2025 Developments in New York Insurance Law
New York State has recently updated Section 1113 of the New York Insurance Law, bringing about significant changes. These amendments authorize new types of insurance coverage, specifically parametric insurance and stand-alone business interruption coverage. This article provides a detailed look at these developments.
New York Authorizes Parametric Insurance Policies
In late December 2024, Governor Kathy Hochul signed legislation (Assembly Bill 10344/Senate Bill 9420) that amends Section 1113. This legislation authorizes parametric insurance, making New York one of the early states to regulate and authorize these products.
Conventional property insurance policies require a demonstration of actual damage or loss to trigger coverage. The insured must prove the damage resulted from a covered cause, and the loss value is determined through adjustment. Conversely, parametric insurance is not triggered by actual loss or damage to property. Coverage is activated by data measuring the severity of a weather-related event near the insured location. This insurance model works on the principle that pre-determined criteria, based on objective data, will strongly correlate with the likelihood of property damage. For example, considerable wind speeds recorded at the nearest weather station might result in a significant insurance payment, based on the probability of damage.
Proponents highlight that parametric insurance may eliminate many costs and burdens associated with traditional property insurance policies. Using objective criteria to establish insurance payments avoids the need to inspect and adjust property damage claims or litigate common coverage issues.
The legislation adds new subsection (a)(34) to Insurance Law Section 1113. It defines “parametric insurance” as insurance against the “occurrence of a weather-related event” (such as a windstorm, flood, or earthquake). The insurer’s obligation to indemnify the insured is “based on the proximity and magnitude of the event as measured and reported by a state or federal government agency.” The legislation also adds new Section 3416 to the Insurance Law, which sets forth mandatory disclosures for insurers, stipulating that such policies are not a substitute for property or flood insurance. Furthermore, a mortgagee cannot accept a parametric insurance policy. Finally, the legislation mandates that parametric policies be sold by licensed insurance agents.
New Stand-Alone Business Interruption Insurance
Governor Hochul also signed legislation on September 27, 2024 (Assembly Bill 10342/Senate Bill 9481), which allows insurance carriers to offer stand-alone business interruption insurance policies. As many businesses learned during the COVID-19 pandemic, traditional business interruption coverage, found in commercial property insurance policies, typically requires direct physical loss or damage to the insured property to trigger coverage. The majority of courts across the country determined that the presence of a virus in the air or on surfaces did not constitute direct physical loss or damage to property, as defined by a typical commercial property insurance policy. The New York Court of Appeals also held this in Consolidated Restaurant Operations, Inc. v. Westport Insurance Corp. in February 2024.
In response to this, the sponsor memo supporting the new legislation noted that although existing business interruption coverage might extend to cover the loss of net profits when a business is closed by civil authority order, there still must be physical damage to a nearby property that renders it unsafe to open. “As demonstrated with the … COVID-19 pandemic, a business may be forced to close without the insured property or neighboring property suffering physical damage.” Therefore, governmental shut-down orders often resulted in business closures without triggering coverage because there was no direct property damage.
The sponsor memo furthermore noted that business interruption policies not tied to physical damage would also provide coverage for active shooter situations.
The new legislation amends New York Insurance Law § 1113(a) to include business interruption insurance as an authorized type of insurance, not requiring a tie to physical damage. It also amends Insurance Law § 2105 to allow the writing of this insurance in the excess line market. This coverage allows businesses to protect themselves from losses in the event of future pandemics or other events, such as active shooter threats, that may not cause direct physical loss or damage to property.
Ryan A. Lema is a partner at Phillips Lytle LLP and a member of the firm’s Insurance Coverage Practice Team. He can be reached at [email protected] or (716) 504-5790.
