Continued impacts of COVID-19...
COVID-19 Impact on Public Companies
According to a report in the Wall Street Journal this morning, since the beginning of the pandemic:
just under 300 public companies had pulled their financial guidance;
260 public companies have either drawn down credit or opened new lines of credit:
103 public companies have halted stock buybacks; and
close to 70 public companies have stopped paying dividends.
Investors, and plaintiffs’ firms, are awaiting first quarter results and accompanying disclosures which should help in the assessment of (a) the initial damage caused by the global shutdown; and (b) the companies’ ability to manage through this crisis.
California’s Insurance Commissioner Steps In to Order Premium Refunds:
If you’ve been watching tv during this pandemic, you have no doubt seen car insurance commercials announcing that they are voluntarily “giving back” a portion of their insureds’ premiums because we are not out driving our cars nearly as much during this time. This morning, California’s Insurance Commissioner took the refund idea one step further, ordering insurers that provide the following lines of coverage in California to give premium refunds to insureds”…by providing a premium credit, reduction, return of premium, or other appropriate premium adjustment”:
private and commercial auto insurance;
workers’ compensation insurance;
commercial multiple peril insurance;
commercial liability insurance;
medical malpractice insurance; and
other lines of insurance in which the risk has substantially reduced as a result of the virus.
More Dec Actions Filed Against Property Insurers:
As mentioned in previous posts, businesses forced to either close or severely curtail their operations have zeroed in on their “all-risk” property insurance as an avenue of potential recovery for business interruption losses. The battle between property insurers (who are arguing that the policies are either not triggered because the establishments have not sustained “physical damage”, or that even if the coverage is triggered, virus exclusions knock out the coverage) and their insureds (who are arguing, among other things, that the presence of the virus on surfaces equals physical damage) is ON. Over the past week, a number of new suits of interest (and scale!) have been filed.
On Friday, a group of Florida restaurants filed a purported class action against certain Syndicates within Lloyd’s of London. It is unclear how the “class” is going to come together, but at the moment, two restaurant entities are leading the charge.
A scuba dive shop in Florida filed suit against its insurers last week arguing that “because the risk of contamination bars access to the (dive shop), it should constitute a physical loss under the policy.”
Despite having a virus related exclusion in its property policy, a Washington DC restaurant is suing its insurer for coverage under the civil authority clause in its property policy, arguing that it was the DC Mayor’s order to shut down restaurants in the city, not the virus, that caused the business interruption loss.
State Legislatures Continue to Propose Bills to Force Insurers to Pay Certain BI Claims:
As discussed in previous posts, state legislatures are hearing the cries of their constituents and entering the fight to find insurance coverage for BI losses. To date, New Jersey, Ohio, Massachusetts, New York, Louisiana, Pennsylvania and South Carolina have all introduced bills designed to force property insurers to pay for business interruption losses regardless of policy terms. Although all of the bills are written differently, they each apply to small businesses only, and some provide for reimbursement via state insurance department programs/assessments.
“Non-virus” Management Liability News…Some Good News for Boards of Directors as Two Derivative Suits in Delaware are Dismissed
The Delaware Court of Chancery dismissed a claim brought on behalf of the active-wear company lululemon. The derivative action involved allegations that the company’s directors breached their duties by failing to acknowledge and reign in the behavior of the company’s CEO who had been accused of “creating(ing) a toxic culture at lululemon and engag(ing) in a pattern and practice of harassment and sexual favoritism”. Additionally, the plaintiff alleged that once the behavior was addressed, the board breached its duty by hastily approving a $5M severance package for the outgoing CEO.
In a lengthy opinion dismissing the complaint, the Court found that the plaintiff failed to plead that an initial demand on the board to investigate was futile.
The Supreme Court of Delaware affirmed a lower court’s decision dismissing a derivative claim brought on behalf of the pharmacy chain Walgreens. The case, Robert Hays, et al., v. Jose E. Almeida, et al, centered around Walgreens’ involvement with Theranos, the now-defunct technology company that shot to fame on promises that it could rapidly test blood samples for multiple diseases. During Theranos’ hay day, it contracted with Walgreens to provide testing services that ultimately did not materialize. Walgreens suffered significant financial losses as a result of the failed partnership.
In a two page order, the Supreme Court affirmed Delaware’s lower court holding which found that the shareholders’ complaint: (a) “failed to show it would have been futile to first give the company’s board an opportunity to consider and act on the allegations…”; and (b) failed to plead an oversight claim against the directors which “…requires allegations sufficient to support an inference of scienter.”
Inti Pacheco and Stephanie Stamm, How Coronavirus Spread Through Corporate America, Wall Street Journal, April 13, 2020.
Bulletin 2020-3 from Ricardo Lara, California Insurance Commissioner to all property and casualty insurers and workers compensation insurers. April 13, 2020.
Joyce Hanson, Fla. Restaurants Sue Lloyd’s For COVID-19 Coverage, Law360, April 10, 2020.
Mike Curley, Fla. Scuba Shop Sues Over COVID-19 Insurance Coverage, Law360, April 7, 2020.
Mike Curley, DC Eatery Seeks Loss of Business Coverage Amid COVID-19, Law360, April 9, 2020.
Covid-19: States Attempt to Shift Economic Burden to insurance Industry with New Legislation on Business Interruption Coverage, The National Law Review, April 10, 2020.
Jeff Montgomery, Lululemon Escapes Investor’s Toxic Work Culture Claims, Law360, April 2, 2020.
Shabbouei v. Potdevin et al., case number 2018-0847, in the Court of Chancery of the State of Delaware.
Jeff Montgomery, Del. Justices End Suit Over Walgreens’ Theranos Deal, Law360, April 10, 2020.