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We Begin Again with the Stimulus/No Stimulus Update:

There has been no material movement on the stimulus package that we have been discussing for the past few weeks. Reports have indicated, however, that the $300/week federal unemployment payments promised as a part of the President’s four-part executive order/memoranda, is approved in over half of the states. Even with that additional boost, however, consumers are becoming increasingly anxious. According to a report out this morning from the Wall Street Journal, there has been a noticeable drop in super-market spending since the $600 additional federal unemployment benefits ran out at the end of July.

Data and COVID-19 Cases:

I believe I am late to the party in finding the amazing data that the University of Pennsylvania School of Law is collecting and summarizing regarding COVID-19 related litigation. The Covid Coverage Litigation Tracker is an insurance law analytics tool that “is tracking property casualty litigation related to the Covid 19 pandemic.” Although the tracker is usually a little behind in terms of real-time filings, the data included is extremely informative.

Some interesting facts follow:

  • As of the week ending August 3, 2020, 1,055 cases had been filed.

  • The BI coverage is the coverage most frequently sought in the cases filed; 927 cases have included demands for this coverage. BI is followed closely by extra expense coverage (817 cases included demands for this coverage) and civil authority coverage (797 cases included demands for this coverage).

  • Out of the 218 motions to dismiss filed to date, the number one defense raised by insurers is that the virus has not caused physical loss or damage. This has been raised 164 times. The explicit virus exclusion defense has been raised in 92 of the cases so far.

  • Out of the total cases, 62 claims have been filed as state class actions only , 101 have been filed as federal and state class actions, 134 have been filed as federal class actions only, and 780 have not asserted class status.

  • A significant majority of the cases have not alleged bad faith.

  • Hartford is facing the highest number of these cases (166); followed by Cincinnati Financial (100), Zurich (62) and Travelers (58).

So far, the carriers are winning more than they are losing. But, the number of cases continues to grow, and so do the costs associated with the litigation. We will keep you posted.

Uber, Lyft, Classification and the Election:

The on-going battle over whether Uber and Lyft drivers (and many other individuals who serve as part of the “gig-economy”) should be classified as independent contractors or employees heated up over the past few weeks. Here’s what we know:

  • From an employment perspective, Uber and Lyft both classify their drivers as independent contractors. As such, the drivers are generally not entitled to certain employment-related protections and benefits from the companies.

  • Multiple lawsuits (I mean many, many lawsuits!) have been filed on behalf of drivers arguing that they should be classified as employees of the companies. (The same trend has been followed by other “gig” economy workers.)

  • The results of these lawsuits have varied. In 2019, for example, Uber settled a case that had been going on since 2013 for $20M. Uber had offered to settle the same case in 2016 for $100M, but the judge in the case rejected that settlement figure. Hindsight is 2020, right? The settlement was only applicable to a sliver of Uber’s drivers, and other litigation continues.

  • Among the many complicating factors in these cases, arbitration agreements exist for most of these companies, and courts have found those agreements to be valid and enforceable.

  • In September, 2019, California, the home to both Uber and Lyft, passed legislation, Assembly Bill 5, which “set() standards for when companies can employee independent contractors. Gig workers such as drivers and delivery people could potentially be reclassified as employees, entitled to better wages and benefits.”

  • The California law went into effect in January, 2020, and in May, the state of California sued the ride-hailing companies for continuing to misclassify its drivers as independent contractors rather than employees.

  • Although “(t)he companies had asked the judge (handling the case) to postpone the litigation, citing among other reasons a proposed ballot initiative for November that would exempt them from…Assembly Bill 5…”, the litigation proceeded. Earlier this month, the California court held that the companies had in fact misclassified its drivers in violation of the law.

  • A showdown between the companies and the state ensued, with both Uber and Lyft threatening to halt all rides in California if they were forced to comply with the lower court’s ruling. The Court of Appeals stepped in at the last minute and “granted Uber and Lyft a temporary reprieve, allowing them to continue operating while the court weighs their appeal. Oral arguments in the case are set for mid-October.”

  • The companies may be off the hook if California votes in favor of a November ballot initiative designed to exempt Uber and Lyft from Assembly Bill 5.

  • “If Uber and Lyft are forced to reclassify drivers, they are considering plans to establish franchise-like operations in California, inviting third parties to hire their drivers rather than becoming employers themselves.”

What impact does all of this have on insurance? Not much. Wage and hour coverage is typically not included in most employment practices liability policies (with the exception of tailored policies available off shore). The barrage of litigation these companies have faced must be extremely expensive.

Tesla, Elon Musk, Corporate Governance and Insurance…or Lack Thereof:

Tesla and its founder and CEO, Elon Musk, have been all over the news recently. The good news? Tesla’s stock is doing really, really well. Really well. So well that its board announced a 5 for 1 split last week, and as of this publication, the stock is trading at over $2235 a share. The stock, along with Netflix and a few others, is buoying the NASDAQ exchange.

The “management liability worthy” news revolves around Musk, Tesla’s recent SEC filings, and D&O insurance.

In mid-spring, Tesla disclosed in its quarterly filing that the company no longer purchased D&O insurance on behalf of the company, its directors and officers. According to the filing, Tesla was unable to secure D&O coverage at a reasonable price. At the time, Musk agreed to personally backstop the non-indemnifiable liabilities of the directors and officers. This personal backstop was met with grave corporate governance concerns. How can a board have their personal liability protected by their CEO while, at the same time, remain independent from Musk and his, at times, “erratic” decision-making?

In late June, Tesla disclosed that it had revamped its stance on D&O insurance. Musk is being paid close to a $1M fee for backstopping Tesla’s directors’ and officers’ potential non-indemnifiable liabilities while the company actively remarkets the program. The company’s 8-K specifically noted that Tesla had entered into a 90-day indemnification agreement with Musk whereby he would put up $100M of his own assets as a form of “non-indemnifiable D&O insurance” in exchange for the one-time fee/premium of $972,361. At the same time, Tesla would use its “best efforts” to secure $100M in D&O cover from the commercial marketplace “and will pay an additional amount to Mr. Musk to reconcile the one-time fee to be equal to the market-based premium for the (quote) as prorated for 90 days and further discounted by 50%, if the latter amount is greater.”

Does the fact that Musk is getting paid for the indemnity backstop make a dent in wary investors’ minds re board members’ independence? (As the stock flies high, admittedly this may be the last thing on investors’ mind!). Big personality CEOs with huge stakes in companies are often associated with the appearance of the lack of board independence. Think about Oracle and the ongoing Netsuite acquisition related derivative action against Larry Ellison and Safra Catz. What about Tesla’s own acquisition of Solar City, and the ongoing litigation against Tesla and Musk? From an insurance perspective, even if insurers decide to specifically exclude coverage as to these and similar outspoken figureheads, while at the same time providing coverage for the directors and officers of their companies, won’t questions of independence still be a central issue in non-indemnifiable claims brought against these boards simply because of the lightning-rod individuals at the helm?

If you’re interested and have time, the ruling on the motion to dismiss in the Oracle derivative mentioned above is a great read.

Do You Feel This Way Sometimes?:

I don’t know about you, but this “new normal” got me down this past week. I am usually an overly positive person….sometimes to an annoying extent. But these dog days of summer have been rough. Don’t get me wrong, I remain unbelievably GRATEFUL for all that I have…my health, my kids’ health, a job I love, friends I adore, a COVID golden retriever puppy named Willa who is my new best friend…but some days I get blue.

Over the past twenty four hours, however, I’ve done two things that have helped me a ton. One, I listened to this amazing talk from Kelly Munger, a fabulous therapist who has been instrumental to our firm in providing zoom calls filled with practical advice as to how to navigate the emotional and relational challenges we are all facing. Take a listen if you have time. It is worth it.


Two, one of my favorite writers, Glennon Doyle, posted the below on Facebook and Instagram today. Glennon (I feel like I know her, so I call her by her first name. She has zero idea who I am!) is a motivational speaker who makes a living authentically inspiring others. Even when she’s hurting (a lot of the time she’s laughing and helping others laugh), she vulnerably tells it like it is. And that, to me, is what it is all about. It gives me permission to let my guard down, and acknowledge “Hey Carrie, you’re not alone in this craziness. A blue day, or even a blue week, are ok. All will be well. Continue to do the next right thing. Onward.”

From Glennon Doyle’s 8.27.2020 Facebook post:

Hello. Just Wondering if Anyone else feels like they have lost the point.

I no longer know “how i am.” I do not know what to do what to say who to call what to eat how to plan how I feel. I don’t know if I’m doing enough too much not enough. I forgot how to parent, how to friend how to lead how to achieve or serve or rest or heal or work hard play hard yadda yadda.

I am kind of Mean, suddenly. The meanness that comes from numbness.

I have forgotten the structure, the way of things. I want Something To Change. The closest feeling I have Access to is: claustrophobia?

That’s all. There’s your inspiration for the day. What can I say? YOU’RE the one who follows a Clinically Depressed Motivational Speaker.

I do love you. I know that much.

G

Sources:

Megan DeMatteo, More than half of states have been approved for the $300 unemployment benefit—but don’t forget about taxes, cnbc.com, August 27, 2020.

Annie Gasparro and Jaewon Kang, With Second Stimulus Checks on Hold, Americans Spend Less at the Grocery Store, wsj.com, August 27, 2020.

Covid Coverage Litigation Tracker, Penn Law, cclt.law.upenn.edu.

Megan Rose Dickey, Uber agrees to pay drivers $20 million to settle independent contractor lawsuit, techcrunch.com, March 12, 2019.

Alejandro Lazo, California Enacts Law to Classify Some Gig Workers as Employees, wsj.com, September 18, 2019.

Sebastian Herrera and Tim Higgins, California Sues Uber, Lyft Saying They Misclassified Drivers as Independent Contractors, wsj.com, May 5, 2020.

Sarah E. Needleman, Uber, Lyft ordered to Classify Drivers as Employees, wsj.com, August 10, 2020.

cnbc.com, Tesla ticker, August 27, 2020

Tesla’s 8-K filed June 24, 2020;


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Carrie O’Neil

Senior Vice President, Legal & Claims carrie.oneil@cacspecialty.com

www.cacspecialty.com


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