Twenty-six years ago, I sat in an overcrowded courtroom filled with insurance company lawyers ready to argue that insurance companies should not pay for environmental cleanup costs.  A distinguished grey-haired gentleman lawyer, my boss, was leading an assault on the insurance industry.  He walked slowly to the podium and said, “Your Honor, you see all of these men and women here in nice suits?  They are all liars.”  The question American businesses should ask with respect to coronavirus is whether history repeats itself.

The CEO of the insurance giant Chubb, Evan G. Greenberg, stated in a recent WSJ Opinion that it won’t help anyone “to try to pin the damage on insurers like my company.”  Decades ago, insurance carriers made this same argument with respect to the environment.  There, insurance companies were held responsible, and American businesses were helped greatly.    The same will likely hold true for coronavirus losses.

Mr. Greenberg’s is wrong to assert that “virus is not covered.” At a minimum, Mr. Greenberg begs a legal question that will be decided by the courts.  Insurance companies willingly and knowingly sold insurance policies covering “all risks.”  For decades, if not longer, it has been the law that “all risks” policies cover all risks of direct physical loss or damage unless specifically and unambiguously excluded.  And, courts throughout this country have held that coverage is provided in similar situations, where property cannot be used for its intended purposes, or is otherwise rendered unsafe to use.  COVID-19 is a covered risk.  It has rendered property unsafe and unusable.  The presence of Covid-19 alone triggers coverage. 

The only question, then, is whether COVID 19 is excluded from coverage.  On April 10, President Trump correctly noted that there is a problem with what insurance carriers are pushing, stating: 

In a lot of cases, I don’t see it. I don’t see reference, and they don’t want to pay up.  I would like to see the insurance companies pay if they need to pay.

No insurance policies, other than those being currently issued, contain COVID-19 exclusions. Some policies address viruses.  Others do not.  Each policy needs to be individually considered, and in a lot of cases, coverage clearly exists.

Mr. Greenberg claims that it would be “wildly counterproductive” to force big insurance companies to pay for losses they didn’t insure.  Insurance companies litigated what they claimed were uncovered environmental claims for decades, only to pay in the end.  The failure to pay covered claims is and has always been counterproductive. 

Recognizing this, numerous states are considering bills requiring insurers to pay for Covid-19 losses.  To this, Greenberg claims protections under Article I of the Constitution.  This classic “red herring” distracts us from the fact that most insurance policies address this issue head on.  Insurance is a regulated industry, and insurers are contractually bound to follow newly enacted laws and regulations.  Constitutional crises avoided. 

History repeats itself.  We are in for a fight.  But, businesses that fight for coverage will be rewarded. See The Good News About Coronavirus Insurance Claims

Future Battles Foreshadowed In First COVID-19 Insurance Suit

The financial impact of damage caused by the coronavirus is immense. Virtually every business in the U.S. is suffering and policyholders need to take action now to preserve their rights to coverage.

Last week, one New Orleans restaurant took such action by filing suit against its insurer. Oceana Grill v. Certain Underwriters at Lloyd’s, London, filed in the Civil District Court for the Parish of Orleans, State of Louisiana, stands as the first insurance lawsuit on record for coronavirus coverage.[1] It will not be the last, and other policyholders across the country will face similar, if not identical, coverage disputes.

The restaurant’s petition demonstrates one way a policyholder may seek coverage. It also sheds light on coverage battles to come and underscores the importance of securing coverage for coronavirus losses.

Oceana Grill filed its lawsuit against its insurer seeking coverage under an all-risks property policy.[2] All-risks policies typically cover all risks of direct physical loss or damage to insured property occurring during the policy period, unless they are specifically excluded.[3]

Under an all-risks policy, once the policyholder demonstrates a loss or risk of damage to the property, the insurer has the burden of proving that the policy clearly and specifically excludes the cause of the loss.[4]

Many courts have held that the presence of harmful substances that render property uninhabitable or unusable constitutes “direct physical loss or damage” and that tangible or structural damage is not required.

The Oceana Grill petition tees up the question of whether coronavirus losses constitute direct physical loss or damage under property policies. Policyholders can expect their property insurers to claim that physical damage is required, and that coronavirus does not cause tangible or structural damage to insured property.

However, courts across the country have held that the phrase “physical loss or damage” does not require tangible damage to a building’s physical structure.[5] These decisions hold that the presence of harmful substances such as asbestos, fumes or odors in quantities sufficient to render the property uninhabitable or unusable may constitute direct physical loss within the meaning of a property policy.[6]

1. The presence of coronavirus constitutes direct physical loss or damage.

The Oceana Grill plaintiffs argue that coronavirus constitutes a cause of real physical loss and damage that is physically impacting public and private property, and physical spaces in cities around the world.[7] The Centers for Disease Control and Prevention have now stated that it may be possible for a person to contract COVID-19 “by touching a surface or object that has the virus on it and then touching their own mouth, nose, or possibly their eyes.”[8]

The Oceana Grill plaintiffs also allege that coronavirus “physically infects and stays on the surface of objects or materials, ‘fomites,’ for up to twenty-eight days, particularly in humid areas below eighty-four degrees,” and surface infection of insured premises by coronavirus “would be a direct physical loss needing remediation to clean the surfaces of the establishment.”[9]

2. Coronavirus losses may also implicate civil authority coverage.

Many commercial property policies also cover business income losses suffered when a civil authority prohibits or impairs access to either the policyholder’s premises or property other than the insured’s property. The Oceana Grill plaintiffs also seek a declaratory judgment that orders issued by Louisiana Gov. John B. Edwards trigger the civil authority coverage of their policy.[10]

As the plaintiffs correctly predicted,[11] civil authorities initially tried to slow the spread of coronavirus by limiting the size of social gatherings, but many have since ordered the outright closure of service-industry businesses such as bars, restaurants, gyms and movie theaters. Losses due to these government-mandated closures may also trigger civil authority coverage.

3. Pollution exclusions should not apply to coronavirus losses.

The Oceana Grill petition notes that the policy does not include an exclusion due to losses from a virus or global pandemic.[12] However, insurers are preparing to deny coverage for coronavirus losses based on pollution exclusions. These exclusions are designed to exclude coverage for environmental cleanups. A common version bars coverage for the costs of cleaning up or removing “pollutants,” defined to include any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.[13]

Insurers argue that virtually everything is a pollutant, but courts analyzing pollution exclusions have construed them narrowly, noting that the terms “irritant” and “contaminant” are “virtually boundless, for there is no substance or chemical in existence that would not irritate or damage some person or property”[14] and reading the exclusion literally “would negate virtually all coverage.”[15]

These cases also note that pollutants are primarily inorganic in nature, and have held that bacteria was not similar to the listed examples.[16] The use of the term “waste” also implies that the term applies to industrial byproducts, and not organic matter.[17]

4. Policyholders must act now to preserve their claims under property policies.

The past few weeks have spread fear and uncertainty. Yet even in these uncertain times, policyholders can be sure of a few things. First, for many service-industry businesses, the stakes literally could not be higher. As the Oceana Grill plaintiffs note, the restaurant’s closure due to coronavirus represents an existential threat to its survival as a business.[18]

In these bleak times, the same holds true for many bars, restaurants, gyms, movie theaters and other businesses in service industries. Securing coverage under property insurance may mean the difference between making it and filing for bankruptcy.

Second, do not assume that your policy does not cover business losses. When disaster strikes, insurers try to discourage policyholders from filing claims by setting a media narrative that there is no coverage for a given event. Businesses should not be dissuaded from making claims. Don’t take an insurance company’s advice on what is or is not covered.

Insurers sell coverage for all risks, including coronavirus. Don’t let insurers shake their heads and solemnly declare that there just isn’t coverage. As with all advice, consider the source.

Third and finally, policyholders must act now to preserve their claims under their property policies. This requires reviewing the policies and providing the required notice as soon as possible, to stave off insurer claims of late notice. Fighting coronavirus losses by securing property insurance coverage requires immediate action.

This Article was also published in Law360. See also Insurance Coverage for Coronavirus Claims/

[1] Pet. for Declaratory J., Oceana Grill v. Certain Underwriters at Lloyd’s, London, No. 20-02558 (La. Civ. Dist. Ct. Mar. 16, 2020).

[2] Id. at ¶ 14.

[3] Port Auth. of N.Y. v. Affiliated FM Ins. Co., 311 F.3d 226, 231 (3d Cir. 2002).

[4] See, e.g., Cincinnati Ins. Co. v. Banks, 610 F. App’x 453, 457 (6th Cir. 2015); Leprino Foods Co. v. Factory Mut. Ins. Co., 453 F.3d 1281, 1287 (10th Cir. 2006).

[5] See, e.g., Motorists Mut. Ins. Co. v. Hardinger, 131 F. App’x 823, 826-27 (3d Cir. 2005) (holding that a genuine issue of material fact existed regarding whether the insured’s property was nearly eliminated or destroyed, or made useless or uninhabitable, sufficient to constitute a “physical loss”); W. Fire Ins. Co. v. First Presbyterian Church, 437 P.2d 52, 55 (Colo. 1968) (holding that fumes from gasoline seeping into the soil under an insured church and rendering it uninhabitable established a “direct physical loss”); Widder v. La. Citizens Prop. Ins. Corp., 82 So. 3d 294, 296 (La. Ct. App. 2011) (holding that dust from lead paint rendering a home unusable or uninhabitable qualified as a “direct physical loss”); Sentinel Mgmt. Co. v. N.H. Ins. Co., 563 N.W.2d 296, 300 (Minn. Ct. App. 1997), aff’d in part, rev’d in part sub nom. Sentinel Mgmt. Co. v. Aetna Cas. & Sur. Co., 615 N.W.2d 819, 825-26 (Minn. 2000) (“Direct physical loss also may exist in the absence of structural damage to the insured property.”); Farmers Ins. Co. v. Trutanich, 858 P.2d 1332, 1335 (Or. Ct. App. 1993) (holding that odors from a methamphetamine “cooking” lab constituted “direct physical loss” within the meaning of the policy); Murray v. State Farm Fire & Cas. Co., 509 S.E.2d 1, 17 (W.Va. 1998) (“Direct physical loss also may exist in the absence of structural damage to the insured property . . . Losses covered by the policy, including those rendering the insured property unusable or uninhabitable, may exist in the absence of structural damage to the insured property.”).

[6] See, e.g., Port Auth., 311 F.3d at 236; First Presbyterian Church, 437 P.2d at 55; Widder, 82 So. 3d at 296; Trutanich, 858 P.2d at 1335.

[7] Pet. for Declaratory J., ¶¶ 19-20.

[8] Centers for Disease Control & Prevention, How COVID-19 Spreads (2020),

[9] Pet. for Declaratory J., ¶¶ 21, 23.

[10] Id. at ¶¶ 25, 35.

[11] Id. at ¶ 31 (“[P]laintiffs expect[] that more restrictive orders may occur within the next 30 days as they have occurred in other cities around the world, including New York City, New York, where restaurants have been ordered to close . . .”).

[12] Pet. for Declaratory J., ¶ 15.

[13] Keggi v. Northbrook Prop. & Cas. Ins. Co., 13 P.3d 785, 789 (Ariz. Ct. App. 2000).

[14] Id. (citing Nautilus Ins. Co. v. Jabar, 188 F.3d 27 (1st Cir. 1999)).

[15] Id. (citing Am. States Ins. Co. v. Kiger, 662 N.E.2d 945, 948 (Ind. 1996)).

[16] See, e.g., Motorists Mut., 131 F. App’x at 828 (noting that bacteria defied description as a solid, liquid, gaseous, or thermal pollutant because it was a living, organic “irritant” or “contaminant”); Keggi, 13 P.3d at 790 (holding that a pollution exclusion did not bar coverage for injuries suffered from drinking bacteria-contaminated water).

[17] Keggi, 13 P.3d at 790.

[18] Pet. for Declaratory J., ¶ 18.

Coronavirus Insurance Coverage Implications — Good News

A quick Google search would have businesses believing that there is no insurance coverage for coronavirus losses.  Insurance carriers and brokers have seized control of the narrative, and they have done a good job of convincing policyholders that coronavirus claims are not covered.  This analysis offers an alternative and correct view — businesses are covered.

Coronavirus Insurance Coverage — At Least One Thing is Positive for Business

There is a frenzy of misinformation about coverage for coronavirus claims. Fortunately, none of this has any bearing on coverage.  To get the correct answer, one must read the insurance contract without preconceived notions of coverage.  If this is done, businesses are left with many insurance-related options to counter coronavirus-related losses.

This point is illustrated by looking at how insurance policy language addresses three common coronavirus claims: (1) third-party lawsuits, (2) business interruption losses, and (3) event cancellation losses. 

1. Third-Party Lawsuits

With coronavirus, businesses are susceptible to lawsuits alleging that they should have done something to prevent injury to persons.  The first of these claims was just filed–a lawsuit alleging wrongdoing on the part of a cruise ship company.  Just as night follows day, more will follow. 

General Liability policies cover allegations of “bodily injury.”  If a claimant alleges that he or she was injured, coverage is triggered.  Coronavirus lawsuits are classic examples of covered general liability claims. 

Insurance carriers, however, are pushing the narrative that coronavirus is a pollutant and therefore excluded from coverage pursuant to pollution exclusions.  This is an old concept.  In the past, insurers found themselves paying pollution claims, no matter what kind of pollution exclusions they put in their policies.  So, they expanded the exclusions to prevent coverage for environmental cleanups.  

Insurance carriers now argue that pollutants include any kind of “irritant” and that pollution exclusions apply to almost any claim.  For example, if the sun got in a person’s eyes and that resulted in a car crash, insurers would argue that the sun is an irritant, and that the pollution exclusion precludes coverage.  Yet, everyone knows that sunshine is not a pollutant.  Similarly, if a third party is burned and sues, insurers will argue that fire is an irritant, and that the pollution exclusion precludes coverage.  Of course, fire is not a pollutant, and at least one court awarded bad-faith damages where an insurance carrier made this claim.  See Winning Bad Faith Coverage Cases at Trial.

Common sense will prevail here as well.  Coronavirus is not a pollutant. 

2. Business Interruption Losses

Almost certainly, the largest category of losses business will experience as a result of the coronavirus are business interruption losses.  Airline flights have been sidelined, people are not going out, and businesses of all kinds are suffering.  The narrative insurers push here is an old one: insurers argue that property policies are not triggered unless there is physical injury to tangible property.  This narrative was developed after 9/11 to stem payments to businesses suffering huge financial losses. 

Based on policy language, though, physical injury is not required.  All-risk property insurance policies cover “all risks of physical loss or damage.”  This insuring clause addresses two separate things.  First, it states that it covers all risks of physical loss.  Second, it states that it covers all risks of damage.  Damage includes all forms of financial loss.  Coronavirus is the risk.  If it caused damage in the form of financial loss, this falls squarely within coverage. 

There is substantial case law on this issue as well. 

  • Case Example One — A church smelled because gasoline was leaking into the basement.  The house was unsafe and smelled so bad that the owner had to move out.  The insurer denied coverage, stating that there was no physical damage to the house.  The court held otherwise, finding coverage.
  • Case Example Two – A river meandered, leaving a structure precariously sitting on a riverbank.  The structure was fine, but it could not be used because it was unsafe and could fall down.  The insurer argued there was no coverage because there was no physical damage to the property.  The court ruled otherwise, finding coverage.
  • Case Example Three – A homeowner rented its house to crack dealers.  After the crack dealers left, the home smelled so bad that it could no longer be rented.  The home had no structural damage, so the insurer denied coverage.  The court disagreed, as the house could not be used as intended. 

There are two overlapping and well-developed lines of cases holding that physical injury to property is not required.  The first relies on the inability of the property to be used as intended.  The second relies on the fact that the property was somehow rendered unsafe.  Both lines of cases are directly applicable to coronavirus losses. 

In addition, property policies contain numerous other insuring clauses that similarly do not contain a requirement of physical injury to property in order to be triggered.  Among them, ingress/egress coverage (covering financial losses when a business is prevented from entering their property) and civil authority coverage (covering losses when the government prevents normal operations). 

The leading case on these issues is Fountain Powerboat Indus. v. Reliance Ins. Co., 19 F. Supp. 2d 552 (E.D.N.C. 2000).  The Fountain Powerboat Decision is one of History’s Best Insurance Decisions.  There, the Fountain Powerboat company of North Carolina had a work slowdown as the result of a hurricane.  It pursued relief under their property insurance policy pursuant to an “ingress/egress” provision.  Its insurance carrier denied coverage based on an all-too-common insurance industry custom and practice—denying coverage because there was no physical damage to insured property.  The court flatly rejected this argument in favor of insurance policy language and awarded Fountain Powerboat the attorney’s fees it incurred to pursue the action against its insurer.   

3. Event Cancellation Losses

Every day now, more and more major events are being canceled or postponed because of the coronavirus, including trade association conferences, college and professional sporting events, and concerts.  Even a conference on Coronavirus was canceled because of coronavirus.  What is missing from the headlines are the myriad of trade associations that need money from events to survive but have been forced to cancel events because of coronavirus. 

Event cancellation insurance is commonly triggered when an event is necessarily cancelled, abandoned, curtailed, or postponed.  A typical scenario, where an event is cancelled (or postponed) due to coronavirus concerns, falls squarely within coverage.  See Event Cancellation Insurance Claim Denials Tips for Recovery

Yet, insurers are fighting coronavirus event cancellation claims.  One argument that insurance companies are making is that an event was cancelled due to fear and panic.  Given that policies don’t contain fear or panic exclusions, there is no merit to this argument.  Similarly, insurers allege that the events could have proceeded but for the public’s fear and panic. 

Not all event cancellation policies are the same.  In some situations, insurers argue that the cancellations must result from the “physical or legal inability to proceed” with an event, and short of either a physical barrier preventing the public from entering a hotel conference center or sports arena, or a government order banning any mass gatherings, there is no coverage.  Again, the insurers’ position is inconsistent with the policy language.  For example, if there is a genuine fear of contracting the virus, this is a “physical inability” to proceed with the event.  In addition, many companies have instituted travel bans, making it physically and legally impossible for employees to travel.  Also, even if a government recommends that the public not attend mass gatherings (events with over 250 people), this is a form of “legal inability” to proceed with events. 

Both of these reasons for denial bring to mind a situation that we are currently addressing.  We had a settlement meeting with seven insurance companies scheduled for months.  The meeting was to take place in NYC, and the insurers had agreed to be present in person at that meeting.  Several days before the meeting, various insurers notified us that they could not attend because of coronavirus.  Many had travel restrictions.  Others were just unwilling to subject themselves to any additional risk of contracting the virus. 

Were these insurers motivated by panic?  Should this insurer-scheduled event have gone forward as planned?  The insurers said, “No.  We won’t attend.  We are rational.  You need to cancel.  Coronavirus is a legitimate reason to cancel.”  In other words, events that insurers should attend must be canceled, but all others must go forward.  

Unless the insurers learn to be honest about what is going on, their hypocrisy will cost them dearly.  Coronavirus cancellations are exactly what event cancellation policies are designed to cover. 

The “Social Inflation” Excuse: Why Warren Buffett was Wrong in 1975 and Insurers Are Wrong Now In Shirking Coverage of Opioid Litigation and Other Public Nuisance Shakedowns

The concept of “social inflation” is back in vogue these days among property/casualty industry underwriters and their service providers in trade journals and other media.  The term generally refers to the allegedly increasing costs of insurance claims resulting from various aspects of the US civil justice system, including increased third-party litigation funding, lawyer advertising, injured parties’ perceptions of what they are owed, and corresponding jury awards.

Today, insurers are shirking their duties to defend and indemnify insureds caught up in public nuisance litigation extortion, most notably in the opioid litigation.  If insurers were truly concerned about the expansion of judge-made law and corresponding erosion of traditional notions of tort causation, they would honor their promises and stand with their customers to defeat these dangerous claims. Muddled thinking about “social inflation” is no justification for refusing the contractual promise to defend claims that undoubtedly may result in covered, albeit unjust, liability.

Indeed, skeptical observers suspect that the hue and cry over “social inflation” is simply cover for underwriters raising rates and restricting coverage.  Available data contradict the notion of an industry supposedly “under siege.”  For example, the Insurance Information Institute reports net income after taxes in the property/casualty industry in 2018 and 2019 were at the highest level in a decade.

1. Warren Buffett on “Social Inflation”

Today’s commentators on “social inflation” frequently invoke decades-old quotes from Warren Buffett.  In the 1970s – before he was the Oracle of Omaha – Buffett raised “social inflation” as an excuse for poor performance.  For example, addressing insurance losses in his 1975 letter to shareholders, he wrote: “‘Social’ inflation caused the liability concept to be expanded continuously, far beyond limits contemplated when rates were established – in effect, adding coverage beyond what was paid for.”  Although insurers today quote Buffet as an authority equivalent to the Founding Fathers or the Four Evangelists, Buffet’s 1975 statement is wrong as a matter of both contract law and public policy.

Expansions of liability do not, in Buffett’s words, add liability coverage “beyond what was paid for.”  Coverage for uncontemplated liability is precisely what liability insurance buyers paid for.  Policyholders should continue to enforce their contractual rights to coverage they’ve paid for, and resist industry attempts to restrict coverage based on purported “social inflation” arguments.

2. Expanding Notions of Justice Are the Norm

This is not to deny that the US justice system has from time to time expanded liability beyond what either insurers or insureds likely contemplated when entering contracts.  In 1975, Buffett was presumably speaking about asbestos liability.  In 1980, environmental liability was expanded with enactment of the Superfund law.  Lead paint, toxic mold, tobacco, Chinese drywall, and firearm litigation followed that.  The current opioid and revived sexual misconduct litigations are further examples.

Indeed, today US business faces a sustained effort to turn public nuisance into a catch-all tort cause of action to seek a judicial remedy for every societal ill.  These public nuisance shakedowns, nominally in the name of governments and the “public good,” and typically led by private contingent-fee lawyers with deep pockets often funded by litigation speculators, eviscerate (among other things) a core requirement of centuries of tort jurisprudence: proving that the defendant caused the alleged harm.  Courts have facilitated these shakedowns by going far beyond resolving cases and controversies, and far outside their expertise, to craft public policy in the form of judicial remedies when managing the risks of beneficial but potentially harmful products more properly, under our form of government, should be a legislative and regulatory function.

3. Businesses Buy Insurance Specifically to Transfer Risk, Both Known and Unknown

The past and present expansions of liability do not, in Buffett’s words, add coverage “beyond what was paid for.”  Coverage for uncontemplated liability is the entire point of liability insurance, which is to transfer the risk of liability, with the insurer accepting the risk that resources available from premium and investment return from an entire pool of insureds will be enough to pay claims. 

In the typical contract, an insured buys an insurer’s promise to pay “those amounts the insured becomes legally obligated to pay as damages” resulting from a claim.  The grant of coverage – “what was paid for” in Buffet’s words – is just that: ALL damages that the insured is liable to pay, subject only to exclusions and policy limits.  Of equal or greater importance, policyholders also pay for the insurer’s promise to defend against “any suit” asserting claims that are potentially or arguably covered by this grant, even if the suit is based on groundless, false or fraudulent allegations.

From a public policy perspective, the socially beneficial aspect of risk-spreading through insurance is only realized when the risk is actually spread, and insurers honor their promises and do not abandon their insureds.  If insurers collect premium from businesses providing legal, useful and in many cases government-approved and -regulated goods and services, only to turn around and deny coverage when courts impose retroactive liability, then the insurance enterprise is not beneficial, it’s a harmful tax on productive businesses.

Policyholders, with the assistance of experienced coverage counsel, should resist insurer efforts to deny or restrict coverage on the basis of “social inflation.”

Two Common Mistakes Policyholders Make with Property Insurance Claims

In this blog post, Mark Miller addresses two common mistakes policyholders make with property insurance claims.

To provide context, it is important to understand how corporate property insurance claims are typically handled. Because property insurance claims present a series of complex legal issues, insurance companies typically obtain legal advice on larger property claims from inception. Policyholders, on the other hand, typically do not. Policyholders typically engage an insurance broker or public adjuster to handle claims on their behalf. Brokers and public adjusters know insurance industry custom and practice, and they know how to handle claims in accordance with long-established understandings with insurance companies regarding what insurers will and will not pay. Legal involvement on the policyholder side, if at all, only comes into play down the road when the insurance company refuses to pay what they owe.

It is only at this point, perhaps a year or more into the claim, that policyholders are advised by counsel about the legal implications of their claim, including mistakes that were made. This video illustrates two common mistakes.

Proof of Loss Deadlines

The first mistake centers around proof of loss deadlines. A proof of loss is a sworn statement outlining the loss. Many property insurance policies state that a proof of loss must be filed within a specific period of time, such as 90 days from the date of loss. With complex corporate claims, it is impossible to assess a loss within 90 days, let alone swear under oath that the stated amount is the full amount of loss suffered. Moreover, business interruption and other “time element” losses often continue long after the proof of loss deadline has expired. So, policyholders are faced with an impossible-to-meet deadline.

For this reason, insurance industry custom and practice is to ignore proof of loss deadlines. When asked if a proof should be submitted, insurance adjusters will likely say that there is no need to submit a proof of loss until the loss has been agreed to by the policyholder and the insurer. In fact, if a policyholder offers to submit a proof of loss before they are asked to do so by the insurance company, the insurance company will treat the unrequested proof as a “hostile proof.” The word hostile says it all. In the insurance industry, irrespective of what the policy says, policyholders are instructed not to submit proofs of loss unless and until the insurance company asks them to do so.

The mistake with respect to proofs of loss arises because policy language and industry custom and practice are different. Although most jurisdictions will not require a policyholder to submit a proof of loss in this typical situation, the law is far from uniform. The solution to the problem, as addressed more fully in the video, is really quite simple, request an extension.

Suit Limitation Deadlines

The second mistake that policyholders make is by being lulled into thinking that the insurance company will pay the claim and missing a limitation on filing suit. Many property insurance policies have a limitation on filing suit against the insurance company. Commonly, these limitations are one or two years. Problems arise because complex property insurance claims are not typically resolved in this time period. In fact, in some situations, business interruption losses can continue for two years or more. Hence, it makes no sense for a policyholder to preemptively file suit if the parties are still working out the claim.

For these reasons, industry custom and practice is to ignore suit limitations deadlines. Typically, insurance carriers are negotiating claims, and cutting checks for losses, long after the suit limitations period has expired.

The issue comes up only when the insurance carrier decides they are done paying the claim. At that point, their counsel sends the policyholder a letter stating that the insurance company is finished paying, and that there is no recourse, given that the suit limitations period has expired.

The solution, as addressed more fully in the video, is to obtain a suit limitations extension from the carrier.

Please watch the video to learn more, or Contact us if you have any questions.

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Coronavirus Crisis Teams Should Carefully Review Business Interruption Insurance Policies

The spread of the coronavirus from Wuhan, China, and the ensuing reactions from governments and corporations are causing tremendous disruption in the global supply chain, especially among the world’s largest jet and auto makers, as well as technology and telecom giants.  Each day brings additional stories of compounding losses for businesses operating in and around Wuhan, and those dependent on them as either suppliers or customers. 

Companies who are suffering interruption of their business should carefully review business interruption insurance policies to see if they may be covered for increased costs and loss of revenue resulting from the virus outbreak.  There are many different variations in policy language, but many forms extend coverage to losses arising from :  (1) closure of “dependent properties” in the chain of supply or distribution; (2) denial of access to business premises by civil authorities, sometimes even in the absence of direct physical loss or damage; (3) loss of ingress or egress to covered premises; (4) loss of attraction extensions; and (5) contagious disease. See Business Interruption Claims Best Practices; Best Insurance Recovery Decisions: Fountain Powerboat.

Crisis teams working to navigate the virus situation should assume responsibility for reviewing their property and business interruption policies to assess potential coverage for their losses and provide notice under the applicable policies.  We can help. 

Is Lloyd’s of London Still Relevant?

The question of whether Lloyd’s of London is still relevant in today’s insurance market is a good question for corporate policyholders to consider. On the one hand,Lloyd’s plays an important if not crucial role in the U.S. market. They are known to ensure risks that others will not touch. They are also known for using innovative policy language.

However, Lloyd’s of London is not an insurer. Rather, it is a marketplace for underwriting risks. For a typical Lloyd’s of London policy, there is no single entity insuring the risk. Rather, underwriters of various corporate and non-corporate structures take portions of the risk. Each underwriter gives its two cents on what they want to pay. If there may be no lead appointed, it is not uncommon for underwriters to disagree as to how a claim should be paid or defended. This can lead to chaos.

Whether Lloyd’s of London is still relevant in today’s insurance market is a good question for corporate policyholders to consider.

When this chaos is imposed on cases filed in what is known as the “rocket docket,” such as that employed in the Eastern District of Virginia, all hell breaks loose. There, cases go from filing to trial in less than 12 months. To say that defense decisions in the rocket docket need to be made quickly is an understatement. Recently, we had the opportunity to gauge Lloyd’s of London’s performance in this setting, and they did not perform admirably.

Please watch the video to learn more, or Contact us if you have any questions.

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$3.5 Million Opioid Insurance Settlement is Covered by CGL Insurance, Says Federal Court

Plus 5% Interest and Maybe More Damages for Insurer’s Bad Faith

A federal district judge in Illinois has issued an important ruling in the opioid insurance coverage wars, finding coverage for a $3.5 million settlement between an opioid distributor and the State of West Virginia.

Insurance carrier’s lead argument? — there was no bodily injury. Not surprisingly, they lost.

The insurer raised the usual reflexive, rubbish coverage defenses, seeking first to deny coverage altogether by vilifying its insured as a willful drug pusher, and then, as a fallback, to chisel the insured out of full coverage by challenging the reasonableness of the total settlement amount and deducting amounts for allegedly “uncovered claims.” The court emphatically rejected each of these defenses and held that the entire settlement was for a covered loss in reasonable anticipation of liability based on the underlying negligence and public nuisance claims. The court found that these claims alleged damages “because of bodily injury.” The court also tacked on 5% per year interest from the date of the settlement payment, with the prospect that more damages for bad faith may be added later. The 5% interest and potential bad faith awards should remind insurers that continued recalcitrance may cost them much more than just the costs of defending and settling opioid claims. Moving forward, the decision should also benefit whichever industry – legal, respected and productive today – that tomorrow needs insurance protection when it finds itself the “villain” in the crosshairs of the next “public nuisance” shakedown by the plaintiffs’ bar.

The opinion in Cincinnati Ins. Co. v. H.D. Smith, L.L.C., Case No. 12-3289 (C.D. Ill. Sept. 26, 2019) is here.

Background of the Case

In 2012, West Virginia sued H.D. Smith, a distributor of controlled substances to pharmacies in West Virginia, on various theories arising from Smith’s alleged failure to put effective controls and procedures in place to guard against the theft and diversion of opioids. Smith’s insurer, Cincinnati Insurance, denied coverage of the claims. After years of coverage litigation, the Seventh Circuit ruled that Cincinnati had a duty to defend Smith. Cincinnati Ins. Co. v. H.D. Smith, L.L.C., 829 F.3d 771 (7th Cir. 2016).

In December 2016, shortly before a trial set for January 2017, Smith agreed to settle the West Virginia claims for $3.5 million. The court had denied all of Smith’s dispositive pretrial motions, and all but one of the other defendants had settled. Smith continued to deny that it had any actual liability to West Virginia, but it faced significant exposure as a non-resident defendant in front of a West Virginia jury.

Smith and Cincinnati cross-moved for summary judgment regarding coverage for the settlement. The court ruled entirely in favor of the insured on five major points of coverage.

1. The Settlement was in Reasonable Anticipation of Liability

The court held that an insured may have a reasonable anticipation of liability when it faces a jury trial against a sympathetic plaintiff with significant damages even if the facts against the insured are weak. Smith did not have to establish actual liability in order to have insurance coverage. An insured does not have “to refute liability in the underlying lawsuit and then, after obtaining a settlement, turn around and prove its own liability in order to succeed in a subsequent insurance coverage action.” Such a requirement would chill settlements.

The court found that Smith reasonably anticipated liability. Smith did not admit liability but faced significant exposure. Its pretrial motions had been denied and it faced an immediate trial in an unfavorable jurisdiction, with a popular sitting United States Senator and former governor slated to testify against it. The fact that all but one other defendant had settled was further evidence that Smith reasonably anticipated liability.

2. The Settlement Resolved Covered Claims Alleging an “Occurrence”

The insurer further contended that the settled claims did not allege a covered “occurrence” because they were premised on alleged willful and intentional misconduct by the distributor. The insurer argued that the settled claims were all based on allegations that the distributor:

“knew what was happening, but continued to intentionally and willfully send unwarranted amounts of controlled substances into West Virginia that could only lead to one result – illicit use and a compounding of the State’s prescription drug abuse epidemic . . . [and that] each and every cause of action [alleged], even those using the word “negligence,” incorporates and relies upon allegations of willful misconduct, a persistent course of conduct in violation of West Virginia law, and conscious disregard of the prescription drug abuse epidemic.”

The court had previously rejected this argument, holding that the claims either specifically alleged negligence, or alleged a mixture of negligent and intentional conduct, which is also covered. Cincinnati Ins. Co. v. H. D. Smith Wholesale Drug Co., 2015 WL 4624734 at *5 (C.D. Ill. Aug. 3, 2015), rev’d on other grounds, 829 F.3d 771 (7th Cir. 2016). The court reiterated its previous holding, rejecting insurer’s “intentional conduct” defense a second time. (Opinion at 31 n.2). The court held that Smith had alleged a covered “occurrence.”

3. The Settlement Resolved Claims Seeking Damages “Because of Bodily Injury”

The court next rejected the insurer’s argument that the distributor’s settlement was not covered because the settled claims did not seek “damages because of bodily injury.” First, the court quoted the Seventh Circuit’s earlier opinion on the duty to defend, which reasoned that if an insured under an automobile policy caused an accident in which a claimant became paralyzed, and the claimant sued the insured only for the cost of making his house wheelchair accessible (not for his physical injuries), those damages might not be covered if the auto policy only covered damages “for bodily injury.” However, if the auto policy covered damages “because of bodily injury,” [as Smith’s policy did,] then the insurer would have a duty to defend and indemnify. (Emphasis added).

The court went on to hold that, with respect to the settlement, both the negligence claims and the public nuisance claims asserted against Smith would likely include “damages because of bodily injury.” Damages in the form of “increased costs for, inter alia, public services relating to law enforcement and health care might be covered in the same manner that the paralyzed individual who makes his home wheelchair accessible would be.”

4. The Settlement Was for A Reasonable Amount

Next, the court rejected the insurer’s challenge to the reasonableness of the settlement amount. In determining reasonableness, the test is “what a reasonably prudent person in the position of the insured would have settled for on the merits of plaintiff’s claim.” The court found that the $3.5 million amount was reasonable even though it was higher than what most co-defendants paid. Disparities in opioid sales and Smith’s late position in the settlement queue made the higher amount reasonable in comparison. An additional factor that the court weighed in assessing reasonableness was that settlement avoided substantial defense costs. The complaining insurer faced the prospect of ongoing defense costs as high as the settlement amount.

5. The Covered Settlement Amount Would Not Be Chiseled Lower Because of “Allegedly Uncovered Claims”

The insurer’s last argument for shaving its payment obligation was that covered claims were not the primary focus of the litigation, and the settlement should be apportioned between covered claims and allegedly uncovered claims. The court entirely rejected this argument, and found that Smith:

“was not required to apportion its liability for different claims because that would either require the coverage trial to be a retrial of the merits of the insured’s underlying suit [or trial in the case of a settlement] and/or would discourage settlement because the insured would essentially have to prove its own liability for the underlying conduct even if it had not made that concession in arriving at a settlement.”

The court had already found that the settlement included covered negligence and public nuisance claims (see point 2 above). The litigation was primarily focused on claims that Smith wrongfully failed to recognize from its distribution pattern that West Virginians were obtaining improper prescriptions. The settlement agreement also noted that the government had never taken any administrative enforcement action against Smith and that Smith had never been found to be in violation of any state or federal regulations or guidelines concerning the distribution of controlled substances in West Virginia. And the settlement did not impose any penalties. Rather the focus of the settled claims was that Smith distributed more pharmaceuticals in the state than were medically necessary.

Accordingly, the court held that the insurer must pay the entire settlement “which plainly resolved potentially covered claims that the court concludes were the primary focus of the litigation. Moreover, the court has no basis to allocate the settlement between covered and any allegedly uncovered claims.”

Finally, the court awarded 5% interest from the date of settlement payment, and denied cross-motions for summary judgment on bad faith on the basis that there were unresolved genuine issues of material fact.

Funny Insurance Decision — The Tale of the Malicious Raccoons

Reminiscent of those television adds where the insurance company brags about having seen everything, and paid it, the case of Capital Flip, LLC v. American Modern Select Insurance Company (W.D. Pa. 1999) is a funny insurance decision that illustrates a different story.  There, malicious raccoons damaged a dwelling, and the insurance company refused to pay the claim.  If you wonder how this crazy decision relates to large corporate insurance claims, please read on.

In Capital Flip, the policyholder bought a named peril property policy.  One of the numerous perils covered was “Vandalism or malicious mischief.”  The policyholder argued that the raccoons were engaged in malicious mischief.  The court, looking to common usage of the words vandalism and malicious mischief, found that these acts typically related to a person.  Since raccoons are not persons, the court held that there was no coverage. 

Given that our law firm handles only large corporate insurance claims, I was hesitant to even read a decision about a home owner claim gone bad. But, I was curious.  I wanted to see if raccoons really are malicious.  After reading the decision, I contemplated what lessons, if any, large corporate policyholders could learn from this comical situation. 

On reflection, there is only one lesson we can learn from Capital Flip – when insuring property, buy an “all risk” policy.  All risk policies are the norm.  They cover “all risks of physical loss or damage,” and case law interpreting these kinds of policies is settled and policyholder friendly.  Coverage is exceedingly broad.  Why then did Capital Flip buy a named peril policy covering such limited perils?  We don’t know, but perhaps it was to save money. 

This funny insurance decision illustrates a point we make over and over again.  If there is a claim, Insurance policy wording is all that matters.  What the insurance broker says the policy covers means nothing.  What the insurance company says the policy covers means even less.  All that matters is insurance policy language. 

Lloyd’s of London. Then and Now

We are often asked by clients to compare the claims practices of leading insurance carriers, which often leads to a conversation about Lloyd’s of London’s current insurance claim resolution practices.

Lloyd’s of London. Then and Now

A lot has changed since Lloyd’s of London earned its reputation in the United States 113 years ago. The Great San Francisco earthquake of 1906 presented a pivotal opportunity for Lloyd’s of London to show the United States that they were different and better than traditional U.S. insurance companies. Their approach then was to bring suitcases of cash, and pay policyholders on the spot, in full, irrespective of policy language. This aggressive stance helped to build a reputation for Lloyd’s of London, and U.S. policyholders purchased a lot of insurance from them because of this reputation.

Today, 113 years later, Lloyd’s approach to insurance claim resolution is dramatically different. Now, when a claim is made, it is difficult or impossible to find anyone who can speak for Lloyd’s, let alone any individual who can settle a claim. Lloyd’s employs lawyers as adjusters, and, as a result, many claims are unjustly viewed with skepticism. This approach has earned Lloyd’s of London the opposite reputation amongst corporate policyholders to positive reputation they justly earned 113 years ago.

Lloyd’s of London can turn this around, but to do so, they need to go back to their earlier approach of paying claims. If they do this, the growth in sales they desperately desire will follow, and the reputation of the institution will be saved.

Please watch the video to learn more, or Contact us if you have any questions.

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