Six COVID-19 Insurance Litigation Trends for GCs to Watch

By Randi-Lynn Smallheer and Anna Haliotis

The waves of commercial litigation triggered by the impact of COVID-19 continue to build and crash ashore. Corporate legal departments in every industry are seeing a pace and volume of lawsuits related to the pandemic unlike anything we have seen in our lifetimes.

“The COVID-19 pandemic is expected to lead to more litigation than any other incident in U.S. history,” reported ABA Journal . “It has been a tumultuous year, and the effect of the coronavirus on business operations, consumer activity, economic forecasts and everyday life makes clear that the filings to date are a precursor of what is to come.”

Indeed, Norton Rose Fulbright’s 16^th annual Litigation Trends Survey found that 31% of corporations reported an increase in disputes over the last year as a direct result of COVID-19, and 45% are forecasting that volume to increase over the next year.

And while COVID-19 litigation affects a wide range of legal practice areas, insurance-related litigation currently accounts for the most lawsuits and the largest percentage of matters with allegations attributed to COVID-19, according to ABA Journal.

The circumstances surrounding COVID-19 insurance litigation range from business interruption and event cancellations to workplace negligence and employee illness. The most common kinds of COVID-19-related insurance cases we have tracked include: exposure-based litigation (e.g., personal injury, wrongful death, etc.); consumer class-action litigation (e.g., event cancellations, consumer refunds, etc.); breach of contract litigation (e.g., withdrawal from contractual performance, pre-pandemic negotiated deals, etc.); securities and derivative litigation; and CARES Act litigation (e.g., statutory violations, common law claims, etc.).

Based on our market observations, GCs should monitor the following six key COVID-19 insurance litigation trends in the coming months.

1. Business Interruption

Business closures necessitated by COVID-19 in many states caused a flurry of business interruption claims. “The main focus has been on claims for lost business income due to shutdowns under various types of (insurance) policies, commonly referred to as ‘business interruption’ claims,”stated The National Law Review®. “Trials in such cases have and will continue to shape the landscape of similar litigation for some time.”

Since physical property damage is typically required to trigger business interruption coverage under all but the most specialized policies, COVID-19 business interruption litigation focuses on the interplay between property damage and the presence (or absence) of COVID-19. These cases also involve the existence and scope of virus or infectious disease exclusions. Legislative and regulatory efforts to mandate payment of COVID-19-related business interruption claims in some states add another wrinkle to litigation strategy on these types of claims.

2. Employment Practices Liability Insurance

Since the COVID-19 pandemic began, employers have been grappling with workforce issues and health/safety concerns on top of their day-to-day financial challenges. This activity involves exposures that are triggering liability based on a wide swath of employer practices

Employment Practices Liability Insurance (EPLI) policies are designed to provide coverage in response to claims brought by or on behalf of company employees. For instance, claims brought by former employees of a company for discrimination or wrongful termination would fall within the scope of coverage of a typical EPLI policy. Considering the difficulties related to COVID-19, many states have introduced legislation, issued guidance to insurers and/or granted temporary relief to insurers relating to a number of EPLI coverage issues. In-house counsel should review our COVID-19 Employment Practices Liability Insurance (EPLI) Claims Pre-Litigation and Litigation practice note and COVID-19 EPLI Claims Litigation Checklist for further insights.

3. Negligence Liability

In addition to business interruption claims, COVID-19 is generating negligence claims across a variety of other available coverages involving travel, hospitality, restaurant and related business sectors.

The broad elements of negligence that must be proven in COVID-19-related claims involving travel, hospitality and related businesses are generally similar to those required in other negligence claims. However, the main difference is that—depending on the business or industry involved—what constitutes negligence can change depending on your company’s primary functions. For example, what is negligent conduct by an airline or cruise operator may not be negligent for a hotelier, as these companies have differing duties of care that determine potential liabilities.

4. Event Cancellation

The cancellation of events across the United States and worldwide as a consequence of COVID-19 resulted in a corresponding increase in event cancellation claims and litigation. In fact, experts estimate that COVID-19 event cancellation claims were in the $6 billion to $9 billion range, according to Business Insurance.

An event cancellation policy may enable a policyholder to file a notice of circumstances with the insurer when it becomes aware of facts that may support a claim. But establishing and providing proof of loss is a critical aspect of an event cancellation claim that can result in litigation and impact the outcome of the case. The more concrete, measurable and provable the policyholder’s documentation , the greater likelihood that they will be able to recover on an event cancellation claim. A review of those elements of loss is provided in our COVID-19 Event Cancellation Claims Litigation practice note.

5. Life Insurance

The COVID-19 pandemic has had less of an impact on life insurance than on other lines of business, primarily because the historical and continuing coverage trigger remains the insured’s death. Regulators are unlikely to allow insurers to change their policy forms to exclude death by COVID-19, so COVID-related death claims should be honored. As a result, COVID-19 has also had less of an impact on life insurance litigation.

Nevertheless, life insurers may attempt to refuse payment of life claims during the policy’s contestability period based on alleged misrepresentations in the insured’s application. In-house counsel should also stay alert for a possible uptick in litigation involving insurance intermediaries and the sale and marketing of life insurance policies during and after the pandemic.

6. Health Insurance

There are many legislative and regulatory challenges to consider in pandemic-related health insurance litigation, including specific coverage and other concerns that may arise with claims against medical providers and their insurers. Our COVID-19 Health Insurance Claims Pre-Litigation Checklist stakes out the central investigatory steps that must be taken in advance of a potential claim against a health insurer or an insurance intermediary.

Whether your department is assisting a claimant and determining whether to file suit for health insurance benefits or you are planning a defense against such litigation, it’s important to track how these cases are playing out in the courts. For example, while it is usually assumed that health insurance disputes are matters of state law, that is not always so. Federal courts and federal statutory and administrative law can enter the realm of health insurance—including claims related to COVID-19—in various ways.

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LexisNexis® has a dedicated COVID-19 Insurance Litigation Resource Kit that curates essential information and resources to help in-house counsel stay apprised of the most common types of COVID-19-related insurance cases that may impact their organizations. The kit includes practice notes, articles, checklists and state law surveys offering “how-to” guidance and strategic considerations on the novel issues and concerns corporate legal departments and their outside counsel may face when filing or defending lawsuits arising out of the COVID-19 pandemic.