It did not take long.
Within days of the first stay-at-home orders, news began bubbling about how insurance companies were going to handle the crush of business interruption (BI) claims for the economic losses caused by the shutdown. There was no shortage of blogs, articles and discussions about whether there was coverage for these claims, and in the mere three months since, this issue already has a long history. But where do things stand now?
Given all that has happened, we cannot cover everything here, but will instead highlight some events along the way and provide some thoughts on the current trend.
COVID-19-Related BI Lawsuits and Legislation
The first BI coverage lawsuit was filed in Louisiana on March 16, 2020, by a New Orleans restaurant. As we all know, other lawsuits followed. At the same time, and for weeks thereafter, it appeared that there was going to be unprecedented pressure on insurers to provide coverage and efforts began to shortcut actual policy wordings.
For instance, starting on March 16 (with New Jersey), the legislatures of several states sought to legislate coverage. To date, at least eight states have proposed bills that would effectively mandate BI coverage in certain circumstances: Louisiana, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania and South Carolina. However, so far, none of these proposed bills has been passed, all have received some sort of backlash (including arguments that they are unconstitutional), and some (like New Jersey’s) have been shelved.
On March 18, 2020 — before statewide stay-at-home orders had even been issued — members of the U.S. House of Representatives wrote to certain insurance industry trade groups (APCIA, NAMIC, IIABA and CIAB), encouraging them to accept coverage for COVID-19 losses: “We urge you to work with your member companies and brokers to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage.” Over the ensuing weeks, there were many other similar letters sent to insurance companies, trade groups and state insurance commissioners.
The legislation was also introduced in the U.S. House, including HR 6494 (“Business Interruption Insurance Coverage Act of 2020,” introduced on April 14, 2020), which would effectively mandate BI coverage in certain circumstances. (There are also some efforts at both the state and federal level that seek to establish programs or assistance for future pandemics of this nature.)
Even President Trump waded into these murky waters, making insurance coverage an above-the-fold issue. During an early April briefing, he stated: “I would like to see the insurance companies pay if they need to pay; if it’s fair. And they know what’s fair and I know what’s fair…”. President Trump noted that there are businesses who have paid for BI insurance, “and then when they finally need it, the insurance company says, ‘We’re not going to give it.’ We can’t let that happen.”
However, a rational response has arisen.
Good News for Insurers
A group of U.S. senators wrote a letter to President Trump on April 10, 2020, noting that recent efforts to “undermine our understanding of contractual obligations” by mandating BI coverage even when not covered, and: “If the insurance industry were now forced retroactively to cover perils that were never accounted for, commercial insurers could experience significant economic strain and/or insolvencies, given the magnitude of the current cumulative estimated claims.”
Over the following six weeks, similar letters were sent to President Trump (and congressional leaders) from other representatives, most urging that no action be taken that expands coverage beyond the terms of insurance policies.
In the courts, novel approaches have been pursued. For instance, in Pennsylvania, a plaintiff attempted to escalate his coverage case (Joseph Tambellini, Inc. v. Erie Insurance Exchange) directly to the Pennsylvania Supreme Court (under that court’s rarely used “King’s Bench power,” which allows that court to consider an issue of “immediate public importance”). In May, the Pennsylvania Supreme Court declined to exercise that power to hear the case.
Throughout it all, insurers, their trade organizations, and their representatives have resisted efforts to adopt a one-size-fits-all solution (like legislation) and have urged a close examination of the particular facts of a claim and the particular policy at issue. Many state insurance commissioners have supported this position, and it seems the legislative efforts have slowed down. All in all, cooler heads have prevailed. Therefore, it seems that these insurance coverage issues will play out how others do in the ordinary course — first through normal claims-handling and, if necessary, through litigation.
To be sure, there is (and will be) litigation. There are now hundreds of coverage lawsuits pending throughout the country, filed by a variety of businesses (with restaurants in the lead) against dozens of different insurers. In some instances, more aggressive efforts are being made by litigants. For instance, policyholders are already using a strategy of attempting to leverage the abstention doctrine to keep those cases in state court and prevent insurance companies from removing them to federal court.
In addition, several of the coverage cases filed are proposed class actions (where the named plaintiff seeks to represent as-yet-unidentified persons and entities with a similar claim), which are also pending in various state and federal courts in at least California, New York, Ohio, Oregon, Pennsylvania, Texas and Wisconsin. Similarly, there are efforts out of Florida, Illinois and Pennsylvania to consolidate or coordinate the pretrial proceedings of certain federal court coverage cases that have been filed nationwide. The U.S. Judicial Panel on Multidistrict Litigation reportedly will hear argument in July and will determine whether this is appropriate and, if so, which venue should oversee the litigation. Interestingly, both insurance companies and policyholders have opposed the effort.
What has become clear is that insurance companies should continue to engage in good claims handling practices, including a reasonable investigation that allows for an understanding of the claim and a close review of the actual policy language at issue. In the end, sound claims management should prevail.
Max H. Stern is the chair of the Insurance Division of Duane Morris’ Trial Practice Group. Jessica E. La Londe, partner at Duane Morris, is a trial lawyer practicing in the area of civil litigation, with experience in a broad variety of cases, including commercial and insurance coverage litigation. The opinions expressed here are the authors’ own.
Reprinted with permission from PropertyCasualty360, © ALM Media Properties LLC. All rights reserved.