If 2020 was the year of the pandemic, 2021 appears to be shaping up to be the year of “returning to normal.” So far, most coverage disputes related to COVID-19 have been reactions to direct losses caused by the virus and related measures (i.e., relating to business interruption or event cancellation). In the upcoming months and years, however, many businesses will have to make proactive decisions on how to return to work. It is important for businesses to understand how those decisions may impact a variety of potential insurance coverages, including possible D&O coverage, as this post will discuss. Additionally, now that insurance companies have a better understanding of the types of risks involved with COVID-19, coverage terms and exclusions in policies issued after the pandemic may become drastically different.
The United States declared a national emergency in response to COVID-19 on March 13, 2020, and states quickly followed with stay-at-home orders that impacted businesses and institutions nationwide. It has now been nine full months since the pandemic emerged in the United States and businesses began to shut down in the face of contamination and civil authority orders effecting restrictions on access to and use of their premises.
Like many businesses, colleges and universities across the country have had to dramatically alter their operations in response to the coronavirus pandemic. Most students completed the spring 2020 semester through online instruction after campuses closed in response to rising infection rates and government shutdown orders. According to the Chronicle of Higher Education, roughly one-quarter of institutions of higher education are providing instruction this fall semester either fully or primarily in person, one-quarter are using a hybrid model, and the remainder operating fully or primarily online.
Rep and Warranty Insurance (RWI) generally provides coverage for financial losses resulting from breaches of representations and warranties made by target companies or sellers in company purchase agreements. Like all insurance policies, RWI policies have exclusions. However, those exclusions, like RWI insurance, are highly specialized.
Last month, the U.S. Court of Appeals for the Ninth Circuit awarded Pillsbury client Northrop Grumman a significant appellate victory, reversing an adverse decision from the U.S. District Court for the Central District of California on a question of first impression within the circuit. The court’s decision in AXIS Reinsurance Company v. Northrop Grumman Corporation not only restores Northrop Grumman’s access to millions of dollars in insurance coverage; it provides stability and predictability in insurance law by rejecting an excess insurer’s assertion of wide-ranging authority to “second-guess” coverage decisions made by underlying insurers.
One word that aptly describes the devastation that is 2020 is “relentless.” The COVID-19 pandemic has caused both personal and economic suffering throughout the world for over six months. Against the backdrop of the already devastating effects of COVID-19, several regions in the United States have recently experienced powerful storms and historically large wildfires. The wildfires in the western United States and Canada have been especially catastrophic this year—burning millions of acres, forcing evacuations, damaging air quality, and creating blankets of smoke extending over much of the country. The fires have destroyed homes and businesses and will lead to hundreds or thousands of insurance claims under homeowners, commercial property, and business interruption policies.
What happens under First Party Property/Business Interruption insurance when more than one arguably covered cause of loss impacts a business at the same time?
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,” Sandra Kaczmarczyk and David F. Klein examine this decision and its implications more closely.