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| Peter Halprin |
After more than a year of pandemic insurance litigation, nearly 1,900 lawsuits have been filed.[2] In those lawsuits, courts have issued more than 400 decisions on dispositive motions.[3]
In April, the U.S. Court of Appeals for the Eighth Circuit became the first appellate court to hear an appeal on one of these decisions in Oral Surgeons PC v. The Cincinnati Insurance Co.[4] Also in April, the Ohio Supreme Court became the first state high court to take up these issues when it agreed to certify the following question in the case Neuro-Communication Services Inc. v. Cincinnati Insurance Co. et al.:
Does the general presence in the community, or on surfaces in the community, of the novel coronavirus known as SARS-CoV-2, constitute direct physical loss or damage to property; or does the presence on a premises of a person infected with COVID-19 constitute direct physical loss or damage to property at that premises?[5]
While new decisions continue to come out almost daily, new cases are being filed at an even faster rate. And, as statute of limitations and contractual deadlines approach, as happened at the one-year mark, even more new cases will undoubtedly be filed. Thus, in viewing the results to date, I think back to Churchill's quote and estimate that we are merely reaching the end of the beginning.
Although the results of these cases will undoubtedly be critical to the survival of many policyholders, there are also broader questions emerging from these cases: Namely, what should risk management professionals and in-house counsel take away from the litigation? What lessons have been learned?
While there are countless lessons to be learned from the pandemic insurance wars, this article highlights three of particular importance to risk management professionals and in-house counsel.
The Value of Relationships
In an aptly titled January 2014 article in Entrepreneur, "The Key to Success? Relationships," Steve Tobak posited: "The key to business success is winning and keeping customers. And the key to winning and keeping customers is, and has always been, relationships."[6]
Consumers of insurance, as customers, valued their relationships with their insurers and thought that their insurers equally valued these relationships. In the wake of the pandemic, insurance buyers aren't so sure.
The policyholders who thought they had good relationships with their insurers have received a rude awakening. The current environment has laid bare the limitations on the importance of the insurer-insured relationship when insurers are facing numerous claims.
In one example, a client with a complex and expensive insurance program, and long-standing relationships with their insurers and brokers was dismayed to hear from their broker that there was little the broker could do to help with respect to a pandemic insurance claim in the current claims environment.
As counsel, I try to work with clients and their brokers to leverage their relationship with insurers to try to find business resolutions to disputed claims, and to avoid litigation. The above example, however, demonstrates the challenges inherent in leveraging relationships in the current environment. This isn't to say it is impossible, just that a measure of realism needs to be injected into expectations regarding such relationships.
Too Big to Bail Out?
Policyholders in the U.S. were highly encouraged in January when the English Supreme Court largely upheld the lower court ruling and rendered a decision in favor of coverage in a pandemic insurance test case.[7]
Per the court of first instance:
[T]he FCA estimated that, in addition to the particular policies chosen for the test case, some 700 types of policies across over 60 different insurers and 370,000 policyholders could potentially be affected by the test case.[8]
The test case, brought by the U.K. Financial Conduct Authority, did not resolve all the pandemic insurance coverage disputes in the U.K., but it was tremendously effective such that, as of this writing, the FCA reported that over 16,000 pandemic insurance claims were amicably resolved and more than £467 million (approximately $658.7 million) has been paid in final settlement of those claims.[9]
In continental Europe, there were numerous reports of public-private partnerships developing a formula whereby insurers paid some portion of business income losses, while government paid at least a portion of the rest. In the words of Adrian Ladbury in Commercial Risk:
No doubt risk managers, insurers, lawyers and politicians in North America and the UK will gasp with horror at the compromise agreements reached in Switzerland and Bavaria. But the fact is that most continental European risk managers will likely applaud the moves, which seek to help rebuild local economies while at the same time hopefully averting hugely expensive, time-consuming and economically damaging litigation over the validity or otherwise of BI policies for losses incurred by small businesses due to the global lockdown caused by the virus.[10]
In the U.S., there wasn't a government-led test case. Nor did the government engage in public-private partnerships to address business income claims, although some pertinent bills were proposed in 2020. And, although we had a number of COVID-19 relief bills, legislation like the Coronavirus Aid, Relief, and Economic Security Act focused on keeping workers employed, not compensating businesses for their business income losses.
The takeaway here being that a company's risk management plan premised on the assumption of government intervention may be foolhardy. Like the point on relationships, some realism needs to be injected into the view of what government can and will do to support businesses in times of crisis.
Dispute Resolution Options
A final takeaway, in light of the extensive litigation taking place throughout the country, is that a policyholder should think about what dispute resolution mechanism it would like to use to resolve any disputes that may arise under a policy. Assuming what is desired is something other than whatever the insurer presents, the policyholder should push for the desired alternative dispute resolution mechanism to be included in its policy.
Policyholders often don't think about their available options — including negotiation, mediation, arbitration, litigation and endless permutations of these — while negotiating a policy. After all, no one buying insurance wants to think about having a claim that their trusted carrier won't pay in accordance with the policy. And, even if a prospective insured wants the policy to address these options, an insurer may not agree to deviate from preapproved conditions in the policy.
In a New York Law Journal commentary on mediation and pandemic insurance disputes, I mentioned that both insurers and policyholders bear considerable risk in COVID-19 coverage disputes in the absence of appellate rulings on these issues.[11]
But insurers arguably bear the greater risk in litigating coverage disputes because a negative ruling against them — particularly one involving the interpretation of their form language — will likely have implications far broader than just the specific dispute in which the ruling is made.
Every insured's legal and risk management teams will need to work together to navigate these issues in connection with the purchase of a policy, so as to obtain the best possible dispute resolution mechanism for a given case.
To the extent a company wants something other than litigation, even as an option, this should be negotiated in advance. After all, it is very challenging to compel a party with whom you have a dispute to engage in a resolution option that they did not agree to in contracting.
Looking Ahead
As appellate decisions are issued, there will be more clarity in relation to the law and it will be easier to assess risk. But, thinking about the bigger picture, there are some things that lawyers and risk managers can do now to help prepare for future events.
In particular, focus should be given to the extent to which the plan is reliant upon relationships or government intervention. In addition, if a dispute appears likely to end up in court, but that outcome is not desired by the company, lawyers and risk management professionals at the company, they should work together to determine what is needed and to obtain it when buying insurance.
With the coming appellate rulings, and the resolution of some pending battles, we may soon be at the end of the beginning. Whatever the outcome, in-house lawyers and risk professionals should monitor these developments and also think ahead to future risk management crises.
Peter Halprin is a partner at Pasich LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] https://winstonchurchill.org/the-life-of-churchill/war-leader/1940-1942/autumn-1942-age-68/.
[2] https://cclt.law.upenn.edu/.
[3] https://cclt.law.upennhttps://cclt.law.upenn.edu/judicial-rulings/.edu/judicial-rulings/.
[4] https://www.law360.com/articles/1374352/a-guide-to-the-1st-appellate-clash-over-covid-19-coverage.
[5] https://www.law360.com/articles/1375264/attachments/0.
[6] https://www.entrepreneur.com/article/230783.
[7] https://www.fca.org.uk/news/press-releases/supreme-court-judgment-business-interruption-insurance-test-case.
[8] https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-judgment.pdf., ¶ 7.
[9] https://www.fca.org.uk/data/bi-insurance-test-case-insurer-claims-data.
[10] Adrian Ladbury, "Helvetia to pay 50% of restaurant BI losses despite exclusions," Commercial Risk (May 5, 2020), https://www.commercialriskonline.com/helvetia-to-pay-50-of-restaurant-bi-losses-despite-exclusions/.
[11] https://www.law.com/newyorklawjournal/2021/03/12/isnt-it-time-to-consider-mediating-covid-19-business-interruption-insurance-claims/.
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