The profound impact of COVID-19 leading businesses to file first-party insurance claims is now well known. Further, insurance companies are systematically pushing back on potential coverage for COVID-19, with some issuing blanket coverage denials without investigation. In other words, this is not an ordinary claims environment. Against this backdrop, many policyholders are facing what may be their first significant insurance claim. This primer will familiarize such policyholders with the initial steps of the first-party insurance claims process. Whether a potential claim is related to COVID-19 or not, understanding the claims process is the best first step towards avoiding pitfalls and maximizing chances of recovery.
A couple months into the widespread shift to remote work for many employees on a temporary basis, an increasing number of companies are considering or already implementing a permanent shift to remote work for most or all of their employees. Unsurprisingly, this shift is rapidly occurring in the technology industry. For example, Twitter’s CEO announced this week that its employees will be allowed to work from home permanently. But it is also occurring across other industries, including the insurance industry. For example, Nationwide is planning to permanently exit its building space, other than four main campuses, before the end of the year and is moving its other employees to permanent remote-working status.
A few months into the COVID-19 pandemic, the insurance focus (understandably) has been on business interruption and event cancellation coverage. Various other coverages are in play as well, given the types of COVID-19-related claims and lawsuits being filed (and that will be filed in the future) against corporate policyholders, from bodily injury due to exposure to the virus, to breach of contract, to securities violations, to misrepresentations and consumer protection violations, just to name a few. However, cyber risks are also highly salient for companies in this “new normal,” and companies must consider the role their insurance plays in preparing for and responding to those risks.
In the uncertain times ushered in by the COVID-19 pandemic, observers of the insurance law landscape can find footing in an old, familiar story: a single insured left deeply dissatisfied by her insurance provider’s coverage for an accident lawsuit against her. But in In re: Farmers Texas County Mutual Insurance Co., a novel question of settlement authority offers the chance to make new law.
We have written much about business interruption coverage for losses arising from the COVID-19 pandemic, and expect that those losses will continue to dominate the insurance landscape for the foreseeable future.
But, in recent weeks, another trend has emerged that will also significantly impact businesses: third-party lawsuits related to COVID-19 alleging causes of action ranging widely from negligence to wrongful death to false advertising to breach of contract to securities violations. In much the same way that businesses should evaluate coverage for lost profits, so, too, should those that face claims and lawsuits be prepared to seek insurance coverage for their defense and indemnity costs.
Over the past several weeks, news reports and their accompanying headlines have signaled what could be a pitched battle between policyholders and insurance companies over coverage for COVID-19 losses. One article noted that “insurance companies are facing political pressure to pay what could be a crippling sum of coronavirus-related claims—even though many of them say their policies don’t cover pandemics.” The headline of that article declared: “Insurers scramble to avoid 9/11-style coronavirus backlash.” Another piece described how the insurance industry had flatly rejected pressure from federal lawmakers “to pay out on business interruption claims from small businesses shut down due to the coronavirus pandemic.” Insurance companies are asking their governments to provide subsidies to cover the losses. Against this backdrop, it is little wonder that lawmakers in Ohio, Massachusetts, and New Jersey have proposed legislation that would retroactively expand business interruption policies to cover losses due to the coronavirus outbreak.
When an insurer pursues a judicial determination on its duty to defend and agrees to defend its insured retroactively only five months after its insured initially requested a defense, has it breached its duty to defend? In most jurisdictions, the answer would be “yes.” In California, for example, an insurer must afford an immediate and entire defense in response to a tendered claim that is potentially covered under the Buss doctrine; belated, after-the-fact payments cannot cure that breach. But under the rule of a new Wisconsin decision, however, the same insurer would not have breached its duty to defend.
In January, we were among the first to post on the insurance implications of coronavirus. Since then, the epidemic has landed on our shores, dragged down the stock market, and become a political football. It has affected supply chains originating in China, with significant results for companies like Apple. And it threatens business continuity in the U.S. It is important to remember that the threat to the economic cycle does not originate from financial forces like a tightening of credit, but in nuts-and-bolts workings of the manufacturing and service economy, where both bottlenecks in supply and a pullback in demand threaten markets. Some of these losses are insurable. This post reviews recent coverage developments and notes practical coverage considerations that companies might overlook.
Must an insurer consider the possibility that putative class members (i.e., potential class members not named in the complaint) other than the proposed class representatives (i.e., the plaintiffs named in the complaint to represent the proposed class) have claims within the proscribed policy period in determining whether its duty to defend has been triggered? Many insurers answer “no,” arguing putative class members’ claims—many of which would otherwise be barred by the applicable statute of limitations—are too speculative to trigger coverage. But courts across the country have disagreed, repeatedly answering the question in the affirmative. Last year, the Northern District of Indiana was the latest court to decide this issue in favor of policyholders.
Cyberattacks are an increasingly frequent and costly risk faced by almost every business today. While the availability and scope of cyber-specific insurance has developed exponentially over the past few years, it is important to remember that more traditional policies (such as general liability and first-party property insurance) can still be a source for coverage in connection with cyber incidents, as a recent court decision demonstrates.