May 6, 2021

Post-Sandy, Gov. Cuomo’s Gaseous Hot-Air Mass Poses Three Threats to Insurers

[NOTE:  This week, the “Claims Coach” welcomes a guest post by friend and fellow claims colleague Chantal Roberts CPCU, AIC, RPA.  Chantal is Vice President of Claims at Affirmative Risk Management, an independent adjusting firm and a third party administrator for several syndicates at Lloyd’s of London. Her career reflects 14 years of accomplishments in the insurance industry with specialization in commercial general liability, special investigations/fraud investigations, commercial auto insurance, homeowners insurance, and cargo insurance.  You can reach her at (501) 228-0900 or at] 


In Christmas in Connecticut, Uncle Felix asks Sam to define “cat-eh-stroph”.  Sam responds, “It’s from the Greek.  It means ‘a misfortune, a cataclysm or a serious calamity.’”  The Eastern Seaboard experienced a catastrophe from Super-storm Sandy.  Now, the insurance industry is suffering misfortunes from well-meaning governors wanting to protect their constituents.

New York’s Governor Cuomo was among the first politicians to state, “(h)homeowners should not have to pay hurricane deductibles for damage caused by the storm.”  Later, Governor Cuomo issued Executive Order 52, which indefinitely suspended the statute of limitations for any claim which expired on October 26, 2012 or later.  Finally, Governor Cuomo imposed emergency regulations requiring insurance companies to respond to claims in six days rather than the N.Y. Comp. Codes R. & Regs. tit. 11, § 216.4(a) approved 15 days.

Whoa — wait a minute.  Does a governor have the right, power, and/or privilege to do this?

Like any question regarding insurance coverage, the answer is: maybe.  Let’s look at three dimensions of Gov. Cuomo’s edict:

1)      Hurricane Deductibles are deleted from the insurance contract

While the insurance industry is state-regulated, the Department of Financial Services forms the rules and regulations.  The State of New York is not a party to the insurance contract.  Cuomo isn’t empowered to reform the policy, unless a court approves it.  Cuomo is acting within his role as a consumer advocate, but this pronouncement irreparably harms New York citizens and the carriers themselves.

First, insureds hear, “You don’t have to pay a deductible.” While explaining the insured’s coverages, adjusters already start off on the wrong foot with policyholders, most of whom are shocked to learn they don’t have a “hurricane” deductible; they have a “wind/hail” deductible.  Hurricane, Tropical-Storm, Super-Storm Sandy was ultimately a windstorm.

Second, underwriters calculate premiums based on deductibles and the amount of risk both the insured and the carrier assume.  Lloyd’s of London syndicate — QBE — predicts Sandy losses will exceed of $20 billion.  With Cuomo’s  pre-emptive strike against the hurricane deductibles, the carriers could be responsible for paying an additional $2 billion.

Most insurers did not plan on spending that additional sum; if they had, premiums would have been very different, higher and, likely unaffordable for the average New Yorker.  Can small, regional insurers survive an unplanned expenditure of $2 billion or even a fraction of that eye-popping sum?  Will Cuomo and the department of insurance later have uninsured constituents because of insolvency caused by their unilateral policy reformation?

2)      Executive Order 52 indefinitely suspends the statute of limitations for any claim. 

When a catastrophe or state of emergency occurs, Cuomo can exercise (and has) authority pursuant to Section 29-a of Article 2-B of the Executive Law of New York.

So, Cuomo surely has the right to suspend Section 201 of the New York Civil Practice Law and Rules.  The issue here, though, is .. should he have?  As a consumer advocate, Cuomo insists that the reason for this action is to protect those who cannot reach the courthouse to file suit timely.

After Hurricane Katrina in 2005, Louisiana courts moved the statute date (called “prescription period” in Bayou country) by a year.  Like New York, Louisiana courts were destroyed by flood water and wind damage.  Widespread evacuation and flooding due to levee breaches, plus the resulting damage from Hurricane Rita created a perceived need to extend the filing period, according to Todd Musgrave, New Orleans insurance defense attorney at Musgrave, McLachlan & Penn, L.L.C. who handled many first party hurricane losses.

Musgrave further states, “This had the effect of stretching already thin claims resources even thinner, driving up litigation costs, and taxing insurers’ ability to adequately allocate reserves, procure future reinsurance, and ultimately ensure their health for future catastrophes.”  Because of this uncertainty, many carriers left the state, creating a void of affordable premiums for homeowners.  This may have the same effect in New York due to Cuomo’s proclamations.

3)      Time deadline to respond to a claim has been moved from 15 days to 6 days.

On November 29, 2012, Cuomo issued an emergency amendment to New York Insurance Regulation 64.  This reduced the time for insurers to respond to a claim from 15 days to 6 in ten designated counties.   Furthermore, if the “response” includes an inspection, that inspection should occur within the six-day window.

Get out your Stop-watches!  The amendment is not only ludicrous, but is also impossible to honor, opening every carrier to sanctions or bad faith allegations, which will later be prosecuted at some unknown date due to the aforementioned suspension of the statute of limitations.

To be clear: every insured deserves a prompt investigation. It is the cornerstone of good faith claim-handling.  As a claims manager, I personally vetted three CAT adjuster supervisors.  Two said that, due to the lack of gas immediately after Sandy, some appraisers rode bikes and borrowed ladders from insureds simply to inspect the premises.  They went on to say that FEMA barred appraisers access to destroyed areas because of rules that, if one were to enter a damaged area, one needed three people in the vehicle.  The appraisers had to get a special form letting them enter the designated areas one at a time.

Finally, as winter approaches, daylight begins around 7 am and ends around 5pm.  That’s a short day for getting on roofs and in houses with no electricity. Appraisers cannot physically inspect the 60+ claims they are receiving daily into a 6-day period.

Sandy was indeed a catastrophe as Uncle Felix and Sam discussed.  Usually when a well-meaning act goes awry in Hollywood, the protagonist saves the day.  Here, though, it will take a long time to rebuild the relationship that carriers have with the State of New York and its insureds, due to Governor Cuomo’s edicts.


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