Pandemic-Related BI Coverage Litigation Update: Laura Gregory, Partner, Sloane and Walsh, LLP

Women in Insurance - November 3 2021

Commercial insurance companies have faced a barrage of COVID-19 coverage disputes related to business interruption from lockdowns and restrictions during the pandemic, and these disputes are making their way through the courts. Laura M. Gregory, an insurance coverage and bad faith attorney based in Boston, provides a quick update on where the commercial insurance industry stands today with regard to BI coverage litigation. A Partner at Sloane and Walsh, LLP, Ms. Gregory has specialized in insurance coverage and bad faith matters for more than 25 years and received the Chartered Property & Casualty Underwriter (CPCU) insurance industry designation in 1999. Her experience with complex coverage matters includes commercial policies (commercial general liability, businessowners, commercial property, commercial auto, D&O, E&O, inland marine, cyber, and excess policies) and personal lines policies (auto, homeowners, umbrella, and renters policies), as well as manuscript policies. A frequent author and speaker, Laura’s generosity in sharing her expertise has earned her a devoted following on LinkedIn. Need advice about coverage, claims, bad faith, and related issues? #LauraHasItCovered!

Laura, you joined our AI Wisdom – Talking Insurance Innovation podcast to discuss pandemic-related business interruption claims litigation. At the time, you said, “Never before have I seen business interruption coverage discussed in The New York Times and The Washington Post, this is not the kind of stuff that most people would normally be reading about.” Is BI coverage still a hot topic in the mainstream media, and can you provide a quick update on how the BI coverage story has developed since you spoke with us last November?

This topic continues to be a hot topic in insurance and legal circles, but much less so in the mainstream media than it was in 2020. Right now, the vast majority of decisions both at the trial and appellate court levels have been in favor of insurers. Several appellate decisions have been issued all in support of the insurers’ position that there is no coverage. However, questions are pending in supreme courts in a number of states, including my home state of Massachusetts. There is certainly more to come as the law of each state is laid out in these decisions.

The Insurance Coverage Law Center has called business interruption and COVID “one of the most impactful insurance coverage issues of all time.” Do you agree and, in your opinion, how well are commercial insurance companies dealing with the issue?

I agree that it is a hugely impactful issue due to the shear enormity of the loss of insured businesses due to the pandemic shutdowns. Back in March 2021, the estimated business income losses of small businesses (with 100 or less employees) was estimated at $220-383B per month. That is an unimaginably large number and to have it occur at the same time and continue for months is not the risk that the insurers took on when they issued business interruption policies. As decisions are issued insurers are able to make decisions regarding their policy language and underwriting of these types of claims going forward.

On July 2, in the first federal appeals court ruling on the issue, the 8th U.S. Circuit Court of Appeals ruled against an oral surgeon’s practice as to whether a policyholder can recover for COVID-19 losses under its business interruption coverage. Do you see this trend of courts ruling in favour of insurers in disputes over denied BI claims continuing? Are there outlier cases that may signal a sea change in this trend?

I do see this trend continuing. The courts are applying the insurance contract terms, as they must, and determining that government shutdown orders do not amount to direct physical loss. The vast majority of court decisions to date not only confirm what insurers have been saying all along, but have also supported the language of these policies, particularly the meaning of “direct physical loss.” Business interruption coverage is one that prior to COVID was not often litigated. Now we have numerous suits pending in every jurisdiction. As a result, there will be case law in every state on business interruption coverage and likely on the meaning of “direct physical loss.” This is important for insurers who can either modify their policies or their underwriting to reflect the law of each state. It should be noted that a minority of decisions have allowed cases to go forward through discovery and at least one or two to trial. I continue to watch these cases and their appeals.

You advise insurance companies on a wide range of coverage, bad faith, and related issues, and have litigated hundreds of cases. Have you seen insurers making any significant changes to how they do business or to their BI policies as a result of the pandemic? Have they tightened up their policy language, for example, or adjusted their risk appetite? What about their response to disputes?

It is too early to tell what insurers may do in response. The law is still being made. Additionally, the regulatory process for changing policy terms is often slow and cumbersome. There have been some changes through legislation in a couple of states requiring specific notifications to insureds about the scope of business interruption coverage. I anticipate we will see changes in underwriting and policy limits on these policies as well as policy terms, particularly if any states find that the presence of the virus constitutes direct physical loss. Insurers continue to litigate these cases across the country, and I think we can expect that to continue given their success to date.

It’s one thing to win in court and quite another to win in the court of public opinion. How are commercial insurance companies faring in terms of customer loyalty and the overall perception of the insurance industry in the wake of COVID-19?

Insurers certainly took a hit with this issue in the media in 2020 and certainly many insureds are unhappy. It appears that that view may be waning, but only time will tell.

It’s been 18+ months since COVID-19 first emerged. With mass vaccinations and many of us now heading back to the office or to hybrid working arrangements, is BI coverage still keeping insurance executives up at night? What about vaccine mandates from employers?

Insurers are certainly watching the litigation that is increasingly involving employment, including whether work from home/hybrid work and pay issues and vaccine requirements, as well as the loss of employees (particularly women) from the workforce during the pandemic, and addressing diversity, equity, and inclusion.

Thinking more long-term, what lessons can commercial insurers learn from the pandemic?

The primary lesson to be learned is the impact a pandemic can have and that we can anticipate another in the future. I expect this will be borne out in new insurance coverages as well as restrictions on coverage and underwriting of traditional coverages.

The litigation over business interruption coverage has also shown business owners, both insured and uninsured, what a business interruption means to their business and how they should plan to address that risk in the future both in the context of a pandemic and a more traditional loss. This is a coverage many did not understand. With the context presented through the pandemic, many now understand the very real risk as well as the scope of the coverage provided. This may increase the demand for these coverages.


Laura GregoryLaura M. Gregory, Partner, Sloane and Walsh, LLP is a member of the firm’s insurance group. Her practice concentrates on the representation of insurers and insureds in insurance coverage and bad faith matters, before state and federal trial and appellate courts. Additionally, she provides coverage opinions, advice, and analysis to clients on coverage and bad faith issues, as well as preparing and responding to demands made pursuant to M.G.L. c. 93A. Ms. Gregory also handles cases involving bad faith and unfair claims handling claims, both within and without the context of coverage, and has litigated an insurance fraud claim successfully through trial.

Ms. Gregory has specialized in insurance coverage and bad faith matters for more than 20 years and received the Chartered Property & Casualty Underwriter (CPCU) insurance industry designation in 1999.

Ms. Gregory handles cases involving commercial general liability, commercial auto, personal auto, commercial property, homeowners, directors and officers, errors and omissions, professional liability, business interruption, workers’ compensation and employers’ liability, marine, commercial crime, and excess policies, among others. Further, she has dealt with coverage issues in the areas of: construction defect, intellectual property, PIP, MedPay, products liability, uninsured/underinsured motorist, pollution (indoor and outdoor), discrimination, defamation, professional services, fraud, sexual molestation, products liability, bankruptcy, mold, maritime law, liquor liability, toxic torts, and others.

 

Browse different topics

Recent Posts