Update on Business Interruption Recovery Efforts:
As discussed in previous posts, businesses forced to close as a result of governmental orders related to COVID-19 are pursuing every avenue they can to recover their financial losses. What started as a handful of single plaintiff lawsuits has now turned into a wave of creative litigation and governmental efforts to find cash to help these businesses survive.
On Friday, April 17th, six new class actions were filed against the following six insurers:
· Society Insurance;
· Aspen American Insurance Company;
· Owners Insurance Company;
· Topa Insurance Company;
· Certain Underwriters at Lloyd’s; and
· Oregon Mutual Insurance Co.
These class actions were brought by a wide array of plaintiffs including the already familiar restaurants and a newer entrant, a bridal salon. It makes sense. These businesses are struggling, more so every day, and they need some clarity on whether or not their property insurers are going to respond to their claims.
With respect to governmental efforts, we’ve seen bills introduced in at least 7 states which would force property insurers to assist small businesses despite the terms and conditions of their policies. The federal government has gotten in on the action. The Business Interruption Insurance Coverage Act of 2020 is circulating through the House of Representatives. The bill is designed to provide similar relief to insureds.
After meeting with a number of prominent restaurateurs, the President of the United States weighed in, signaling he is behind the idea of insurers stepping up to help their insureds. He even put four restaurateurs on his advisory task force on reopening the economy. Also included on the task force is Evan Greenberg, CEO of Chubb and the only insurance industry expert on 200 or so member panel. Speaking in an interview last Thursday, Mr. Greenberg expressed severe concerns about proposals designed to force property insurers to pay uncovered losses. “’The insurance industry is a fundamental part of the economic plumbing of this country’. …Forcing insurers to foot the bill for losses not covered by policies ‘would do great damage. It would bankrupt the industry.’”
The big questions remain…who pays for this? When? As the litigation will undoubtedly drag out for some time, how will smaller businesses survive long enough to see the litigation to its fruition?
“Only when the tide goes out do you discover who’s been swimming naked.” --Warren Buffett
I bought my own Economist on-line subscription last week (don’t judge…I buy the hard copies when I have the chance to read it) after seeing the following headline: Who’s lost their trunks? The economic crisis will expose a decade’s worth of corporate fraud. For those of us who have been in the management liability insurance space for years, this headline brings us back to the days of the dotcom and the 2008 financial crises when financial markets cratered and once high-flying companies such as Enron, Worldcom and Bernard L. Madoff Investment Securities were brought to their knees as their shoddy (to put it politely!) accounting practices were exposed. Although hopefully not of the scale we saw in the collapse of the three aforementioned companies (fingers and toes crossed!), the economic fallout from the global pandemic will no doubt uncover new accounting scandals that will put pressure on companies and their boards of directors. As the article relates, “(b)ooms help fraudsters paper over cracks in their accounts, from fictitious investment returns to exaggerated sales. Slowdowns rip the covering off.” As one expert put it, “the effects of covid-19 look like ‘a perfect storm for fraud.’ It may engender everything from iffy accounting to stimulus-linked scams as thousands of firms—including bogus applicants—hustle for help. One fraud investigator points to private-equity-owned firms as potential targets. ‘There are lots of them, they are highly leveraged and they may not qualify for bail-outs because they have deep-pocketed sponsors’.”
Mike Curley, 6 Insurers Hit with Class Suits Over COVID-19 Coverage, Law360, April 17, 2020.
Daniel B. Heidtke, Congress Proposes Bill for Coronavirus Business Interruption Insurance Coverage, Duane Morris Insurance Blog, April 16, 2020.
Evan Greenberg only insurance rep on Trump’s economic revival list, The Insurer, April 15, 2020.
Katherine Chiglinsky, Chubb CEO Greeberg Warns Retroactive Measures Would ‘Bankrupt’ Insurance Industry, Insurance Journal, April 16, 2020.
Who’s lost their trunks? The economic crisis will expose a decade’s worth of corporate fraud. The Economist, April 18, 2020 Edition.