COVID-19 Litigation Update

COVID-19 Litigation Update
Lether Law Group represents The Dentists Insurance Company (TDIC) as national coordinating counsel in COVID-19 related business interruption litigation in a number of jurisdictions throughout the United States. We are happy to announce the dismissal of one such action in the Eastern District of Pennsylvania.

 

In KesslerDental Associates, P.C. v. The Dentists Insurance Company, Cause No. 2:20-cv-03376-JDW, Honorable Joshua D. Wolson granted TDIC’s Motion to Dismiss finding that the COVID-19 pandemic and the governmental and societal response thereto does not trigger the business interruption coverages in the TDIC policy. Summarizing his decision, Judge Wolson stated the following:
“The Covid-19 pandemic might be unprecedented, particularly in its impact on businesses large and small. But it is not a writ for the Court to rewrite the Policy to which Kessler Dental and Dentists Insurance agreed. That Policy does not provide coverage for the losses that Kessler Dental has suffered.”

Kessler Dental sued TDIC claiming that TDIC wrongfully denied coverage for business income losses sustained as a result of the pandemic and the State of Pennsylvania’s shutdown orders. The Court, “at the risk of being labeled anti-Dentite”, citing to The Yada Yada Seinfeld episode from 1997, held that the TDIC virus exclusion operates to defeat coverage.

The TDIC virus exclusion precludes coverage for “loss or damage, including economic loss” caused by a virus. The Court found, simply, that the language is not ambiguous and applies to the COVID-related claims. Kessler attempted to overcome the virus exclusion by claiming that the business income losses that it sought were not “loss” or “damage”. The Court rejected this argument based on the plain language of the policy and Pennsylvania’s clear law regarding policy construction and interpretation.

Kessler also argued that the Court should bar TDIC’s reliance on the virus exclusion based upon a regulatory estoppel theory. Kessler argued that ISO and AAIS made false representations to the Pennsylvania Insurance Commissioner in 2006 when proposing the virus exclusion. The Court rejected this argument for two reasons. First, the Court held that Kessler had failed to allege that ISO or AAIS was representing TDIC in making any regulatory representations. Second, the Court held that Kessler had failed to allege any inconsistent statements.
“But even if the Court were to attribute those trade groups’ statements to Dentists Insurance, Kessler Dental does not plead any inconsistency. it alleges that ISO and AAIS made statements in 2006 representing that property policies were not intended to cover virus-related losses. Dentists Insurance takes the same position here today as the ISO and AAIS did in 2006; it argues that the Virus Exclusion bars coverage. Thus, regulatory estoppel does not apply, even if, as Kessler Dental claims, the insurance trade groups made statements to regulators in 2006 that were at odds with the then-current state of the law.”

The Court went on to further analyze the specific Business Interruption Coverages – Business Income Loss, Extra Expense, Civil Authority – finding that even in the absence of the virus exclusion, the coverages are not triggered. Importantly, the Court found that the virus and the governmental response thereto did not cause “direct physical loss of or damage to” the insured premises. Notably, the Court found that Kessler was never actually shut down. Pursuant to the governor of Pennsylvania’s business shutdown order, dental practices were not actually closed, but were limited to performing emergency procedures.

Below is a link to the complete Order of the Court.

Order of the court

TDIC was represented by Tom Lether and Eric Neal as national coordinating counsel and was represented locally by Michael Smith and Marc Kamin of the Stewart Smith law firm in Philadelphia.

To the extent that you have any questions about any COVID-19 related matters, please feel free to contact Lether Law Group 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.

To Fry or Not to Fry? Homeowner Coverage Issues for Turkey Frying

It is estimated that turkey frying-related accidents cause in excess of $15 million in property damage each year in the U.S. In fact, Thanksgiving Day yields more than double cooking-related home insurance claims compared to any other day in November. The holiday season is upon us.  As a result, it is important for insurers to be ready to handle an increase in all kinds of fire-loss claims. Additionally, it is important to note, given the current COVID restriction across the United States, there may be an increase in families attempting to fry their Thanksgiving bird outdoors in an attempt to maintain a safe distance from loved ones. This could lead to a potential increase in claims this holiday season.

Insurers need to be prepared for an uptick in claims under insureds homeowners’ policies. The dwelling coverage of homeowners’ insurance will typically cover the cost to repair or replace damage resulting from a turkey frying accident.  However, it will still be important to investigate the claim to determine whether there is enough dwelling coverage to cover the replacement costs and sufficient coverage to cover any built-ins and/or contents that are destroyed.

Additionally, it may not be the home itself that suffers property damage. Many at-home-fryers turn their backyards or detached garages into temporary kitchens. It will be important to check if any auxiliary structures are damaged and whether or not those structures are covered under the policy. It is also important to note that the liability coverage will likely cover any injury to guests, so long as your policy covers the proper amount of liability coverage.

While homeowners will likely be covered by frying mistakes under homeowners policy, an interesting issue arises about potential damage to common areas at condominiums. Several states, including Washington, have explicit laws regarding coverages that must be maintained by condominium associations.  In Washington, RCW 64.34.352 requires condominium associations to maintain property insurance on the condominium insuring against all risks of direct physical loss commonly insured against and liability insurance, including injury and property damage from using the common areas. It will be important for any adjuster to be aware of any legal requirements for coverage. Additionally, a condominiums association’s Declaration of Covenants, Conditions, and Restrictions (CC&Rs) may specifically prohibit turkey frying (as is the trend with many condominium associations) which would preclude coverage for any loss resulting from the same.

Lether Law Group has been handling large first-party property losses for over 32 years. This includes fire loss and spontaneous, unexpected 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.

Out of Historic 2020 Wildfires, California and Oregon Adopt New Laws, Regulatory Guidance Impacting Insurers

Over the past several weeks, the fallout from 2020’s historic wildfire season on the West Coast continues to impact the insurance industry and the regulatory environment which insurers face.  More than 6.2 million acres burned across Washington, Oregon, and California in wildfires in 2020, more than 7,500 structures were destroyed, and damages have been calculated in the billions.  State authorities in California and Oregon have moved swiftly to impose new requirements on insurers facing wildfire claims.

On September 29, 2020, California Governor Newsom signed into law a series of bills which affect residential insurance policies and claims:

Effective July 1, 2021, SB 872 will prohibit policies which provide additional living expense (ALE) coverage from limiting a policyholder’s right to recovery if the insured home is rendered uninhabitable by a covered peril during a declared state of emergency, but authorizes insurers to provide a reasonable alternative to ALE that addresses the uninhabitable condition of the covered premises.  SB 872 also requires ALE to be provided for at least two weeks, with additional two-week extensions, in the event of a state of emergency and orders by civil authorities that restrict access to the premises.  SB 872 also prohibits reductions in benefits from what an insured would recover to rebuild at the original location if the insured rebuilds at a new location.  Effective January 1, 2021, SB 872 also requires insurers to provide advance ALE payments, to accept contents inventories in “any reasonable form,” and requires insurers to offer a 60-day grace period for premium payments on premises located within areas defined by declared states of emergency for up to 60 days after the emergency.

Effective July 1, 2021, AB 2756 requires insurers to obtain a signed acknowledgment from residential policy applicants if policies do not provide fire coverage and requires a disclosure of no coverage for fire on the policy’s declarations.  AB 2756 also requires renewal offers that reduce limits or eliminate coverage to identify the specific reductions and eliminations in the renewal offer.  AB 2756 also requires policies which provide replacement-cost coverage to also provide building code upgrade (OL) coverage of no less than 10% of the coverage policy limits as an additional coverage separate from the policy limits, and provides for specific disclosures relating to the inclusion or exclusion of OL coverage in homeowner’s policy declarations.

AB 3012, also includes the ALE provisions and new location benefits provisions of SB 872, and further provides that, for total loss residential claims related to a declared state of emergency, effective July 1, 2021, insurers must provide contents payments of no less than 30% of the structure policy limit, up to a maximum of $250,000, without requiring an itemized claim.  AB 3012 also requires nonrenewal notices for residential property insurance policies to include a specific statement referring policyholders to the Department of Insurance’s Home Insurance Finder on the web and to provide information about California FAIR Plan Association alternative policies.

In addition to the above bills, California Insurance Commissioner Ricardo Lara has issued a notice requesting that residential property insurers provide up to 100% of contents coverage limits without requiring a detailed inventory for total loss claims arising from the recent wildfires, and that they adopt the up to 30% of the structure policy limits, up to a maximum of $250,000 (mirroring the provisions of AB 3012, which does not take effect until July 2021).  The Commissioner has asked insurers to respond by October 23rd, 2020 whether they will comply and with what percentage of total contents coverage they will provide without a detailed inventory.

In Oregon, the Oregon Division of Financial Regulation (DFR) (which oversees insurers operating in Oregon) issued a 30-day emergency order due to the recent wildfires.  The emergency order requires insurers handling claims in designated affected ZIP codes to:

  • Extend all deadlines for policyholders to report claims or submit other communications related to claims;
  • Take all practicable steps to provide opportunities for policyholders to report claims or to provide required communications related to claims;
  • Immediately institute a grace period for premium payments for all insurance policies issued, delivered, or covering a risk in the affected areas through the effective period of the order;
  • Suspend cancellations and nonrenewals through the effective period of the order.

Additionally, DFR has issued a bulletin encouraging insurers to take the following measures for policyholders affected by the wildfires:

  • Adopting a standard ALE advance payment of at least four months for policyholders with total loss claims or whose properties are uninhabitable, and to take into account adverse circumstances requiring ALE benefit extensions for policyholders whose property remains inaccessible due to wildfire damage even after the lifting of evacuation orders;
  • In areas where property access is restricted, not terminating ALE benefits until properties are accessible and deemed habitable;
  • Expediting comprehensive auto property damage claims upon satisfaction of proof, including rental vehicle or other benefits within the policy, for insureds who are unable to access their property or to provide proper documentation for verification due to wildfires;
  • Allowing and accepting any inventory form that contains similar information to what would be reported on company-specific inventory forms;
  • Accepting inventory forms that include groupings of categories of items of property that would be impractical to list separately
  • Expediting payment of business interruption claims related to wildfires upon satisfaction of proof of a total loss or inaccessibility of the affected business.

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.

COVID-19 Litigation Update

As we have recently reported, the clear trend in the United States Courts is towards finding that the typical Business Interruption (BI) coverages in U.S. commercial property policies will not be triggered by the COVID-19 pandemic.  Thus far, the majority of the decisions on this coverage issue have gone in favor of the insurance industry.

Interestingly, on Tuesday, September 15, 2020, the High Court of Justice for the Business and Property Courts in Great Britain issued a ruling in a “test case” relating to 370,000 British BI claims.  In a lengthy opinion authored by Lord Justice Flaux (pictured below in the traditional attire of the Queen’s Bench), the High Court found that the policy forms at issue extended BI coverage for losses related to the COVID-19 pandemic.

Fortunately, this ruling from across the pond is unlikely to have much impact on the ongoing litigation of this dispute in the U.S.  That is because the policy forms that the industry presented to the High Court in the “test case” included a coverage for losses related to the spread of infectious disease.  Lord Flaux found that most – though not all – of the policy forms would provide coverage.  Because it was a “test case” there was not any specific finding of coverage for any individual insured.  Rather, the decision provides the manner in which insureds should present their claims depending on the forms or combination of forms in each policy.

Perhaps the most interesting aspect of this ruling is the contrast in how the U.S. and U.K. markets reacted to the early 2010’s SARS outbreak.  In the more risk-averse U.S. market, the industry response to SARS was to quickly adopt virus exclusions.  In the handful of rulings on COVID-19-related BI coverage that we have seen to date, it appears that the courts in the U.S. will enforce that exclusion.

In the U.K., the market responded to SARS by offering infectious disease coverage.  The insurers offering that coverage have obviously had a decade to collect the premiums that go with it.  However, according to the ruling of the High Court, it appears that those insurers will now be required to pay the claims of a broad cross-section of British businesses.  Only time will tell which market had the better strategy for dealing with coverage issues associated with the current global pandemic.

As always, if you would like to discuss the issues in this newsletter or any other matter, please feel free to contact Lether Law Group 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.

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.

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.