Hunton Insurance Recovery Blog

Following New Jersey, where similar legislation remains under informal discussion, lawmakers in Ohio, Massachusetts, and New York have now introduced legislation that would provide relief to small businesses for COVID-19 business interruption losses.  The legislation is conceptually identical to the legislation introduced in New Jersey, discussed here last week.  Although the New Jersey bill was subsequently pulled for further consideration with insurance industry representatives, it does appear to have been the roadmap for the Ohio, Massachusetts, and New York measures.  ...

Following on the heels of the directive issued to business-interruption eruption, insurers by the New York Department of Financial Services, Ricardo Lara, the Insurance Commissioner for the State of California, issued a “request for information,” about business interruption and related coverages so that the State can address “public policy options” and “understand the number and scope of business interruption type coverages in effect” in California and “the approximate number of [such] policies that exclude viruses such as COVID-19.”

A Houston-area wig store filed the first Texas COVID-19 lawsuit concerning business interruption losses Thursday in a state court in Harris County. The plaintiff, Barbara Lane Snowden DBA Hair Goals Club, filed suit, a copy of which can be found here, against Twin City Fire Insurance Company, a Hartford Insurance company. The lawsuit alleges that plaintiff has sustained and will continue to sustain covered losses during the COVID-19 outbreak and subsequent Harris County Stay Home Order. The lawsuit further alleges that plaintiff already sought coverage for its business interruption costs under the Twin City policy, but that claim was denied. Accordingly, plaintiff has alleged breach of contract, unfair settlement practices, violation of the Prompt Pay Act, and breach of the duty of good faith and fair dealing for Twin City’s wrongful denial of the claim.

While COVID-19 occupies most of the world’s attention, cyber-criminals continue to hone their trade. Consequently, with attention diverted and business-as-usual changing daily, the recent rise in cyber-related attacks comes as no surprise. Analysts have found that companies with an increased number of employees working remotely as a result of the coronavirus pandemic have witnessed a spike in malicious cyber-attacks. For example, the United States Health and Human Services Department experienced two separate cyber-attacks since the onset of COVID-19, with the attacks aimed at sowing panic and overloading the HHS servers.[1] These attacks, however, are not limited to the United States, as they have been reported across the globe. For instance, hackers launched a cyber-attack on a hospital in the Czech Republic, stalling dozens of coronavirus test results, only days after the government declared a national emergency.[2]

In responding to a certified question from the Fifth Circuit in Richards v. State Farm Lloyds, the Texas Supreme Court held that the “policy-language exception” to the eight-corners rule articulated by the federal district court is not a permissible exception under Texas law.  See Richards v. State Farm Lloyds, 19-0802, 2020 WL 1313782, at *1 (Tex. Mar. 20, 2020).  The eight-corners rule generally provides that Texas courts may only consider the four corners of the petition and the four corners of the applicable insurance policy when determining whether a duty to defend exists.  State Farm argued that a “policy-language exception” prevents application of the eight-corners rule unless the insurance policy explicitly requires the insurer to defend “all actions against its insured no matter if the allegations of the suit are groundless, false or fraudulent,” relying on B. Hall Contracting Inc. v. Evanston Ins. Co., 447 F. Supp. 2d 634, 645 (N.D. Tex. 2006).  The Texas Supreme Court rejected the insurer’s argument, citing Texas’ long history of applying the eight-corners rule without regard for the presence or absence of a “groundless-claims” clause.

Two more lawsuits were filed yesterday concerning business interruption losses resulting from the COVID-19 pandemic.  The plaintiffs, the Chickasaw and Choctaw nations, filed their lawsuits, copies of which can be found here and here, in Oklahoma state court against a litany of property insurers, led by AIG.  The lawsuits seek an order that any financial losses suffered by the nations’ casinos, restaurants and other businesses as a result of the coronavirus pandemic are covered by the nations’ insurance policies.

Last week, we reported that the New Jersey General Assembly passed a bill that would force property insurers to cover certain business interruption losses arising from COVID-19.  The bill presented a lifeline to small businesses in New Jersey that are being racked by the economic fallout stemming from COVID-19.  Before reaching the New Jersey Senate, however, the bill was pulled from consideration with little explanation.  The bill’s sponsor, Assemblyman Roy Freiman, D-16th District, reportedly stated that, in lieu of the legislation, insurers would be given the opportunity to ...

On March 16, 2020, the New Jersey General Assembly passed a bill that would force property insurers to cover business interruption losses arising from the COVID-19 virus sustained by small businesses (less than 100 employees working more than 25 hours a week); a copy of the bill can be found here.  Significantly, the bill would force coverage even where the insurer believes its policy should not apply.  In particular, the bill provides that property policies in effect as of March 9, 2020, will be construed as providing “coverage for business interruption due to global virus transmission or pandemic,” including COVID-19.  As written, the law would defeat any attempt by insurers to rely on exclusions that purport to preclude coverage for business income loss resulting from viruses, including the much-touted ISO CP 01 40 07 06 Virus or Bacteria Exclusion that insurer-side advocates have been championing as a purported bar to COVID-19 losses.  The bill would provide much-needed relief to the New Jersey policyholders that are enduring the worst of COVID-19’s economic impact with the least ability to withstand it.

In what may be entirely unprecedented, the New York Department of Financial Services (NYDFS), the insurance regulatory body for insurers operating in New York, has ordered that all property and casualty insurers authorized to issue policies in New York to provide details on the business interruption coverage provided in the types of policies for which it has ongoing exposure for COVID-19 related losses.  A copy of the NYDFS March 10, 2020 Order (Order) can be found here.

As previously reported on the Hunton Employment & Labor Perspectives Blog, workers’ compensation provides the exclusive remedy for injuries and illness that employees suffer arising out of and within the course of their employment.   Workers’ compensation provides the exclusive remedy for injuries and illness that employees suffer arising out of and within the course of their employment.  In the early stages of this pandemic, work-related travel to high impact countries or work-related exposure in a case that was being tracked by public health authorities provided support for work-related exposure.  In healthcare settings, work-related exposure will likely be established when exposure to infected patients occurs.  But in other settings and as the diseases spreads in the United States, the analysis about whether an illness is covered by workers’ compensation will be more difficult.

On Monday, Oceana Grill, a restaurant in New Orleans, Louisiana, became the first to file a lawsuit over coverage for COVID-19 business interruption losses.  The lawsuit, styled Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd’s of London, et al. (La. Dist. Court, Orleans Parish), seeks a declaratory judgment that an “all risks” property insurance policy issued by Lloyd’s of London must cover losses resulting from the closure of the restaurant following an order by the Governor of Louisiana restricting public gatherings and the Mayor of New Orleans’ order closing restaurants.

In a prior post, we predicted that novel coronavirus (COVID-19) risks could implicate D&O and similar management liability coverage arising from so-called “event-driven” litigation, a new kind of securities class action that relies on specific adverse events, rather than fraudulent financial disclosures or accounting issues, as the catalyst for targeting both companies and their directors and officers for the resulting drop in stock price. It appears that ship has sailed, so to speak, as Kevin LaCroix at D&O Diary reported over the weekend that a plaintiff shareholder had filed a securities class action lawsuit against Norwegian Cruise Line Holdings, Ltd. alleging that the company employed misleading sales tactics related to the outbreak.

Timing is everything. Just as conference season is getting into full swing, COVID-19 has lashed out in force. In the past 24 hours alone, we have received numerous calls from clients about annual meetings, trade shows and speaking engagements they have been compelled to cancel, all on short notice, due to the novel coronavirus.

Social engineering attacks, particularly fraudulent transfers, are becoming one of the most utilized cyber scams.  As a result, there has been a flurry of litigation, and a patchwork of decisions, concerning coverage disputes over social engineering losses.  Most recently, the United States District Court for the Eastern District of Virginia found in Midlothian Enterprises, Inc. v. Owners Insurance Company, that a so-called “voluntary parting” exclusion provision in a crime policy should exclude coverage for a fraudulent transfer social engineering scheme.  The decision illustrates why policyholders must vigilantly analyze their insurance policies to ensure that their coverages keep pace with what has proven to be a rapidly evolving risk landscape.

The members of Hunton’s Insurance Recovery group present regularly on today’s hot topic insurance coverage issues. Upcoming insurance presentations for March 2020 include:

• Andrea DeField will be presenting on “Ensuring Insurance Coverage Success in Litigation: Tips and Best Practices for Young Lawyers” at the ABA’s Insurance Coverage Litigation Committee CLE Seminar in Tucson, Arizona on Wednesday, March 4, 2020.
• Lorelie S. Masters will be presenting on “The Restatement of the Law of Liability Insurance in the Courts” at the ABA’s Insurance Coverage ...

The CDC reports that, as of the end of last week, the coronavirus disease had spread through China and to 31 other countries and territories, including the United States, which has now seen its first two related deaths. The public health response in the United States has been swift and includes travel advisories, heightened airport screening, and repatriation and quarantine of potentially infected individuals. Outside the United States, countries like China, Italy, and South Korea have implemented more severe measures to combat the disease. From smart phones to automobiles, coronavirus has major short- and long-term implications for public and private companies facing potentially significant supply chain disruptions, store and office closures, and other logistical issues. These business losses, however, may be covered by insurance. Below are several key insurance considerations for policyholders to contemplate when evaluating the availability of insurance coverage for coronavirus-driven losses.