Category: Business Income Cases

Categories
Beyond the U.S. Business Income Cases

Causal requirements and “non-damage” policy wordings in the FCA test case

Author: Jordan Einstein Date: 07.30.20

Causal requirements and “non-damage” policy wordings in the FCA test case

Reading the Particulars of Claim and transcripts from the FCA test case proceeding in the UK, I learned about another important difference between the test case and the US cases. The scope of the test case is limited to non-damage policy wordings. That means the court in that case will not address potential interpretations of “physical loss of or damage to property” and similar wordings that insurers rely heavily on in the US cases.

For example, in Gavrilides Management Company et al. vs. Michigan Insurance Co., the presumptive first Covid-19 insurance coverage case decided in the US, Judge Joyce Draganchuk granted the defendant insurance company’s Motion for Summary Disposition. Judge Draganchuk granted the motion on the procedural grounds that the plaintiff failed to allege any “physical loss of or damage to” property, not on the merits of the argument that there was “physical loss of or damage to property.” Nevertheless, she made her views of the merits of that argument plain. Watching the video of the argument on YouTube, I heard her say (as the transcript confirms), “The plaintiff just can’t avoid the requirement that there has to be something that physically alters the integrity of the property. There has to be some tangible, i.e., physical damage to the property.” I heard that as suggesting that she didn’t think restaurants could make that showing. Judge Draganchuk was unimpressed with the argument that “the physical requirement is met because people were physically restricted from dine-in services,” calling it “nonsense.”

Because the plaintiff didn’t allege physical loss or damage, Gavrilides doesn’t tell us much about how other cases or judges will come out. Our reading of the motions to dismiss and other documents filed in other cases shows that there are many different arguments (and defenses) courts have yet to hear. Moreover, case law interpreting the “physical loss” and/or “physical damage” requirements is still relatively undeveloped in the US, and some lawyers claim that it differs between states. Such causal requirements are likely to be the center of gravity in many cases in the US, but the UK test case won’t provide much, if any, guidance on that issue.

Categories
Business Income Cases Nat Cat comparisons

Lessons from Katrina: It’s a Long Game

Author: Tom Baker Date: 07.29.20

Lessons from Katrina: It’s a Long Game

Ted Le Clercq from Deutsch Kerrigan in New Orleans reached out today to share what he learned from the Hurricane Katrina property insurance litigation.  As Ted described (and I remembered), some early court decisions in Louisiana used the doctrine of reasonable expectations to reach favorable decisions for policyholders regarding the application of the flood exclusion.  Those decisions didn’t last on appeal, however.

While of course there are many distinctions between the application of the flood exclusion in the Katrina cases and the application of the virus exclusion and other coverage defenses in the Covid-19 cases, Ted’s larger point is spot on.

This kind of massive litigation event is a long game.  Early wins are nice for whoever gets them, but those wins may not tell us much about what happens in the end.  Check out Ted’s article (with his partner Francis Barry) on Covid-19 and business interruption losses in the Louisiana Bar Journal here.

Categories
Beyond the U.S. Business Income Cases

The FCA Test Case and the Difference Between “All-Risk” and “Insured Peril” Policies

Author: Jordan Einstein Date: 07.22.20

The FCA Test Case and the Difference Between “All-Risk” and “Insured Peril” Policies

There is at least one big difference between the insurance policies at issue in the UK test case currently taking place in the High Court in London and those at issue in the US cases. In the US, insurance companies typically issue “all-risk” property insurance policies, meaning insurers cover losses not explicitly excluded. By contrast, insurers in the UK commonly issue “insured peril” policies (sometimes called “named peril” policies), which cover only those losses caused by the “perils” specifically named in the policy (such as fire, lightning, wind, public authority). Thus, while many of the broad issues in dispute are the same in the business interruption litigation in both countries, some of the arguments for each side look quite different.

With an all-risk policy, the policyholder starts with an important advantage in the litigation.  All the policyholder has to do is to prove that there was the right kind of harm – typically “physical loss of or damage to” insured premises.  Then the burden shifts to the insurer to prove that an exclusion in the policy – such as the virus exclusion – applies to eliminate coverage for the loss or damage.

In contrast, with an insured peril policy, the policyholder has to prove, not only that there was the right kind of harm, but also that the harm was caused by one of the perils specifically named in the policy.  Only then does the burden shift to the insurer to prove that the loss or damage is specifically excluded.

The nature of the “insured peril” is already a hotly contested issue at trial in the test case. The FCA – relying on a number of different policy wordings in public authority, prevention of access, and disease clauses, among others – contends that the “insured peril” is Covid-19 broadly and that policyholders’ losses result from a combination of these causes which are all connected. Conversely, the insurers seek to define the “insured peril” more narrowly.

This fundamental difference in the structure of the coverage in the policies sold on the other side of the Atlantic means that a favorable outcome for an insurer in the UK test case may not be persuasive to US courts.  By contrast, because policyholders face a more difficult burden of proof in the UK test case, a favorable outcome for policyholders could prove quite persuasive to US courts.

Here is a link to the transcript of the first day of the FCA proceeding.

Categories
Analytics Business Income Cases Nat Cat comparisons

Learning from NatCats: Is the onslaught of cases yet to come?

Author: Sean Bissey Date: 07.14.20

Learning from NatCats: Is the onslaught of cases yet to come?

In earlier posts I described how Lex Machina’s insurance analytics platform allows us to track the filing of business income lawsuits over time and how the NatCat and Covid-19 cases appear as spikes in that timeline.  Today’s chart shows how the NatCat suits rolled out over time.  In each case, the suits trickled in at first, and only reached the peak rate of filing one or two years after the NatCat event.  If the Covid-19 business income lawsuits filing rates are anything like that, we won’t see the peak until at least late 2021.

 

Categories
Analytics Business Income Cases Nat Cat comparisons

Updated Q2 data comparing Covid 19 Business Interruption Litigation to Earlier Nat Cat litigation

Author: Sean Bissey Date: 07.10.20

Updated Q2 data comparing Covid 19 Business Interruption Litigation to Earlier Nat Cat litigation

Now that we have the full Q2 case filings from Lex Machina, I updated the chart I posted on June 26, which shows the business interruption insurance coverage cases filed in federal courts since 2009 (the first year for which Lex Machina has the full set of cases filed in federal court).  The difference between the Covid-19 case filings and the earlier Nat Cat filings is now even more stark. The Covid-19 bump is five times the fiver year trailing average, and the excess over the average for the Covid-19 filings is over twice the total of the excess filings during the quarters dominated by the earlier Nat Cat filings.

Categories
Business Income Cases

Restaurant woes

Author: Madison Kirton Date: 07.06.20

Restaurant woes

You sit down and open the menu: Do you get the Pesto Turkey with wheat bread, mozzarella, turkey, spinach, onions, and pesto? Or do you take the more creative “build your own” route and scour the menu, selecting from a variety of unlikely toppings?

“As of 2016, Americans spend more than half of their food budget eating outside the home,” and, if you’re anything like me, then you can’t resist a good grilled cheese. GCDC LLC v. Hartford Financial Services Group Inc. et al tells the story of the popular Grilled Cheese Bar located on Pennsylvania Avenue in Washington DC. I have had the opportunity to eat at GCDC before the pandemic, and like many urban restaurants, while seating is compact, the food is worth it.

Since early March GCDC has complied with state mandated closures that have brought its gourmet grilled cheese business to a complete halt. GCDC experienced a 95% drop in business income between early March and April, and while the restaurant offers take-out and delivery services, little revenue has been derived using these methods. GCDC’s annual net revenues in 2018 and 2019 were approximately $1.475 million and $1.456 million respectively, and GCDC expected to reach revenues of $1.6 million this year.

According to GCDC’s complaint, the owners believed that they had purchased comprehensive coverage that would apply to business interruptions under circumstances such as Covid-19. When they filed a claim, however, Hartford Financial Services Group’s Sentinel Insurance Company denied coverage. In April, GCDC brought suit on behalf of itself and other DC restaurants similarly situated seeking declaratory relief, insurance coverage owed under the Defendant’s policies, and damages.

However special GCDC’s grilled cheese may be to me, from an insurance coverage perspective, GCDC LLC is just one of many cases where we can see how business interruption has paralyzed the restaurant industry. Multiplying GCDC’s business income losses by the hundreds of other covid coverage restaurant cases in our database, not to mention the thousands of restaurants whose claims are not (yet) in litigation, yields a very large number. That number translates into tens of thousands of lost jobs and changed eating habits for millions of people – changes that may persist even when DC revokes these mandated closures, and whether or not GCDC and other restaurants succeed in their insurance claims.

Categories
Business Income Cases Litigation strategy

Broker liability for virus exclusions?

Author: William Lyoo Date: 07.01.20

Broker liability for virus exclusions?

Hundreds of plaintiffs have filed suit against their insurance companies to recoup business income losses from shutdown orders across the country.  These suits allege that the insurance companies have denied claims across the board, regardless of the coverage described in the insurance policies.  Some policies include explicit exclusions against loss due to a virus, some hide a virus exclusion within a broader pollution or contamination provision, and some have no such exclusion at all.  While no decisions have yet been rendered, some analysts predict that policyholders with exclusions will be left high and dry, and some policyholder recovery lawyers have declined to represent such policyholders on a contingent fee basis.

Some plaintiffs with exclusions in their policies have also brought suit against the producers who brokered their insurance contracts, alleging negligence in procuring policies that provide insufficient coverage.

For example, in Magna Legal Services LLC v. Hartford Fire Insurance Company et al, Plaintiff included its insurance producer, Nottingham Agency, Inc., and its individual broker agent as defendants.  The insurance policy in question contains a “Pollutant and Contaminant” exclusion, although it does not specifically include “virus.”  Plaintiff alleged reliance on Defendants’ representation as experienced brokers in evaluating and recommending insurance coverage for commercial business clients, and negligence on Defendants’ part in failing to advise Plaintiff about the exclusion or meet Plaintiff’s direction to procure “as broad as possible Business Income, Contingent Business Income, Extra Expense, and Civil Authority coverages.”

In Ethan & Austin, LTD. et al v. Illinois Casualty Company et al, Plaintiffs similarly included their insurance producer, U.S. Insurance Group, and their individual broker agent as defendants.  This insurance policy does contain an explicit exclusion against “Loss Due to Virus or Bacteria.”  Plaintiffs in this case alleged reliance on Defendants’ representation of expertise and that Defendants had a duty of care to exercise reasonable diligence in providing insurance advice.  Furthermore, Plaintiffs allege negligence by Defendants in failing to advise Plaintiffs about the virus exclusion and its impact on business interruption claims, or to procure a broader insurance policy for the Plaintiffs.

Should Plaintiffs in either of these cases fail in their claims against their insurance company to collect business income losses due to the pandemic, they may yet succeed in these claims against their insurance producer.

Categories
Business Income Cases

Minor League Baseball

Author: Jordan Einstein Date: 06.29.20

Minor League Baseball

Covid-19 has forced businesses of all industries and sizes around the country to overhaul their operations to minimize human contact and curtail transmission of the novel virus. Businesses deemed “essential” swiftly implemented new safety and operating protocols necessary to remain open, while “non-essential” businesses largely shut down immediately. Professional sports leagues are among the “non-essential” businesses.  As fans anxiously await their return, along with a sense of normalcy and hope, leagues and player associations have gone back-and-forth over the logistics of starting back up.

Major League Baseball has been at the forefront of recent discussions with seemingly every detail of the league’s negotiations with the MLB Players Association being publicized and scrutinized. By contrast, there has been little discussion about Minor League Baseball (“MiLB”), which is unlikely to see a single game played in 2020.

Unlike Major League Baseball, where players can earn millions of dollars and clubs are owned by billionaires, MiLB organizations are more akin to small businesses—at least from a financial perspective. As detailed in a complaint recently filed in the Eastern District of Pennsylvania by a collection of minor league organizations, minor league teams incur considerable fixed costs in the form of lease payments to municipal ballpark owners and salaries to permanent employees responsible for handling business operations year-round. Yet their revenue varies significantly, because most minor league teams depend on ticket sales as their primary revenue (as opposed to MLB clubs who earn revenue from a variety of sources including advertising and television contracts, among others).

Because of the shut-down, minor league teams across the country are struggling to stay afloat financially, as attendance plummets from a record-setting 40 million fans last year to zero this season. Similar to many other small businesses, minor league organizations are seeking coverage from insurance companies under the business income, extra expense, and civil authority provisions of their businessowner policies.

Despite the unique nature of their industry, the organizations’ insurance policies are unremarkable. In total, the fifteen organizations are insured under nine separate businessowner package policies issued by five different insurance companies—Philadelphia Indemnity Insurance Company, Acadia Insurance Company, National Casualty Company, Scottsdale Indemnity Company, and Scottsdale Insurance Company. All but two of the nine policies—both issued by Philadelphia Indemnity—contain the same Building And Personal Property Coverage (CP 00 10 10 12), and Causes Of Loss – Special (CP 10 30 09 17), forms. Five of those seven policies also contain the same Business Income And Extra Expense Coverage form (CP 00 30 10 12), while the other two use an older edition of the same form (CP 00 30 06 07). Moreover, eight of the nine policies include the same virus exclusion form (CP 01 40 07 06), the lone exception being the sole policy issued by Acadia.

Perhaps more surprising than the similarities between organizations’ policies is the similarity between their policies and those from businesses in other industries. For instance, all the forms listed above are standard ISO coverage forms and endorsements, which are routinely included in businessowner and commercial property policies issued by a variety of insurance companies. Interpreting the language and causal requirements in those standard ISO forms will be a focal point of Covid-19 insurance coverage litigation for all policyholders, not just minor league teams.

Nonetheless, the nine policies are not identical, so there may be some variation in what is ultimately covered and excluded. For example, the Philadelphia Indemnity policies contain an advisory notice (CP P 003 07 06) regarding the applicability of the included virus exclusion form; the other six policies with the same virus exclusion form (CP 01 40 07 06) do not include advisory notices. Moreover, Acadia used a different virus exclusion form authored by the AAIS (CL 0700 02 07). The Philadelphia policies also contain a Sports And Entertainment Event Protection endorsement (PI-AM-072 (06/09)), which is not included elsewhere. It is unclear how courts will interpret those variances, but given the technical nature of insurance litigation, they are notable.

In summary, Chattanooga Professional Baseball LLC et al v. Philadelphia Indemnity Insurance Co. et al is a relatively unremarkable case from an insurance coverage perspective, despite its connection to professional baseball. Because minor league organizations are more comparable to small businesses than billionaire-owned Major League clubs, the outcome will be incredibly significant to the financial viability of the clubs and their owners, no matter how boring insurance coverage litigation may be for typical baseball fans to follow. Instead of the more exciting legal discussions about player contracts and a potential grievance against the league, this case compares more closely to other Covid-19 business interruption insurance cases, which will turn on legal details like the difference between “direct physical loss or damage” and “direct physical loss or direct physical damage,” what qualifies as “physical damage,” and whether the “efficient proximate cause” of business closures was the novel coronavirus itself or the civil authority orders forcing businesses to shut down.