Insurers Face Increased Pressure to Expedite Wildfire Claims Due to Notice from Insurance Commissioner

 

While we all continue to deal with the effects and impacts of the COVID-19 pandemic, the western part of our country is now experiencing almost unprecedented wildfires. Over the last two weeks, the west coast has been devastated by wildfires with more than 4.7 million acres burned. Given the widespread devastation losses will likely be in the billions. The large scope of damages will have a drastic impact on insurers both from a potential loss perspective and from substantially increased demand on insurers to adjust claims within statutory time limits for each state.

The anticipated demands on insurers to quickly and efficiently process wildfire claims is exacerbated by a recent emergency notice from the California Insurance Commissioner. On August 26, 2020, the California Insurance Commissioner issued an emergency notice urging insurers to expedite handling of wildfire loss claims and to provide greater flexibility in the handling of claims including the following:

  • Provide a minimum four-month advance payment of Loss of Use, Fair Rental Value, or Additional Living Expense.
  • Allow a minimum 60-day billing grace period to allow for any lost or destroyed renewal notices.
  • Advance payment of at least 35% of limits for personal property without the need to complete an inventory,
  • Accept an inventory on non-company specific forms as long as it contains substantially the same information as the company form.
  • Expedite payment of vehicle damage claims covered under comprehensive loss coverage.
  • Cooperate with consolidated removal efforts coordinated through city, country, and state agencies unless the insurer can provide debris removal more rapidly.
Given the scope of the known and anticipated losses in California, this emergency notice will put additional pressure on the already strained resources that insurers are faced with in light of the COVID-19 pandemic. While not a requirement, this emergency notice may also have the effect of increasing the likelihood of inflated and/or fraudulent claims. The notice provides almost identically to legislation currently on the California Governor’s desk. SB-872 (residential property insurance: state of emergency), which is intended to go into effect in January 2021 for all fire loss claims where a state of emergency is declared. This proposed legislation also raises several issues that insurers need to be aware of. Importantly, with respect to land value, current California law provides that policy holders have the right to buy or rebuild a total loss at a different location. Because insurers do not insure land value, some insurers have read this law to allow for the deduction of land value. This new law expressly prohibits that practice.

It is likely that Washington and Oregon will issue similar notices in the near future in light of the similar scope of losses in those states. Regardless, we anticipate another substantial round of Business Interruption claims as a result of the wildfires. In light of the fact that hundreds of people have been forced into shelters due to evacuations, there also is likely to be an increase in COVID-19 related claims. More importantly, the present impacts of the COVID-19 pandemic will necessarily impact the adjustment and resolution of wildfire claims as resources and necessary activities are all still curtailed in the current environment.

As a result of the large number of losses and requests to expedite adjustment, the threat of inflated and/or fraudulent claims is increased. Therefore, it is important that insurers proactively investigate, adjust, and seek consultation from appropriate professionals as early as possible in the claims process. This includes retaining and seeking opinions from construction/remediation professionals, cause and origin professionals, financial/accounting experts, and, when necessary, legal advice from coverage counsel whenever concerns arise.

Lether Law Group has been handling large first-party property losses for over 32 years. This includes large fire loss and wildfire claims. If you would like to discuss these recent developments or any other matters, please feel free to contact us at any time.

The above article is an opinion based on various resources such as industry knowledge and is not to be construed as legal advice or to be used as such. If you require legal advice or would like to inquire further about the information contained in this article, please feel free to contact our office directly.

Remembering Victims and Survivors

On the anniversary of September 11, 2001, we at Lether Law Group stand united in remembering the victims and survivors of the attacks on New York and Washington, D.C. In light of those events, and the challenges still present today, we especially give thanks for our first responders and the heroes who so bravely honored, and continue to honor, our country.

COVID-19 Business Interruption Case Updates from Across the Country

The rapid spread of COVID-19 throughout the United States and resulting governmental shut-down orders have sparked a large increase in business interruption claims and subsequent litigation. While “direct physical loss” and “necessary suspension” policy language have been addressed in most jurisdictions, the less commonly litigated terms of civil authority coverage and virus exclusions are the subject of debate in many courts across the country. The following is a summary of notable rulings on COVID-19 business interruption coverages:
  • In re: COVID-19 Business Interruption Protection Insurance Litigation, United Statees Judicial Panel on Multidistrict Litigation, MDL No. 2942, 2020 U.S. Dist. LEXIS 144446: The Panel denied the plaintiffs’ motion to transfer and consolidate 263 cases across 48 districts into a single industry-wide business interruption coverage case. The Panel found that consolidation was inappropriate because differences overwhelmed any common factual questions – there was no common defendant, different policy forms, and a diverse group of plaintiffs located throughout the United States. Moreover, the Panel found that consolidation would be inefficient for all parties and courts involved.
  • 10E, LLC v. Travelers Indem. Co., United States District Court for the Central District of California Case No. 2:20-cv-04418-SVW-AS, 2020 U.S. Dist. LEXIS 156827: The court granted Travelers’ Motion to Dismiss, interpreting “direct physical loss” to require “the permanent dispossession of something” as opposed to a temporary restriction of the use of property. The 10E court found that the plaintiff-restaurant was not entitled to business interruption loss or civil authority coverage arising from governmental orders restricting restaurants to take-out and delivery due to COVID-19.
  • Gavrilides Management Co. v. Michigan Insurance Co., Michigan Circuit Court Case No. 20-258-CB-C30: The court granted Michigan Insurance Company’s motion to dismiss after finding that a loss of income due to orders limiting a restaurant’s operations to take-out and delivery in response to COVID-19 did not satisfy the requirement of physical loss of or damage to property. The Gavrilides court stated that “physical alteration to or physical damage or tangible damage to the integrity of the building” was required for coverage.
  • Malaube, LLC v. Greenwich Ins. Co., United States District Court for the Southern District of Florida Case No. 20-22615-Civ, 2020 US Dist LEXIS: Magistrate Judge Edwin Torres recommended granting Greenwich Insurance Company’s Motion to Dismiss COVID-19 Business Interruption claims brought by a restaurant. Where government orders prohibited indoor dining but allowed delivery and take-out orders, Judge Torres found that no “direct physical loss or damage” occurred because the government orders never made the plaintiff’s restaurant uninhabitable or substantially unusable.
  • Rose’s 1, LLC v. Erie Ins. Exch., District of Columbia Superior Court Case No. 2020 CA 002424 B, 2020 D.C. Super. LEXIS 10: The court granted summary judgment after finding that government orders restricting business operations do not constitute “direct physical loss.” The court found that that the government’s orders did not cause any “direct” change to properties, that the orders did not have any “effect on the material or tangible structure of the insured properties,” and the orders did not constitute a “loss” because they did not have any “direct physical intrusion on to the insured property.”
  • Diesel Barbershop, LLC, v. State Farm Lloyds¸ United States District Court for the Western District of Texas Case No. 5:20-CV-461-DAE, 2020 U.S. Dist. LEXIS 147276: The court granted State Farm’s motion to dismiss, finding that business interruption coverage required tangible injury to property and upholding the policy’s virus exclusion. Specifically, the court found that the shut-down orders were a sequential result of the presence of COVID-19, and therefore, “the primary root cause” of Plaintiffs’ business closure.
  • Social Life Magazine, Inc. v. Sentinel Ins. Co. Ltd., United States District Court for the  Southern District of New York No. 20 Civ. 3311 (VEC): The court denied plaintiff’s motion for preliminary injunction because COVID-19 does not cause physical damage to property, rather, “it damages a person’s lungs.”
  • Optical Services USA, et al. v. Franklin Mutual Insurance Company, New Jersey Superior Court Case No. BER-L-3681-20: The court denied Franklin Mutual’ s motion to dismiss, finding that plaintiffs should have the opportunity to engage in issue-oriented discovery to fully establish the record regarding direct covered losses and to amend their complaint accordingly. The court also found that Franklin Mutual failed to provide any controlling legal authority supporting their interpretation of “direct physical loss,” admitting that the New Jersey legal authority addressing this issue was limited.
  • Martinez v. Allied Insurance Company of AmericaUnited States District Court for the Middle District of Florida, Case No. 2:20-cv-00491-FtM-66NPM: The court granted Allied’s motion to dismiss, upholding the policy’s virus exclusion. The court found that plaintiff failed to assert that his loss or damage was due to a “covered cause of loss.” Rather, the court found that because the plaintiff’s damages resulted from COVID-19, neither the governmental orders narrowing plaintiff’s dental services nor the disinfection of the dental office constituted a “covered cause of loss” pursuant to the policy’s virus exclusion.
  • Studio 417, Inc., et al. v. The Cincinnati Insurance Company, United States District Court for the Western District of Missouri Case No. 20-cv-03127-SRB, 2020 U.S. Dist. LEXIS 147600: The court denied Cincinnati’s motion to dismiss, finding that the plaintiff had adequately stated a claim for direct physical loss and claims under the policy’s civil authority, ingress and egress, and dependent property coverages. Specifically, the court found that plaintiff’s adequately alleged a causal relationship between COVID-19 and their losses – that COVID-19 “is a physical substance” that attached to and deprived Plaintiff’s of their property, making it “unsafe and unusable”.
  • Turek Enterprises, Inc. v. State Farm Mutual Automobile Insurance Company, et al.United States District Court for the Eastern District of Michigan Case No. 20-11655, 2020 U.S. Dist. LEXIS 161198: The court granted State Farm’s motion to dismiss, finding that “direct physical loss” required tangible damage and that coverage was otherwise precluded by the virus exclusion. Specifically, the governmental orders and plaintiff’s business interruption losses resulting therefrom “would not have occurred but for COVID-19.”

Lether Law Group currently represents several national insurers in COVID-19 business interruption litigation in state and federal courts in Washington, Oregon, California, and Pennsylvania. If you have questions about any state-specific requirements which have been enacted due to the COVID-19 pandemic or general questions in regard to pending insurance claims and compliance with any regulatory requirements, please feel free to contact our office.

The above article is an opinion based on various resources such as industry knowledge and is not to be construed as legal advice or to be used as such. If you require legal advice or would like to inquire further about the information contained in this article, please feel free to contact our office directly.

JPML Denies Move to Create MDL for COVID-19 Business Interruption Lawsuits

Earlier today, the Panel for Multi-District Litigation issued an Order denying consolidation of hundreds business interruption coverage lawsuits related to COVID-19.

The Panel held that the allegedly common issues supporting consolidation, “share only a superficial commonality.”  The Panel further held that there would be little potential for common discovery and that because each case will involve, “different coverages, conditions, exclusions, and policy provisions purchased by different businesses in different industries located in different states,” the differences in analyzing coverage will overwhelm any common issues.

The Panel held that consolidation would present serious managerial and efficiency concerns that make consolidation inappropriate for these claims.

COVID-19 Related Business Interruption in District Courts

As a result of this ruling, nearly all of the COVID-19 related business interruption lawsuits filed through the United States will remain in the District Courts where each case originated.

The exception may be for a limited number of insurers.  The Panel has asked for additional briefing as to whether insurer-specific MDL’s might be appropriate for Lloyd’s, Cincinnati Ins. Co., the Hartford insurers, and Society Insurance.

Lether Law Group represented The Dentists Insurance Company in opposing MDL treatment for these matters.  We are pleased that we were able to obtain this result.  If you have any questions or if we can be of assistance on any COVID-19 related matters, including class actions, please feel free to contact us at any time.

Commercial Trucking and MCS-90 Issues in the COVID Age

commercial trucking msc 90 covid 19
 
 

 

 
One of the effects of the COVID pandemic has been an increase in the use of commercial trucking as a primary means of transportation of goods and services throughout the United States. Internet retailers in particular have seen a tremendous surge in sales which have directly resulted in a heavy reliance on intrastate and interstate commerce. In addition, as America returns to work more and more vehicles are on the road. This includes both personal and commercial autos. As a result, auto insurers are beginning to see a significant increase in personal lines and commercial auto claims.
 
 

 

Mandatory Liability Insurance Requirements for Commercial Trucking

 

 

 
There are numerous coverage and claims handling issues implicated by these types of claims. One particular area of concern

are state and federal mandatory liability insurance requirements. Specifically, most states have express mandatory limit requirements for intrastate trucking in order to protect the general public from truckers who do not maintain adequate limits. Most states have express policy form requirements on commercial trucking policies.

In addition to state requirements, there is an express federal requirement for truckers who are delivering goods on an interstate basis. This requirement is a product of the Federal Motor Carrier Act of 1980.  49 U.S.C. §3119.  Pursuant to this statute, the Secretary of Transportation adopted 49 C.F.R. §387, which in turn created the requirement for any motor carrier operating in interstate commerce to carry an MCS-90 public liability endorsement.

For those attorneys and insurers who are not familiar with the MCS-90 endorsement, the general rule and purpose behind this federal requirement is to provide protection to the public for damage and injuries resulting from trucking accidents regardless of any coverage issues under the insured’s commercial auto policy. Consistent with the federal regulation, most truckers insured under commercial auto liability policies maintain an MCS-90 endorsement as part of their auto policy.

 

MCS-90 Indemnity Coverage

 

Generally, the MCS-90 endorsement requires insurers to provide indemnity coverage up to certain stated amounts, (typically $750,000 of mandatory coverage), even if there is no coverage available under the policy itself. This coverage is mandatory regardless of whether or not the policy provides coverage. For instance, one issue that arises frequently is the situation in which the insured was not operating an “insured auto” at the time of an accident.  Although there would be no coverage for that insured under the primary coverage part, the insurer may be obligated under the MCS-90 endorsement to indemnify the insured up to the minimum limit for any bodily injury or property damage suffered by third parties as a result of the accident.

Because of this requirement insurers are often times expected to pay significant sums on a liability claim even though the accident may involve a non-insured truck, a non-insured or unlisted driver, a lapse in coverage, etc.

There are number of issues involved with the MCS-90 endorsement.  For instance, the endorsement does not require the insurer provide a defense to an insured who otherwise does not have coverage. In addition, under the regulation, commercial auto insurers are entitled reimbursement from the insured of any amounts paid as a result of the application of MCS-90.

As a result, insurers are confronted with the question of whether they should provide a courtesy defense simply to control the indemnity exposure even though under the regulation itself there is no defense obligation. There is also always the question of whether or not it is worth pursuing a reimbursement action if in fact payments are issued under the regulation in the absence of coverage.

One other issue that arises in the analysis of whether and how to apply MCS-90 is the fact that certain courts have not yet ruled on whether it applies in trip-specific situations in which the accident occurs when the driver is not engaged in interstate commerce.  There is a split of authority amongst most jurisdictions and the issue has not been elevated to SCOTUS.  Canal Ins. Co. v. YMV Transp., Inc., 867 F. Supp. 2d 1099 (W.D. Wa. 2011).  As a result, it is not entirely clear under the law whether MSC-90 coverage would be triggered if, for instance, an accident occurs during a solely in-state delivery of goods.

Finally, there is also always a concern that a commercial trucking insurer may inappropriately deny coverage and not apply the requirements of MCS-90 to a particular claim. This can be particularly problematic in states that recognize extracontractual liability.

Given the complexities of both state required forms and the application of MCS-90 for interstate trucking, it is important to be familiar with how the state and federal regulations operate. Lether Law Group represents a number of commercial trucking insurers throughout the United States. As a result, we have extensively handled claims involving the application of these regulations, particular the application of MCS-90. We have also litigated these issues and represented insurers in actions to recover benefits paid under the regulation.

If you would like to discuss specific MCS-90 issues or issues involving state required liability filings for commercial trucking, please contact our offices.