  It also requires fairly extensive reporting of information and an explanation and justification for the amount and duration of any premium refund.  A link to the Bulletin may be found here. 

Visit our COVID-19 Resource Center often for up-to-date information to help you stay informed of the legal issues related to COVID-19.