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Archive for the ‘Coronavirus – Insurance Coverage and Extra-Contractual Liability’ Category

Insurers Brace For “Huge” Volume of Business Interruption Suits

Posted on: May 4th, 2020

By: Kevin Kenneally, Michael Giunta & Janet Barringer

“The amount of litigation that is going to be generated…is gonna be huge.”Warren Buffett

At the annual meeting of Berkshire Hathaway in Omaha, Nebraska this past weekend, company chairman Warren Buffett said the insurance industry is preparing for a large volume of costly Business Interruption and related suits by insureds, reported the Wall Street Journal on Monday, May 4, 2020.   Berkshire Hathaway has substantial holdings in insurance companies and is an industry leader.  Buffett discussed many corporate policies do not cover Business Interruption, but because of legislative efforts to expand coverage for claims related to COVID-19, Buffett predicted that “the amount of litigation is going to be generated…is gonna be huge”, according to the newspaper.

Officials in several states, including Massachusetts and New Jersey, have proposed legislation to cover losses arising from Business Interruption related to COVID-19.  In Massachusetts, the proposed legislation would also allow insurers to apply for reimbursement for the costs through the Division of Insurance and allow the Division of Insurance to reimburse licensed insurers selling Business Interruption coverage.  While many businesses already purchased Business Interruption insurance prior to the pandemic, such coverage does not cover communicable diseases such as COVID-19.  Prior to this current pandemic, to obtain coverage for Business Interruption losses, businesses must show direct physical loss to property to prevail on a Business Interruption claim.  The proposed legislation in Massachusetts would require insurance to pay the claims for business interruption directly or indirectly resulting from COVID-19, while creating a means for the state government to reimburse insurers and recover those state funds after the health pandemic ends.

Litigation already has been initiated in federal courts in California, among other states, seeking declaratory judgment that insurance coverage for Business Interruption losses applies in the current public health crisis and alleging bad faith against the insurance carriers for denial of the claims, despite the definitions in the form policies. 

If you have any questions or would like more information, please contact Kevin Kenneally [email protected], Michael Giunta [email protected] or Janet Barringer [email protected]

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include real estate issues, business interruption losses, and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

Insurer seeks declaration that COVID-19 claims for closure-related losses are not covered

Posted on: April 27th, 2020

By Barry Miller

Travelers Insurance Company wants a federal court to declare it has no duty to pay business income loss to a California law firm which claims that COVID-19 closures have caused it to lose revenue.

The ABA Journal reports that Travelers is seeking a declaratory judgment in the Central District of California. The lawsuit addresses claims from the Geragos & Geragos firm in Los Angeles, which says it has lost revenue from its law practice and rent from a tenant because of the closure of its own office, and California courts.

Travelers alleges that attorney Mark Geragos told a claims representative that the COVID-19 virus causes physical damages because other countries affected by the virus have fumigated public spaces. He also stated that scientists have detected the virus in aerosols and on lingering surfaces for some time.

Travelers seeks a declaration the claim does not fall within the policy’s grants of coverage for either “Business Income and Extra Expense” or “Civil Authority.”  Travelers alleges that Geragos’ claims do not trigger the policy’s Business Income and Extra Expense that requires that a loss was “caused by direct physical loss of or damage to property at the described premises.” Likewise, Travelers contends that the Civil Authority coverage requires that any government closure order result from “direct physical loss of or damage to property at locations, other than described premises, that are within 100 miles of the described premises.”

Even if COVID-19 claims triggered either coverage, Travelers says that the Virus and Bacteria Exclusion would apply. It also relies on exclusions for damage caused by Ordinance or Law, Pollution, and acts of a group, organization, or governmental body as bases for the declaratory relief.

FMG has been reporting on lawsuits filed by restaurants, retail outlets, and other businesses making claims for business interruption coverage due to COVID-19 closures. The Travelers action appears to be the first one filed by an insurer.

If you have any questions or would like more information, please contact Barry Miller at [email protected].

Game, Set, Match: Wimbledon’s Decision To Purchase Pandemic Insurance Coverage Could Be A Winner

Posted on: April 13th, 2020

By: Bill Buechner

Among many other more serious impacts related to the COVID-19 pandemic, many prominent sporting events have been cancelled or postponed, including the NCAA Tournament, the Masters, the Kentucky Derby and the French Open tennis tournament.  Also, all American professional sports leagues (except for the NFL) have suspended their seasons indefinitely or postponed the beginning of their seasons, including the NBA, NHL, MLB and MLS.  Each of these scheduling changes has resulted in the loss or postponement of hundreds of millions of dollars in revenue. 

On April 1, Wimbledon announced the cancellation of its championship tennis tournament that was scheduled for June 29 to July 12 in London.  However, unlike the other events and leagues mentioned above, Wimbledon reportedly purchased event cancellation coverage that includes coverage for an event cancellation caused by an infectious disease.  (The British Open golf tournament, which has also been cancelled, also reportedly purchased pandemic insurance coverage).  The All England Lawn Tennis Club, which operates the Wimbledon championships, apparently purchased pandemic insurance coverage about 18 years ago after the SARS outbreak in 2002.  Neither the insurer nor the exact terms of the policy have been publicly disclosed, but several media reports indicate that Wimbledon paid an annual premium of approximately $2 million per year for comprehensive pandemic event cancellation coverage. 

The UK Daily Mail has reported that Wimbledon will receive approximately $141 million under its pandemic event cancellation policy.   Having paid approximately $34 million in premiums over the past 17 years, it appears that Wimbledon’s decision to purchase the infectious disease coverage will benefit Wimbledon to the tune of approximately $107 million.  Media reports estimate that Wimbledon has received approximately $310 million in revenues from the tournament in recent years. 

In contrast to Wimbledon, other events without similar insurance coverage, such as the Masters, the Kentucky Derby and the French Open, are scrambling to avoid or reduce massive losses by re-scheduling their events for the fall and hoping that the COVID-19 pandemic will be over by then and that fans and viewers will attend and watch these sporting events during a different time of year than normal.  Professional sports leagues without pandemic insurance coverage and hoping to limit or prevent substantial losses face uncertainty as to if or when they will be able to start their season (MLB and NFL) or if they will be able to complete their season, including playoffs (NBA, NHL, MLS). 

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include COVID-19’s impact on finances and loans, the FFCRA, the CARES Act and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

Congress Considers Reinsurance Program for Business Interruption Losses Due to Coronavirus

Posted on: April 9th, 2020

By: Zach Moura

Business interruption coverage typically requires that there be direct physical loss of or damage to property, and many business interruption policies contain virus exclusions. But there are currently a number of legislative proposals at the state and federal level seeking to expand business interruption coverage to cover pandemic-related business losses more generally, both prospectively and retroactively.

The House Financial Services Committee has proposed a bill that aims to create a reinsurance program similar to the Terrorism Risk Insurance Act (TRIA), but for pandemics. The Pandemic Risk Insurance Act (PRIA) would extend business interruption insurance to cover any loss resulting from a public health emergency arising from an infectious disease outbreak or pandemic. According to Chairwoman Maxine Waters, the PRIA “would create a reinsurance program similar to the Terrorism Risk Insurance Act for pandemics, by capping the total insurance losses that insurance companies would face.” Like the TRIA, the PRIA is forward-looking and seeks to safeguard businesses against future losses.

The PRIA would create the Pandemic Risk Reinsurance Program within the Treasury Department. Participation in the program would be voluntary and involve payment by carriers of a reinsurance premium to the Treasury, based upon actuarial calculations and program administration costs.

Under the current draft of the PRIA, the total amount insurers would have to pay out against a public health emergency is capped at $500 billion per year. The discussion draft of the PRIA offers several possibilities for establishing a qualifying public health emergency, such as a declaration under the Public Health Service Act, a presidential declaration under the Stafford Act, or certification by the Secretary of the Treasury.

In the event of a public health emergency, participating insurers would be obligated to pay out for covered losses up to 5% of their direct earned premiums from the preceding calendar year as a deductible. The program would reinsure the rest.

A professor at Butler University in Indiana who helped craft, outline, and lobby for the PRIA explained to Inside Indiana Business that the PRIA is “just a more efficient way for the government to backstop the insurance industry so that this coverage can exist in the private marketplace.” He believes that the PRIA could “turn the market for [business interruption] coverage back on.”

There is some question as to whether the proposed size of the program is sufficient. Some prominent investors have recently predicted that the COVID-19 pandemic could end up costing U.S. businesses as much as $4 trillion, 8 times the proposed cap on the program.

Nonetheless, some industry insiders are in favor of creating a backstop like that proposed under the PRIA, noting that the insurance industry is in the best position to offer this coverage as it has the experience to properly price it.

We will continue to monitor developments related to the PRIA and provide updates as they occur.

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include COVID-19’s impact on finances and loans, the FFCRA, the CARES Act and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

Plaintiffs and Lawmakers Raise Bad Faith Issues in COVID-19 Claims

Posted on: April 3rd, 2020

By: Adrianna Michalska and Eric Retter

Every American is reminded daily that Coronavirus spreads easily and quickly. So has the impact on the insurance industry. How fast? Less than a month after the first U.S. death attributed to the virus on February 29, an insurer already faces a coverage and bad faith lawsuit over a COVID-19-related claim.

While the speed with which the first bad faith case arrived may be unexpected, there was little doubt such cases were coming. Other lawsuits hinted at such claims weeks ago, and state efforts to require carriers to pay business interruption claims—regardless of whether their policies actually cover such claims—may also lead to extra-contractual claims.

Restaurants are leading the charge

Several restaurants have sued their insurers, seeking declaratory judgments for potential business interruption claims in the wake of COVID-19. But Big Onion Tavern Group, LLC et. al. v. Society Insurance, Inc., filed March 27 in the Northern District of Illinois,features the first actual denial of such a claim, which prompted the boilerplate bad faith claim.

On March 15, 2020 Illinois Governor Pritzker ordered all restaurants, bars, and movie theaters to close. Executive Order 2020-07 posits that “frequently used surfaces in public settings, including bars and restaurants, if not cleaned and disinfected frequently and properly, also pose a risk of exposure.” One of the plaintiffs in the Big Onion case, Legacy Hospitality, operates a Chicago restaurant called The Vig. On March 20, Legacy asked Society Insurance to pay a claim resulting from the shutdown. Society denied the claim three days later. The denial stated that there was no direct physical loss or damage to property triggering either a business interruption or civil authority claim (Society also denied claims for spoilage and contamination in the denial letter, attached as an exhibit to the Complaint).

The other restaurant owners who are plaintiffs in the Big Onion do not attach denial letters as exhibits, but each alleges that its claims were similarly denied. All of the plaintiffs rely on an email from Society’s CEO and President dated March 16, averring that it indicates the insurer’s intent to deny all such claims without investigating them. (The last page of the email states that it is a “TEST EMAIL ONLY,” sent for the purpose of testing a draft message.)

Suits seeking declarations that these types of losses are covered have been filed in other jurisdictions. On March 30, our colleague Katie Cusack  reported on a declaratory judgment action that was filed in mid-March in a Louisiana state court by a New Orleans restaurant seeking a declaration of prospective coverage under a business interruption policy based upon events and losses that are not alleged to have occurred. [Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd’s London, et al., Civil District Court for the Parish of Orleans, Louisiana].

Political pressure mounts

On the same day the Cajun Conti suit was filed, New Orleans TV station WWL4 reported that  Mayor LaToya Cantrell filed an emergency declaration in the same court. That order states that COVID-19 “caus(es) property loss and damage in certain circumstances.” If there were any doubt about her intentions to influence insurance payments, Mayor Cantrell announced that “[w]e have also been very aggressive as it relates to business interruption support and … insurance. We understand pandemic infections are not included in their insurance coverage, which makes this a priority for my administration to push for these reasons at the state and federal level.”

Mayor Cantrell is not the only politician aggressively pressuring insurers. New Jersey introduced a proposed bill in mid-March that would force insurers to cover business interruption insurance even if they expressly excluded virus and bacteria losses in their commercial property policies. Several states have proposed similar legislation, including New York, where Assemblyman Robert C. Carroll planted the notion that it would be “unconscionable” for insurers to rely on such exclusions after they received bailouts in 2008.

Massachusetts has also proposed such a law. Bill SD.2888 would construe any business interruption policy to include among the covered perils loss of use and occupancy, and business interruption directly or indirectly resulting from COVID-19. The bill would require this construction even when the policy contains express language excluding any losses “on account of (i) COVID-19 being a virus . . . ; or (ii) there being no physical damage to the property of the insured or to any other relevant property.”

Proponents of the Massachusetts bill go a step further by trying to tie the bill to Chapter 176D of the General Laws. Chapter 176D concerns Unfair Methods of Competition and Unfair and Deceptive Acts and Practices in the Business of Insurance. Along with Chapter 93A, it provides relief for bad faith handling of insurance claims. Together, the statutes allow for possible recovery of attorneys’ fees and even double or treble damages for knowing and willful violations.

To date, no state has yet passed bills into law that seek to override policy provisions precluding coverage for business interruptions claims associated with COVID-19. FMG will continue to monitor these bills along with other political efforts that impact the insurance industry and the construction of such provisions in particular.

The FMG #Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include employment issues, the real-world impact of business restrictions, education claims and more.

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include employment issues, the real-world impact of business restrictions, education claims and more. Click here to register.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**