The COVID-19 legal landscape is evolving daily. Teams of Gilbert attorneys are utilizing our deep commercial insurance expertise to constantly review and evaluate legal developments that will impact countless industries. In the links below, you will find up-to-date information on the new initiatives from courthouses to statehouses. As you consider the difficult environment before you, Gilbert is prepared to assist with the shifting insurance landscape.
As we’ve previously reported, we’re starting to see lawsuits brought against companies in certain industries related to COVID-19. The latest in this trend are suits filed against colleges and universities that discontinued on-campus classes in the wake of the pandemic and shifted to online classes. In connection with the shift in teaching methods, the educational institutions sent students home. Now, a number of students at certain institutions have filed lawsuits against their schools and seek the return of tuition and various fees, including those charged for room and board. The lawsuits, which are typically being filed as class actions, seek recovery based on a number of theories, including breach of contract, unjust enrichment, and conversion. The lawsuits seeking tuition refunds raise a particularly interesting issue as to the substance and quality of online learning as compared to traditional learning and whether students receiving online learning are obtaining the benefit of their bargain. We will be monitoring these suits as they progress. Colleges and universities facing such lawsuits (or at risk of facing such suits) should have an attorney check their insurance policies, including directors and officers liability insurance, to see if coverage potentially exists.
We’ve seen the number of cases brought against insurers regarding business interruption coverage increase rapidly in the last several weeks. More recently, we’ve started to see class actions brought in federal courts – typically, these plaintiffs seek to bring claims on behalf of a nationwide class against a single insurer. Now, a pair of Philadelphia-based restaurants are seeking to establish a Multi-District Litigation proceeding to resolve all cases regarding insurance coverage for COVID-19 losses. Their motion, filed with the Judicial Panel on Multi-District Litigation, argues that the issue of whether business interruption insurance policies will cover losses incurred by businesses forced to close as a result of stay-at-home orders is one that should be addressed in a uniform manner across the country. They propose consolidating all federal actions on this issue, regardless of the insurer or specific policy language, in the Eastern District of Pennsylvania. We will monitor these developments to see whether courts are receptive to resolving these issues on a mass scale.
As we reported last week, we’re starting to see personal injury actions against cruise ship lines claiming that they failed to protect passengers from the coronavirus. Now we’re starting to see similar suits against other industries. A wrongful death action has been brought against a nursing home in Washington state that was recently the site of a coronavirus outbreak. According to the complaint, the facility failed to protect its residents, leading to numerous deaths, including the death of the plaintiff’s mother. The lawsuit claims the nursing home had known respiratory outbreak since January, but failed to quarantine residents and instead held a Mardi Gras party, allowed visitors to go in and out of the building, and delayed reporting the outbreak of disease. For a description of the suit, see https://abcnews.go.com/Health/family-files-1st-wrongful-death-lawsuit-life-care/story?id=70122496.
Businesses across the country are filing suit against their insurers to determine coverage for their COVID-19 losses. The first such lawsuit, Cajun Conti LLC, et al. v. Certain Underwriters at Lloyd’s, London, et al., was filed by owners of a New Orleans restaurant on March 16, and since then, restaurants, movie theaters, and small businesses from California to Pennsylvania have followed. The plaintiffs generally seek declarations that their losses are covered, although some also bring breach of contract claims against insurers who have denied coverage. As we have noted, policies that provide business interruption coverage typically require suspension of the insured’s operations to be caused by “direct physical loss of or damage to property.” Some plaintiffs are already relying on language in orders from government authorities to support their case that this has been established – in Boutros v. Sentinel Insurance Co., for example, the complaint points to a stay-at-home order from Harris County Judge Lina Hidalgo, which states that “the COVID-19 virus causes property loss or damage due to its ability to attach to surfaces for prolonged periods of time.” We will be monitoring these cases closely as they progress.
We’re starting to see more lawsuits brought by people who say that businesses failed to protect them from the coronavirus. Just yesterday, a class action was filed in Florida by cruise ship passengers against Costa Cruises (a subsidiary of Carnival), alleging that Costa was negligent in failing to warn passengers that a passenger on a prior voyage was disembarked due to symptoms of the coronavirus. The complaint alleges that passengers were injured as a result and that Costa is liable for negligence, negligent and intentional infliction of emotional distress, false advertising, and negligent misrepresentation. Plaintiffs seek damages in an unspecified amount. (For a copy of the complaint, see https://www.lipcon.com/work-in-progress/complaint-costa-luminosa-coronavirus/.) We can be sure that, as the crisis continues, we’ll see more lawsuits of this sort against a variety of businesses. Companies should have an attorney check their general liability insurance policies, which generally cover claims for personal injury caused by an accident or exposure to injury-producing conditions, for potential coverage.
As the COVID-19 pandemic has grown, insurers have been repeatedly attempting to send the message that the policies they have issued, such as property policies providing business interruption losses, are not intended to cover losses resulting from the pandemic. In stark contrast to that message, however, several insurers have recently reported significant losses during Q1 2020 as a result of the COVID-19 pandemic. Some of these losses are described below:
- American International Group Inc. (“AIG”) reported last week a 93% drop in quarterly adjusted profit, due to the fact that it was setting aside money to cover COVID-19 related claims. Brian Duppereault, AIG’s CEO, said AIG believes COVID-19 will be the “single largest [catastrophe] loss the industry has ever seen, and it will continue to have significant global economic ramifications for the foreseeable future.”
- Axis Capital Holdings Ltd. Recently estimated it will pay first-quarter catastrophe-related claims of $300 million, including $235 million in COVID-19 claims.
- Reinsurer Munich Re has reported Q1 2020 losses of nearly $700 million largely due to COVID-19
Many policyholders who have submitted COVID-19 related claims have likely received, or will receive, denial letters from their insurers. However, the public statements by insurers described above and their acknowledgment of losses caused by COVID-19, amplify the message we have been expressing in prior posts and articles—these policies are not “one size fits all” and variations between the coverage provisions (and exclusions) found in policies might provide a policyholder with arguments that coverage does indeed exist. Policyholders facing COVID-19 related claims or losses should consult with counsel to determine if relevant coverage exists.
Directors and Officers
A Gilbert COVID-19 Webinar on D&O Insurance, April 15, 2020
On April 15, Gilbert attorneys Rachel Kronowitz and Dan Wolf conducted a timely and valuable webinar entitled “Directors & Officers Insurance: Key Considerations for COVID-19.” The webinar was hosted by Perrin Conferences, and can be seen in its entirety here.
A new class action against Zoom Video Communications, Inc., demonstrates the wide scope of businesses affected by the Coronavirus pandemic. As everyone knows, Zoom sells software that allows users to conduct meetings by video. Usage has stepped up dramatically since more people have begun working remotely in response to the pandemic and stay-at-home orders. The uptick in usage has focused attention on alleged flaws in the Zoom software that allegedly permit hackers to snoop on Zoom meetings. On April 8, an investor filed a class action lawsuit in federal district court in San Francisco charging that Zoom, its CEO, and its CFO defrauded purchasers of Zoom stock by failing to disclose the alleged software flaws. In the complaint, plaintiff Michael Drieu alleges that “Defendants made materially false and misleading statements,” including statements that misrepresented or failed to disclose that “Zoom had inadequate data privacy and security measures; that its video communications service “was not end-to-end encrypted”; that users of Zoom’s communications services were consequently at an “increased risk of having their personal information accessed by unauthorized parties, including Facebook”; and that “usage of the Company’s video communications services was foreseeably likely to decline when the foregoing facts came to light . . . .” Plaintiff alleges that Defendants’ conduct violated provisions of the federal securities laws that generally prohibit fraud in the purchase or sale of securities. The complaint may be found at https://www.documentcloud.org/documents/6827784-Zoom-shareholder-suit.html.
We can expect to see more federal securities actions against businesses—and their officers and directors—for allegedly failing to alert investors to the Coronavirus issue or its effects. Affected officers and directors should consult with counsel to determine if their Directors & Officers Liability Policies cover such claims.
From the Gilbert Blog Series: Non-Public Companies Should Not Forget D&O Insurance When Evaluating Coverage That May Respond To COVID-19-Related Losses, March 25, 2020.
Though most initial COVID-19 insurance-related analysis is focusing on first-party insurance, companies should also review their third-party insurance coverage in response to this pandemic. Non-public companies would be well-advised in this review not to overlook directors and officers (“D&O”) insurance, which often provides quite broad liability coverage to such companies. Although D&O coverage for public companies is generally limited to “securities claims,” coverage for non-public companies generally includes any “claim” against the company not otherwise excluded. This broad coverage grant could prove extremely valuable for many non-public companies, given the volume and variety of lawsuits likely to result from COVID-19. Read more here.
Regulators Discount Prospects for Business Interruption Coverage, April 24, 2020
As businesses continue to streamline operations or shutter altogether, state insurance commissioners are publicly tamping down expectations regarding the prospects for business interruption coverage arising from COVID-19 closures. On April 17, the Insurance Commissioner for Washington, Mike Kriedler, stated that the “vast majority” of insurance policies issued in the state that provide coverage for business interruption “specifically exclude coverage for economic loss due to a viral pandemic.” A few days later, in a letter to commercial policyholders, the North Carolina Insurance Commissioner, Mike Causey, wrote that “standard business interruption policies are not designed to provide coverage for viruses, diseases, or pandemic-related losses because of the magnitude of potential losses.” Commissioner Causey went on to cite estimates that business continuity losses from COVID-19 just for small businesses of 100 employees or fewer could amount to between $220 billion and $383 billion per month and noted that the total reserve funds for all U.S. home, auto, and business insurers combined to pay all future losses is only $800 billion. Washington Commissioner Kriedler cited estimates that closure losses just for businesses with 100 or fewer employees are running between $255 billion and $431 billion a month. For small businesses, these losses are approximately 43 to 72 times their monthly commercial property insurance premiums. As these statements make clear, the financial and policy considerations of this COVID-19 crisis are driving state insurance commissioners to avoid pushing carriers to cover COVID-19 related business interruption claims, and, in some cases, to discourage insureds from pursuing such claims. Ultimately, the response of the insurance industry to these claims will be driven by civil litigation and possibly state or federal legislation, and not by the industry’s regulators.
Regulators Press Insurers on Business Interruption Coverage, April 6, 2020
Regulators in New York and California have begun to press insurers on their handling of business interruption and other claims related to COVID-19. The New York Department of Financial Services has issued a letter instructing property and casualty insurers authorized to do business in the state to provide “certain information regarding the commercial property insurance it has written in New York and details on the business interruption coverage provided in the types of policies for which it has ongoing exposure,” including an explanation of the coverage each policy offers in regard to COVID-19 losses. The letter noted that policyholders have urgent questions about business interruption coverage, and the Department of Financial Services “considers Insurers’ obligations to policyholders a heightened priority” due to COVID-19.
California’s Department of Insurance (CDI) issued a similar notice on March 26, noting its “immediate questions” related to business interruption coverage written to California policyholders. CDI directed insurers to provide information about the volume of business interruption, civil authority, contingent business interruption, and supply chain coverages that insurers wrote by April 9. The insurance industry has been outspoken since the outset of the COVID-19 crisis that their business interruption and property policies typically will not provide coverage for COVID-19 claims. The inquiries by insurance regulators in New York and California suggest otherwise.
State and Federal Legislation
Although COVID-19 infections remain prevalent, and in many locations continue to rise, jurisdictions at the federal, state, and local levels are increasingly turning their attention to reopening the economy. As we have discussed in prior posts, reopening will present multiple challenges, including the threat to businesses that do reopen that they will face bodily injury claims from either employees or customers that contract COVID-19. Recognizing that the threat of litigation against companies may dissuade them from opening their doors, Congress is turning its attention to the issue of potential business indemnity for civil litigation involving such claims against companies. The Senate Judiciary Committee held a hearing on this topic on Tuesday. Senate Majority Leader Mitch McConnell has indicated that a broad liability shield for companies is a top Republican priority while Senate Democrats are expected to oppose such liability shields. Both plaintiff and defense attorneys, as well as other special interest associations, have also weighed in on the potential pros and cons of such a measure. Given the large volume of COVID-19 related lawsuits that have been filed, and are expected to be filed in the future, this is a significant issue that we will continue to monitor.
DTW 1991 Underwriting Limited has filed a motion to dismiss a case brought by Prime Time Sports Grill, a restaurant in Tampa that is seeking insurance coverage for its COVID-19-related losses. The insurer argues that Prime Time failed to allege a “direct physical loss of or damage to property” at its premises, and has therefore failed to plead a claim that is covered by the policy. Prime Time only alleges economic losses (i.e., business income loss) caused by COVID-19, which the insurer claims are potentially covered only if Prime Time can demonstrate “direct physical loss of or damage to property.” The insurer also takes issue with Prime Time’s allegation that it was forced to close due to orders from Florida’s Governor. On the contrary, says the insurer, one order encouraged restaurants to remain open and provide delivery, carry-out or curbside service – which Prime Time did. Prime Time’s response to the motion is due May 18.
As we noted at the beginning of April, New York is one of a growing number of states that has introduced legislation that would construe insurance policies that provide coverage for loss of use and occupancy and business interruption to include coverage for business interruption resulting from COVID-19. Unlike the bills introduced in many other states, which have gone untouched since they were introduced, Assembly Bill A10226 has twice been amended. Earlier this month, the bill was amended to provide that policies that expire during the period of declared state emergency due to coronavirus shall be subject to an automatic renewal at the current rate of charge. It also declared null and void any provision that would allow an insurer to deny coverage based on a virus, bacterium, or other microorganism, among other changes. On April 29, a second amended version of the bill was introduced; among other changes, the bill further provides that policies that insure against business income loss resulting from loss, damage, or destruction of property owned by others – including direct suppliers and/or receivers of the insured’s goods or services – shall be construed to provide coverage for contingent business interruption during the period of declared state emergency due to coronavirus. New York’s legislators, it seems, remain dedicated to seeing that businesses are able to recover COVID-19-related losses from their insurers.
South Carolina legislators are the latest to introduce a bill addressing business interruption coverage in the wake of COVID-19. The South Carolina bill is similar to those introduced in other states, but notably specifies that an insurer may not deny a claim for loss of use and occupancy or business interruption with respect to COVID-19 – including denials on account of (a) COVID-19 being a virus, even if the policy excludes losses resulting from viruses; (b) there being no physical damage to the property; or (c) orders issued by any civil authority, or acts or decisions of a governmental entity. In this way, the legislation anticipates (and rejects) potential arguments that would likely be raised by insurers in attempting to deny claims. The legislation also permits insurers to seek relief and reimbursement from the state, as we’ve seen in other states’ proposed bills.
State lawmakers continue to propose legislation designed to allow businesses to recover COVID-19 losses under their insurance policies. In addition to those mentioned in our previous update, Pennsylvania lawmakers have now put forth two bills regarding business interruption. The first, like many we’ve seen, provides that an insurance policy that insures against loss or damage to property, which includes the loss of use and occupancy and business interruption, shall be construed to include coverage for business interruption due to global virus transmission or pandemic. The second establishes a COVID-19 Disaster Emergency Business Interruption Grant Program, which would award funds to businesses that have submitted an insurance claim under a business interruption insurance policy and had their insurance claim denied. Additionally, Rhode Island lawmakers have indicated their intent to introduce legislation that would allow businesses to recover COVID-19 losses if they had business interruption insurance in force on the date that Rhode Island Governor Gina Raimondo declared a state of emergency. Since Rhode Island’s legislative session is currently suspended, lawmakers cannot currently introduce such a bill.
The number of state legislatures taking action to help businesses recover under their insurance policies continues to grow. On March 16, New Jersey was the first state to propose legislation addressing business interruption coverage. Since then, four more states – Massachusetts, Ohio, and most recently, New York and Louisiana – have followed suit. The proposed bills in these jurisdictions generally provide that, notwithstanding any other law or policy language to the contrary, every insurance policy that insures against loss or damage to property which includes the loss of use and occupancy and business interruption shall be construed to include coverage for business interruption resulting from COVID-19. The New Jersey, Massachusetts, Ohio, and New York bills provide mechanisms for insurers to seek reimbursement from a state established and managed fund for losses paid related to COVID-19. It is expected that additional states will join this growing list of jurisdictions seeking to mitigate the economic losses sustained by businesses due to COVID-19 through insurance.
Mayors are joining governors and legislators throughout the country in issuing orders that may support policyholder efforts to obtain business interruption and property damage coverage for COVID-19-related losses. New York City Mayor Bill de Blasio has issued Emergency Executive Order No. 100, which provides that “this order is given because of the propensity of the virus to spread person to person and also because the virus physically is causing property loss and damage[.]”
New Orleans Mayor LaToya Cantrell has issued a similar proclamation in which she stated there is “reason to believe that COVID-19 may be spread amongst the population by various means of exposure,” including by attaching to surfaces, “thereby spreading from surface to person and causing property loss and damage in certain circumstances[.]” First-party property insurance policies that include a business interruption component may cover lost “business income,” among other things, but often require a suspension of the insured’s operations caused by “direct physical loss of or damage to property.” Insurers have latched on to this language in denying claims, arguing that a suspension of business due to COVID-19-related closures and government orders does not result from physical loss or damage to property; thus coverage for business interruption losses is not available.
The statements of these mayors, as well as those of governors in Louisiana and West Virginia, suggest otherwise and may provide a further leg up for policyholders pursuing coverage for COVID-19 claims in these jurisdictions and elsewhere.