Stroke-of-the-Pen Risk in Insurance Coverage

Superstorm Sandy, which struck the East Coast in October 2012, is estimated to have caused $19 billion in private insurance losses and an additional $12-to-$15 billion in losses covered by the National Flood Insurance Program. In the immediate aftermath of the disaster, Governor Andrew Cuomo and Department of Financial Services Superintendent Ben Lawsky in New York, and Governor Chris Christie in New Jersey, promulgated a number of emergency measures that effectively rewrote insurance coverage in their states. This “stroke of the pen” altered existing policies in significant ways and put insurers on notice going forward that elected officials and regulators may respond to natural disasters by unilaterally and retroactively changing the rules of the game. Indeed, New York's Department of Financial Services (“NYDFS”) has stated as much in a recent circular letter describing the “post-disaster regulatory measures” it may take in the future, including a moratorium on policy cancellations and non-renewals and expedited handling of claims.