COVID-19: Insolvency and Insurance in the Context of a Pandemic

April 28, 2020

Anne Andrews, managing partner of Andrews & Thornton, has considerable experience navigating mass tort bankruptcies involving complicated pharmaceutical product liability, wildfire, and sexual abuse claims, including: New England Compounding Pharmacy, Chemtura Corporation, Dow Corning, PG&E, Insys, Purdue pharmaceuticals, and Boy Scouts of America. She currently chairs Insys and Purdue official committees.

This guest series of articles addresses timely issues of great importance pertaining to the COVID-19 pandemic and the implications for insolvency and insurance. In part I of this series, Kami Quinn, who has broad experience regarding insurance recovery in complex litigations and mass tort bankruptcies, offers for our enjoyment an article on business interruption in the context of COVID-19 and insurance coverage.

Future articles in this series will cover insolvency and other insurance and financial matters.

ANDREWS & THORNTON
COVID-19: Insurance Update

Part I: Business Interruption
By Kami E. Quinn, Gilbert LLP

When life is upended, individuals and businesses turn to their insurance coverage to provide them with financial support and protection. Nothing has upended life as much as the novel coronavirus. The impacts have been direct and immediate – businesses closed, people sick and dying – and indirect – contracts that cannot or will not be fulfilled, stock market volatility, and more. Many of these impacts may not yet be known. The landscape of the insurance response to these disruptions is moving nearly as fast as the impact of the virus itself.Below is a snapshot in time look whether and how business interruption insurance may serve to protect businesses from these financial reverberations. A second follow-up article will consider the potential insurance available for the types of third-party claims that have arisen in the wake of the virus.

Business Interrupted.

In the wake of COVID-19, business in the U.S. and worldwide has been interrupted with a suddenness and to a degree not previously experienced. It is no surprise then, that the first form of protection that businesses large and small turn to as revenues and profits dramatically diminish or stop altogether, is the section of their insurance policies titled “Business Interruption”. Business owners will instinctively feel that the reductions and stoppages occurring nationwide are precisely the sort of disaster from which they paid to be protected. But, will such coverage apply?

In insurance, the answer to that is almost always “it depends”. Given the novelty of the issues in this case, there is even greater uncertainty. The precise circumstances facing individual businesses vary in important details, and the difference of a single word in relevant policy provisions may make or break the pursuit of recompense. But while specifics matter, there are certain emerging trends that businesses should know as they evaluate whether business interruption coverage will provide the backstop they need.

First, insurance companies are broadly taking the position that business interruption insurance will not apply to loses arising from the novel coronavirus. David Sampson, president and CEO of the American Property Casualty Insurance Association has publicly stated that: “Pandemic outbreaks are uninsured because they are uninsurable,” in an April 6 statement. Insurers have gone on to say that any attempt at forcing insurers to foot the hundreds of billions of dollars in losses suffered by businesses “threatens solvency and the ability to make good on the actual promises made in existing insurance policies.” (See, https://www.rollcall.com/2020/04/08/in- letter-to-lawmakers-insurers-say-pandemic-cost-is-too-great/) Accordingly, no business should expect that their insurer will pay these claims in full in the ordinary course of business.

To avoid their coverage obligations under these policies, insurers are principally relying on provisions requiring that any covered business interruption arise out of “direct physical loss of or damage to property.” They assert that the losses experienced by businesses arise not out of any physical damage to their property, but rather out of the various stay-at-home or shelter-in-place orders in place across the nation, or the unwillingness of customers to patronize businesses in the current environment. Insurers thus seek to distinguish the present disaster from a more “traditional” business interruption loss—i.e., interruption caused by natural disasters like hurricanes, tornadoes, fires, or other catastrophes causing physical damage to an insured property.

Policyholders have already begun to challenge this position in court, arguing that the presence of the virus is damage to their property in the same way that the ammonia leak that the District of New Jersey found to constitute property damage in Gregory Packaging damaged that building. See Gregory Packaging, Inc. v. Travelers Property Casualty Co. of America, No. 2:12-cv-04418 (WHW), 2014 U.S. Dist. LEXIS 165232 (D.N.J. Nov. 25, 2014) (finding that ammonia contamination, an “invisible” condition that rendered a building unsafe for human use for some period of time, was covered under a business interruption policy).

Policyholders also point out that where there is community transmission of the disease, presence of the virus (and resulting damage) can be assumed in any individual property. Many stay-at- home or similar orders by governors and mayors around the country support this position by including language in those orders that essentially provides, as a basis for their order, that the virus “spread[s] from surface to person and caus[es] property loss and damage in certain circumstances[.]” See, e.g., gov.louisiana.gov/assets/Proclamations/2020/JBE-33-2020.pdf

Recent caselaw interpreting these orders further supports the proposition that this event is analogous to a more “typical” business interruption event. In Friends of DeVito v. Wolf, 68 MM 2020 (M.D. Pa., April 3, 2020), a Pennsylvania federal court rejected a challenge to an executive order shuttering businesses by finding that the governor had this power because the impact of the coronavirus was a “natural disaster” for which the governor had the power to issue emergency relief under the Pennsylvania code (the code defines “natural disaster” as “any hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, earthquake, landslide, mudslide…or other catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life”).

If policyholders are successful arguing that indeed there has been physical damage to their property, insurers likely will turn to other common provisions in policies providing business interruption coverage to deny payment of losses. These provisions include “virus exclusions” (i.e., exclusions barring coverage for damages caused by viruses) and exclusions or restrictive sublimits applicable to “Civil Authority” (i.e., provisions barring or limiting coverage for losses caused by governmental action that prevents access to the insured premises). Policyholders have challenged these assertions as well, based in part on their view of the actual “cause” of the loss in any particular case–for example, whether the loss results from shut-downs or the virus itself and the reasonable expectations of policyholders that purchased this coverage. Additional arguments rely on how the particular virus exclusion at issue is worded, and whether it excludes only certain named or identified disease types. Additional responses will continue to develop in the context of particular cases.

Insurance law is creature of state law, so early decisions on these issues may not bear on later cases in other jurisdictions. Policy language varies in relevant details, which may result in different outcomes on these issues even in the same jurisdiction. As a result, there likely will be a flood of cases on these issues in state courts for years to come, and these cases may have wildly differing outcomes for policyholders.

Recognizing the overwhelming need for business interruption coverage to provide protection for businesses before the burdens of ongoing losses drive them to close, state legislatures around the country (including New Jersey, New York, South Carolina, Massachusetts, and Pennsylvania) are beginning to propose legislative solutions that will require insurers to respond favorably to various small business’ claims for business interruption coverage. (See www.gilbertlegal.com/updated-legal-developments/ for more information.) Whether these efforts will be successful, or withstand constitutional challenges remains to be seen.

In light of all of these factors, the only thing that is clear about how business interruption coverage will ultimately apply is that there is no clear answer to date. As such, any business that has business interruption coverage ought to immediately (1) put their insurer on notice of their loss, (2) carefully review the specific contours of their policy, and (3) begin keeping careful records of the amount of losses and expenses incurred relating to their cessation (or reduction of business) to be in the best position to recover where possible.
The Best Way to Find Business Interruption Claims is Through Facebook. Period.
Business Interruption Claims

As the virus has shut down most businesses lawyers are now looking to help struggling businesses with their insurance claims for business interruption.

Well look no further than Facebook if you want to contact business owners today as that is a target on Facebook. We have been running these claims for the last month and we have an audience of 7.4 Million business owners on Facebook setup and we are seeing leads coming in below $20 right now with an average of $16 per lead.

Sample Landing page: https://coronavirusbusiness.legal-review.com/

We are ready to take on new clients for Business Interruption Claims and can even help with automation to make the process as streamlined as possible with the high volume of leads you should expect from this campaign.

Contact us if your want to start a local campaign at Lucas@xsocialmedia.com.

FDA calls for heartburn drug Zantac to be pulled from market immediately
The FDA noted that an ongoing investigation has determined that levels of a contaminant in the heartburn medications increase over time and when stored at higher-than-normal temperatures, pose a risk to public health.The contaminant, N-nitrosodimethylamine or NDMA, is a probable human carcinogen and the FDA has been investigating levels of it in ranitidine since the summer of 2019. Article Here

Zantac or Ranitidine first came out in 1981 and by 1987 it was the most prescribed drug in the world for decreasing stomach acid production. Fast forward almost 40 years later and we find out that Zantac should really not be exposed to heat. When exposed to heat in the body, the chemical called N-nitrosodimethylamine, or NDMA, a probable human carcinogen is created.

In the almost 40 years on the market, no warning was ever given on this and we could be talking about a whole lot of people exposed and at risk. In 2016 there where more than 15 million Americans with a prescription to Zantac (not counting the people that got it over the counter.)

The cancers that could be tied to Zantac are: Bladder Cancer, Stomach Cancer, Small Intestine Cancer, Colorectal Cancer, Esophageal Cancer, Liver Cancer, Pancreatic Cancer, Testicular Cancer, Uterine Cancer, Kidney Cancer

We have been finding clients for this tort for the last few months and we have setup attorneys if you are interested in ref. the cases out. We are seeing case costs currently running backing into $1000-1200 per cancer case. You can see our statistics on this tort here

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We look forward to hearing from your firm and getting a campaign going as soon as possible.

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