His daughter missing and a secret government program uncovered …
Ben Affleck’s detective thriller Hypnotic was next in line to be on the actor’s list of blockbuster films. That is, until the COVID-19 pandemic halted the film while it was still in pre-production. To insure against such business interruption risks and delay, Hypnotic’s production company, Hoosegow (Hypnotic) Productions Inc., had purchased a Film Producer’s policy from Chubb National Insurance Company.
We have been carefully monitoring the litigation filed across the country, where businesses are seeking coverage for the business interruption losses arising from the government closure orders issued to address COVID-19. Some of the Closure Orders expressly refer to property damage, but it is important to actually plead facts that address the language in the relevant insurance policy and the insured losses sustained. In all the trial court decisions we have reviewed so far, the policies generally cover property coverage and related business interruption where there has been a “direct physical loss or damage” to the insured premises. Many also include separate civil authority coverage for business interruption losses sustained if the premises are ordered shut or partially shut down due to properties within a defined radius of the insured premises suffering from “covered causes of loss”—again, generally physical loss or damage. Some of the policies also include virus exclusions, but early motions to dismiss have focused on the question of whether COVID-19 has caused physical loss or damage to the premises insured.
Businesses buy property insurance to protect their bottom line in the event that something bad results in lower sales or increased costs. Insurance companies seek to improve their bottom line by increasing sales and reducing their largest cost item, claim payments.
In their effort to improve sales, we see insurance companies rely on spokespeople. For example, Farmers Insurance Company has long engaged the talented actor J.K. Simmons to help sell insurance. His spots involve humorous and unexpected accidents that Farmers says it covered. For example, “Coupe Soup” shows a wave inundating a beachside SUV, while “Billy Goat Ruffians” depicts a Bighorn sheep crashing headlong into its reflection on the side of a pickup. Another spot depicts Mr. Simmons warning that the more you learn about coverage, the more you might find hiding in your coverage.
With hundreds of cases now pending nationwide involving insurance coverage claims for business interruptions stemming from the COVID-19 pandemic, a federal panel has been considering the prospect of consolidating the litigation into one multidistrict litigation (MDL) to promote their efficient resolution. On August 12, 2020, the panel issued a decision ruling out a single nationwide MDL, but leaving open the possibility of smaller, insurer-specific MDLs.
In “COVID-19 Business Interruption Litigation May Be Consolidated for a Select Few,” David F. Klein examines this decision and its implications more closely.
As the COVID-19 public health crisis continues to surge globally, insurers have closed ranks behind the position that commercial property policies are “not designed” to cover pandemic-related losses, including business interruption. But the various justifications they advance for this assertion often collapse under scrutiny of the relevant policy language. Insurers have taken an early stand on the threshold issue of whether the actual or threatened presence of coronavirus and/or COVID-19 can even trigger coverage as a matter of law, telling both their insureds and the courts that the virus’s presence does not constitute “physical loss of or damage to property,” the event typically required for property policies to respond.
As businesses around the world continue to assess when and how to reopen their offices, the marketplace has become saturated with innovative “back to office” products and services. Whether a business chooses to invest in the latest body temperature scanner (such as Kogniz, a thermal security platform that uses AI to track fevers from a distance), room occupancy monitor (such as Density, which measures the depth and body patterns of people walking through doors to ensure social distancing is enforced), or UV light sanitizing stations and self-sanitizing keyboards (such as the Cubby and Defender), the decision may be influenced, in part, by the availability of insurance coverage for the additional investment. At a more basic level, businesses may provide workers with personal protective equipment (PPE), such as masks, gloves and hand sanitizer, or make changes to their workspaces such as social distancing signage.
Late in June, the U.S. Supreme Court issued a decision in Liu v. SEC, a closely watched case in which the Court in an 8-1 opinion curtailed the authority of the Securities and Exchange Commission (SEC) to seek disgorgement of profits from private parties in judicial enforcement proceedings. The Court articulated restrictions on the SEC’s disgorgement power, including (1) limiting disgorgement amounts to the net profits from wrongdoing, (2) limiting the SEC’s ability to seek disgorgement of profits on a joint and several basis, and (3) directing the SEC to return disgorged monies to aggrieved investors rather than depositing them in the U.S. Treasury. Although it does not address insurance issues directly, the Court’s analysis of the disgorgement remedy is bound to revive discussion of the issue of insurability of losses suffered as a result of settlements or judgments characterized as disgorgement.
Even if an insurance company attempts to deny its coverage obligations, there are still processes that a policyholder can explore, short of litigation, that could resolve a coverage dispute. Appraisal is an alternative dispute resolution process designed to efficiently resolve measurement disputes between policyholders and their insurers. Appraisal can streamline a coverage lawsuit and narrow the disputed issues—it may even limit the need for expert reports and depositions. There is a strong public policy favoring appraisals throughout the country, not only because they may provide a less expensive alternative to litigation, but also because appraisal rulings are enforceable and strictly applied in court. Some states even require that form standard insurance policies include an appraisal clause requiring either party to, on demand, submit a dispute over the amount of a loss to an appraisal panel. (See Virginia Code § 38.2-2105; Cal. Ins. Code § 2071; McKinney’s Ins. Law§ 3404; N.J.S.A. § 17:36-5.20.) That panel typically consists of two appraisers, who select an umpire.
Almost four months have passed since the World Health Organization declared COVID‑19 a global pandemic on March 11, 2020. Continued social distancing and other precautionary measures have driven many organizations to expand work-from-home protocols for the foreseeable future or even permanently—in turn prompting many organizations to review their cyber insurance policies in addition to the rest of their insurance portfolios. While cyber risk policies are not widely standardized, there are several common traps that are found in many cyber risk policies, and early awareness of them can be the difference between a covered claim and a hard-fought coverage battle. While these traps are not specific to COVID-19 concerns, they may become increasingly important as organizational cyber exposures increase. Three of the more salient pitfalls are discussed in this post.
Insurance policies are legal documents. In the event of a dispute, their scope and meaning will be submitted to a court or arbitrator for interpretation. Most brokers are not attorneys. Most risk managers are not attorneys. And few companies seek counsel to review policies before a claim arises. But underwriters, assisted by their counsel, increasingly are including litigation-focused provisions in their policies. Although these provisions often appear innocuous to readers unfamiliar with insurance litigation issues, they are like time bombs designed to explode in the event of a contested, litigated claim.
