Longtime insurance attorney talks COVID-19 litigation lessons
'We're going to have more law made on business interruption in 2020 and 2021 than probably the sum of all law before that,' Laura Gregory says.
The following is an abridged transcript from “AI Wisdom: Talking Innovation in Insurance,” a podcast produced by Chisel AI and hosted by its founder and CEO Ron Glozman.
Here, in a segment published with permission by our sister publication Insurance Coverage Law Center, Glozman speaks with Laura Gregory, an insurance attorney who has been tracking COVID-19 business-interruption claims litigation. She shares insights about the litigation and coverage lessons learned to date by the mountain of COVID-19-related lawsuits.
Ron Glozman: In the wake of COVID-19, many businesses of all sizes worldwide were forced to close their doors, leading to lost revenue and a spike in business interruption (BI) claims with many lawsuits filed against commercial property insurers for substantial losses caused by coronavirus litigation state by state has resulted in disruptions and disputes and mixed rulings on COVID- 19 business interruption claims… Laura, I know you’ve been keeping a scorecard of BI claims and how the courts are ruling. Where do we stand now?
Laura Gregory: Well, the insurers are, quote-unquote, winning at the moment… (As of early November), we’re somewhere around 30 cases for insurers to eight or nine in favor of insureds.
But these aren’t really wins for insureds because these are all in the context of right-now motions to dismiss. So, what’s happening is the insureds are filing complaints and then the insurance companies are responding to those with a motion to dismiss, saying that the case should be dismissed because they have not in their complaint pledged facts that would trigger coverage under the policy.
The primary issue is whether there’s direct physical loss that’s caused by the coronavirus or by the government orders related to the coronavirus. And on those motions to dismiss the insurance companies are predominating on those. There have been a few the eight or nine that I mentioned in favor of the insureds, the policyholders, and what that means is that the courts have refused to dismiss the case right out of the gate. They’ve allowed the case to continue. So, they have not said that there is coverage. I’m not aware of any cases that have come down to say there is coverage for these claims. That doesn’t mean there won’t be any, but we’re early on in the legal process.
There was one exception, however. There was a case that came down about a week ago, a beer distributor for Disney made a claim saying that the beer that they tried to deliver and sell to Disney went bad because Disney wouldn’t take it because they were shut down. They were making a claim for their lost business because they weren’t able to sell to Disney.
The court actually said that the spoilage of the beer was a direct physical loss, but then went on to say that there was no covered cause of loss that was alleged in the complaint and went ahead and dismissed the complaint.
Glozman: There’s been talk among federal judges about a concept called Grouping. What does Grouping mean? And how would Grouping cases affect insurers?
Gregory: What you’re referencing is called The Multidistrict Litigation, or MDLs. There are a number of MDLs on a variety of subjects. Probably the most famous one right now has to do with the claims against the manufacturers of opioids. There was an attempt to create one of these that would have put in a single group or a single litigation (covering) all of the business interruption claims that were pending in federal court across the country. The panel that had to make the decision on that decided against a multidistrict litigation. So, what that means is, the cases will proceed individually.
I think these MDLs are not useful because the policy language is not uniform. Even by an individual insurer, they can vary. Additionally, even with the same policy language, the facts of each of these claims are much different. For example, the restaurant making a claim may be in a very different situation because they could, for example, do takeout in most states even during times when nothing else was open.
On the other hand, if you were a retail store or a hair salon, you were shut down entirely. So, it’s a different circumstance.
Glozman: Are you seeing any out-of-the-box thinking about new products or discussions around changes in legislation that are coming from insurers in response to the coronavirus crisis?
Gregory: As I’m sure you know, parametric insurance has been available for a while but in more limited ways and hasn’t necessarily been adopted by the bigger carriers, at least not in lines of business that are significant in the communities. This, I think, could be an opportunity to change that. There are easier ways to create coverage that would maybe make coverage available in situations like a pandemic.
One thing that hasn’t come out very much in the discussions in the traditional press and the cases about business interruption is that the damages component of a business interruption claim is very challenging. It is very document-intensive and is not generally a quick process. The insured has to provide a lot of documentation about their income in the past, and their impacts as they have in this case, it would be to address the pandemic.
They’re very individualized. There are a lot of documents. They oftentimes require a CPA. It’s not something that, even if it’s absolutely clearly covered, is going to be quick in most circumstances.
So, if we could look at through, say, a parametric-type policy, something that would limit those situations. It might be possible to get coverage out to more insureds at a price that they could afford. And in the event of a covered claim, get the money out to them faster.
Ron Glozman (contact@chisel.ai) is founder and CEO of Chisel AI, a company that helps commercial carriers, brokers and reinsurers manage documents and data. Laura M. Gregory (lgregory@sloanewalsh.com) is a partner at Sloan Walsh in Boston and a member of the firm’s insurance group.
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