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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.**

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