The New Normal: How Can Your Business Protect Assets Today & Tomorrow?
The Insurance Journal recently published a surprising article about Business Interruption Insurance — lawsuits have surpassed 700.
Claims surrounding Business Interruption Insurance are complex and as a result will take years for everything to play out in court. Bottom line, there is a common feeling in the insurance industry that coverages will look dramatically different in the next 5-10 years.
This is an unprecedented time for all. Van Beurden Insurance wants to help everyone navigate through this unknown territory. What is covered? What is not? What are your options as a business owner?
This important article raises some questions business owners and managers should consider:
- How will carriers respond to future viral claims?
- Will carriers add coverages to include Viral claims?
- Will they remove coverages?
- What will insurance premiums look like?
- How will your business respond to this new normal?
In other words, how are you positioning your business to protect your insurable interest for today and in the future? I’m looking for businesses that genuinely want to be proactive at protecting their business. Once you’ve read the article excerpts, please call us and we can start the discussion on what helping you looks like.
Please reach out to our office to discuss your options.
COVID Business Interruption Suits Top 700. Yep, That’s A Lot
When insurance coverage lawsuits brought by businesses seeking coverage for COVID-related interruptions surpassed the 700 mark last week, the natural question to ask was: Is that a lot?
The University of Pennsylvania has been tracking insurance coverage litigation on a COVID Coverage Litigation Tracker (CCLT) powered by Lex Machina, machine learning-focused legal analytics software that harvest information from PACER, the federal docket system.
A webinar slide based on recent CCLT output indicated a figure of 694 total COVID-19 business interruption insurance coverage lawsuits, but Baker said that he had seen a list of 69 new cases on the day of the webinar—July 21. While that number likely had some duplicates (owing to an overly inclusive search he uses to tap the Lex Machina tool), Baker confidently projected that the BI cases had eclipsed 700 at that point—more than Ike, Sandy, Irma and Harvey together.
Although Baker could not compare COVID BI case numbers with those brought in the wake of Hurricane Katrina because Lex Machina only goes back to 2009, he speculated that while the Katrina-driven suits numbers would be bigger than those for the other storms, “it wouldn’t be anything like COVID-19.”
“It’s almost five-times,” he said, comparing the COVID case counts to those following each of the storms individually. Providing one obvious reason for the disparity, Cheatham noted that while a hurricane hits just one area—a single state or multiple states—COVID-19 shut down almost everything for a period of time. “That was a countrywide shutdown essentially, except for some remote locations, where businesses just across the board were shut down,” Cheatham said, turning to Baker to supply other reasons that COVID is a much bigger BI event in terms of the claims being filed than the storms.
Baker offered that the nature of the coverage disputes is different. For hurricanes, coverage disputes centered around question like what share of the loss the insurance company should pick up vs. the federal flood program. “And then also, what was the value of the damage?” In contrast, “for COVID-19, the insurance industry has decided that it’s just not paying absent an affirmative coverage [grant] in the policy.” He added: I think things move to litigation faster and also, with a greater propensity because there’s not that belief that, ‘Hey, we can come to some agreement.’ When the answer is, ‘No, your claim is denied,’ the next step is litigation.”
During a July 21 RiskGenius webinar, Prof. Tom Baker from the University of Pennsylvania Carey Law School explained that a class action decides the case for all the people who are in the class unless they choose to opt out so that decides the case. An MDL “just gets the case ready, and then it goes back to the court where it started and where [cases are] resolved on an individual basis.”
Practically, “MDLs tend to settle as a group and class actions, once class certification is granted, tend to settle too,” he said, noting the similarities between the two that are nonetheless different “from a legal procedure perspective.”
Speculating on what would happen in a COVID insurance litigation MDL, he said discovery would take place. Expert witnesses would address questions like, “What is COVID-19? What does it mean to have virus in the building? What’s the transmission?” In addition, motions to dismiss could be ruled upon. Summary judgment motions could be ruled on. And typically, in an MDL, “with a lot of prodding from the judges, the parties will tend to agree to put cases in different categories and then some categories will be resolved and settled; others won’t.”
Judges may also remand cases selectively for test case trials “because the idea of an MDL is that there’s too many cases…to handle them all really individually so let’s figure out the process that will allow the parties to resolve them.”
In his COVIDigation analysis, Cheatham also tracks the timing of case filings, finding roughly one-month lag between spikes in COVID infections and new high watermarks for litigation filings. Viewing a jump in infections during the week of a June 23 based on the New York Times COVID-19 dataset, Cheatham suggested there could be a surge in insurance litigation near the end of July. (See related article by Cheatham, “COVIDigation: Why So Many Cases? Are More Coming?“)
Baker, going back to his analysis of hurricane landfalls and BI coverage litigation, suggests an even longer loss development tail for insurers to worry about. “The peak doesn’t come until one year” out, Baker said, pointing to a bar graph showing case counts at intervals of six months, 1-2 years, 2-3 years and over three years out for the storm events. While most showed case spikes in the 1-2 year bucket, for Ike, the spike came in 2-3 years, and there were still Sandy BI lawsuits being filed after 3 years. “To the extent that COVID-19 cases follow that pattern, which it’s too soon to tell because we’re not even six months out really, then that suggests that there’s a lot more lawsuits to come,” Baker concluded.
Originally published by the Insurance Journal