Second Circuit Set to Hear Covid Business Interruption ClaimOn Friday, May 18, Social Life Magazine filed a brief notice of interlocutory appeal of a district court judge’s oral decision denying its application for a preliminary injunction compelling its insurer, Sentinel Insurance Company Limited, to cover its lost revenues stemming from the Covid-19 pandemic. As a result, the Second Circuit is set to weigh in on what will likely be the first of many pandemic-related business interruption claims brought by small businesses throughout New York that will reach the appellate court. The factual background and related coverage arguments are at this point familiar, even if they are novel. Social Life, self-described as the “premier luxury publication for the Hamptons,” sued Sentinel in the Southern District of New York after Sentinel denied coverage for Social Life’s business interruption claim caused by the pandemic and ensuing shutdowns. Sentinel asserted that the virus does not constitute “property damage,” a requirement for coverage in the first instance. In response, Social Life argued that the virus’s very presence on physical property and the potential for harm constituted the required damage. Notably, the Sentinel policy at issue did not contain a specific virus exclusion common in many policies. Nonetheless, on Thursday, May 14, District Judge Valerie Caproni denied Social Life’s application for a preliminary injunction. During oral argument, Judge Caproni stated that the most on-point case in New York appeared to be a First Department Decision styled Roundabout Theatre Co. v. Continental Cas. Co., where the Appellate Division held that the insured was not entitled to business interruption coverage because there was no “direct physical loss” to the property as a result of a city street closure order due to a construction accident. 302 A.D.2d 1 (1st Dep’t 2002). Distinguishing out-of-state cases, Judge Caproni stated that while she “[felt] bad for every small business” impacted by the pandemic, there needs to be “some damage to the property to prohibit you from going” for coverage to take effect. This case gives the Second Circuit the opportunity to weigh in on the specific issue of whether the Covid-19 virus constitutes “physical damage” for purposes of business interruption claims. As this decision has potential for widespread impact, we will be monitoring it closely. Thanks to Douglas Giombarrese for his contribution to this post. Please email Georgia Coats with any questions.Read More
WCM Partner Bob Cosgrove to Speak at IUA London Event on COVID and Insurance.WCM Partner Bob Cosgrove is set to speak at the International Underwriting Association of London on May 20 for a seminar entitled COVID 19: It’s Wreaked Havoc on Social Life and the Economy. Is Insurance Its Next Target in the US? For more information about the seminar, see this IUA flyer. The seminar which look at such things as: * Business income claims under a property policy — How presented? — Physical loss? — ISO Virus exclusion? — Pollution exclusion? * Business income and liability claims under a CGL policy — How presented? — Property damage? — Negligence? * Policyholder attacks — Ambiguous wordings — Inconsistency in claims handling — Reasonable expectations * Legislative and public policy COVID concerns * Suggested responses — Reserve or disclaim? — Request for information? — Outside adjusters? * Litigation — Class action/MDL — Ripeness — Precedents The seminar will be conducted along with WCM friend André C. Gaudin, a Louisiana based partner at Burglass Tankersley, LLP and Joseph D. Zopolsky, a Texas based partner at Glast, Phillips & Murray. While we can’t guarantee room at the IUA event, if you have interest for your company, just reach out to Bob.Read More
NY Courts to Begin Adjudicating Non-Essential Matters on 4.13.20
As we delve into our second month of COVID-19 restrictions, social distancing, and closed courts, we have been monitoring court updates throughout NY, NJ and PA. Our April 3, 2020 update is linked here.
On April 9, 2020, J. Marks, the Chief Administrative Judge in NY, issued an updated indicating that, effective April 13, 2020, Courts will work remotely to address pending, non-essential matters. Specifically, the Courts will look to decide pending motions, conference pending, non-essential matters, and resolve pending discovery disputes. The Courts will not be accepting new filings yet, with the implication being, the Courts will address pending backlog before “opening the floodgates” of new motions and other filings which have been piling up over the past several weeks. Hopefully, this Order represents the first step toward a return to normalcy in the coming weeks.
In the interim, we’d like to wish a Happy Passover and a Happy Easter to all who celebrate.Read More
Expected Rise in Class Action Lawsuits in Wake of to COVID-19
There will likely be an increase of class action lawsuit filings following the COVID-19 mandatory closures and shelter at home orders. On March 26, 2020, Plaintiff Mary Namorato brought a class action lawsuit against Town Sports International, LLC, and Town Sports International Holdings, Inc. d/b/a New York Sports Clubs (collectively “TSI”). TSI operates numerous gyms under the brands New York Sports Clubs, Boston Sports Clubs, Washington Sports Clubs and Philadelphia Sports Clubs.
Namorato claimed that TSI continues to charge its members monthly fees despite being closed due to the New York State’s order closing all non-essential businesses. Namorato asserted claims against TSI for consumer fraud in violation of New York General Business Law §349 and §624, as well as common law breach of contract. The complaint alleges that “TSI has also made it virtually impossible for members to cancel their memberships and has refused to honor many members’ cancellation requests. NYSC has a long history of refusing to honor member cancellation requests, but it is particularly reprehensible in this moment.”
Unlike many other businesses that are freezing memberships and fees amidst the coronavirus pandemic and subsequent business closures, New York Sports Club is not automatically freezing or cancelling memberships. Namorato claims that New York Sports Club ceased providing gym services or accessibility on March 16, 2020, and despite her efforts to cancel her membership, she has been unable to do so. The complaint states that TSI “breached their contracts with Plaintiff and/or the Class by refusing to allow Plaintiff and/or the Class to cancel their memberships at any time.”
It is probable that more class action lawsuits will follow this trend, as similar class actions have already been filed against 24 Hour Fitness in the Northern District of California, and LA Fitness in the Southern District of Florida.
Thanks to Emily Finnegan for her contribution to this post. Please email Heather Aquino for her contribution to this post.Read More
Proposal in NY Could Require Business Interruption Coverage for COVID-19 Pandemic
A bill proposed in the New York State Legislature might have a far-reaching impact for insurers. On March 27, 2020, the New York State Legislature introduced a bill that would require every policy of insurance insuring against loss or damage to property to include coverage for business interruption during the COVID-19 pandemic. The proposed bill seems to be an attempt to force insurers that provide loss of business coverage to indemnify the insured for COVID-19 related closures and losses. Bill A10226 provides in relevant part:
- Every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption, shall be construed to include among the covered perils under that policy, coverage for business interruption during a period of a declared state emergency due to the coronavirus disease 2019 (COVID-19) pandemic.
The bill indicates that coverage is subject to policy limits, and that it only applies to policies issued to insureds with less than 100 employees. Given the fact that almost every business in New York is impacted by COVID-19, this proposed bill might have an alarming impact for insurers.Thanks to John Lang for contributing to this post. Please email Heather Aquino with any questions.Read More
NJ Considering Legislation to Mandate Insurance Coverage for COVID-19 Pandemic
Alarming news in New Jersey regarding the legislature’s apparent intent to force insurers to provide coverage for BI claims with respect to the COVID-19 Pandemic. New Jersey is threatening to rewrite insurance policies to include the COVID-19 pandemic as a covered peril, regardless of the language and exclusions in the policy. This appears to attempt to force insurers which provide BI insurance to indemnify the insured for COVID-19 elated closures and losses. The bill, introduced as bill No. 3844, in its statement of rationale:
This bill provides a mechanism by which certain businesses that suffer losses due to interruption as a result of the coronavirus disease 2019 pandemic may recover those losses from their insurer if they had a policy of business interruption insurance in force on March 9, 2020, the date on which the Governor declared a Public Health Emergency and State of Emergency in Executive Order 103. The bill would apply to businesses covered by such a policy with less than 100 eligible employees in the State of New Jersey. “Eligible employee” is defined as a full-time employee who works a normal work week of 25 or more hours
The bill provides that every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption, in force on the date of the Executive Order, shall be construed to include among the covered perils under that policy coverage for business interruption due to global virus transmission or pandemic, as provided in the Governor’s Executive Order. The coverage provided would be subject to the limits under the policy and would indemnify the insured for losses incurred during the State of Emergency.The exact language of the bill is equally alarming:
- a. Notwithstanding the provisions of any other law, rule or regulation to the contrary, every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption in force in this State on the effective date of this act, shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic, as provided in the Public Health Emergency and State of Emergency declared by the Governor in Executive Order 103 of 2020 concerning the coronavirus disease 2019 pandemic.
The bill later indicates that coverage is subject to policy limits. This bill, in current form, only would require insurers that wrote a policy that included coverage for business interruption or loss of use to indemnify the insured. Specifically, “[t]he coverage required by this section shall indemnify the insured” but only applies to companies with less than 100 employees.This bill has not yet passed, but it is alarming news for insurers who have written insurance policies that generally exclude from coverage losses due to a virus. Thanks to Matthew Care on his contribution to this post. Please email Georgia Coats with any questions.Read More
Second Circuit to Decide Whether ‘Grammarian’s Argument’ Governs IP Exclusion
In a prior Of Interest post, we highlighted a Southern District of New York opinion in which the court held a policy’s IP exclusion barred coverage for an underlying lawsuit in which Hartford’s insured Spandex House was sued for copyright infringement. The parties have now filed their appellate brief in the Second Circuit, narrowing the issues before the Appellate Court.
The exclusion at issue bars coverage for personal and advertising injury arising out of “any actual or alleged infringement or violation of any intellectual property right,” including copyright and trademark, and “any injury or damage alleged in any claim or suit that also alleges an infringement or violation of any intellectual property right.” In this way, the IP Exclusion excludes from coverage cases that include any allegation of an IP violation. The District Court found that this exclusion was unambiguous and applicable. Notably, in between the District Court’s decision and this appeal, the Second Circuit also upheld the unambiguous terms of the IP Exclusion in Lepore v. Hartford Fire Ins. Co., 2020 WL 598539 (2d Cir. Feb. 7, 2020).
In light of the fact that the exclusion is likely unambiguous, Spandex House spends much of their brief arguing that the exception to the IP Exclusion applies. In so doing, they rely on what Hartford classifies as a “grammarian’s argument” that distorts the plain text of the exclusion. The Advertising Exception at issue provides that the IP Exclusion does not apply if the suit alleging the violation is limited to “Infringement, in your ‘advertisement’ or on ‘your web site’, of: (a) Copyright….”
Spandex House argues that the that “the clause ‘in your advertisement or on your website’” can be “removed from the sentence without changing its basic meaning.” In other words, they argue that the exception applies when the suit alleging the violation is limited to “infringement” and not “infringement in your advertisement.” As Hartford points out, such a reading would give the exception an unlimited meaning, and prevent the IP Exclusion from applying where the suit contained all types of copyright and trademark infringement claims, so long as all of the claims were in fact were for “infringement.”
Hartford’s brief keenly points out a prominent example of where Spandex House’s reading would have an absurd effect if implemented. The 26th Amendment provides that “The right of citizens of the United States, who are eighteen years of age or older, to vote shall not be denied or abridged by the United States or by any State on account of age.” Under Spandex House’s logic, the clause “who are eighteen years of age or older” is a so-called “nonrestrictive relative clause” which can be removed without changing the clause’s meaning. Of course, had this been the interpretation of the 26th Amendment, toddlers would have the right to vote alongside their grandparents.
Given their recent decision in Lepore, the Second Circuit is very likely to find that the IP Exclusion is unambiguous. We are hopeful that the Court will not also distort the plain language of an exception to find coverage where the drafters plainly intended there be none. We will keep you apprised of the decision when it is handed down.Thanks to Douglas Giombarrese on his contribution to this post. Please email Georgia Coats with any questions.Read More
Coronavirus Is Anticipated To Spark A Wave of Litigation
Once the health and safety concerns brought about by the global health pandemic from Covid-19, aka the novel coronavirus, begin to ease up, it is expected that there will be “a wave of litigation” related to the pandemic.
Reporting already has shown that hospitals, restaurants, day care centers, nursing homes and hotels may face claims that they didn’t take adequate steps to protect people. Besides the third-party claims, shareholders can sue if companies fail to act effectively in response to the epidemic.
Some suits have already been filed: The pilots’ union at American Airlines Group Inc. sued the airline to stop it from serving China, while the city of Costa Mesa, California, sued the U.S. government to halt the transfer of quarantined cruise passengers to a state-owned facility there.
Litigators expect to see a surge in disputes over whether force majeure clauses, which frees a contract’s parties from their obligations in the event of an “act of God,” apply to the outbreak.
The precautions that business implemented to face the outbreak, including working from home recommendations and limiting travel, will not come under a microscope during future litigation. Questions regarding the propriety of the precautions, and whether it was put in place with enough time to stop the spread are only some of the issues that future litigation will tackle.
Governments will also be facing future litigation-and some has already started. San Antonio has sued U.S. Health and Human Services Secretary Alex Azar and other officials over the government’s quarantine of a cruise passenger in the area after she was cleared by two tests for the virus. A third test came back positive — after her release.
Thanks to George Parpas on his contribution to this post. Please email Georgia Coats with any questions.Read More
Famous Restaurant Sues over Coronavirus Shutdown Losses
The Covid-19 pandemic has swept the nation and the world and in its wake is coming a huge wave of insurance related litigation. In perhaps the first lawsuit Oceana Petition of what will most likely be a major trend of filings, Cajun Conti, the parent company for the New Orleans restaurant, Oceana Grill, has sued its insurer Underwriters at Lloyds London, for insurance coverage over coronavirus related business interruption, including in “the event of the businesses closure by order of Civil Authority.”
The lawsuit was filed in Louisiana state court and specifically alleges that the Lloyds “all risk” policy restaurant losses due to the state mandated shutdown of the 500 person restaurant. The lawsuit references an order by Louisiana Governor, John Edwards, in response to the Coronavirus outbreak, banning gatherings of 250 or more people. In addition, the lawsuit references a restriction by New Orleans Mayor, LaToya Cantrell, ordering all restaurants to reduce their capacity by 50%. Since the filing of the lawsuit, restrictions have become even more strict, with the Governor issuing a statewide “stay at home” order until April 12.
While some insurers have taken steps to limit the scope of coverage in these sort of situations after similar outbreaks such as SARS in 2003 and ebola in 2014 through various exclusions, the complaint alleges that here, there are no such relevant exclusions. This case represents merely the first drop in what could very be a torrential downpour of similar coronavirus related insurance coverage litigation.Thanks to Andrew Debter on his contribution to this post. Please email Georgia Coats with any questions.Read More
How COVID-19 Is Impacting Your Claims, as of March 20, 2020
As of March 20, 2020, while some Courts where we practice, like New York and Pennsylvania, have issued more specific information about remote conferences and the like, trials and in-person conferences remain on hold. The CDC has recommended against 50-person gatherings through mid-May, and we doubt Court proceedings will return to “normal” before that time.
Just yesterday, on March 19, 2020, the NY Chief Administrative Judge issued an updated order, wherein, all NY Courts “strongly discourage” any attorney functions that require any in-person congregation at all, including depositions or appearances. Moreover, the Courts have finally addressed summary judgment motion deadlines, which have been a primary concern of plaintiffs and defendants. Judge Marks suggests that if any party is unable to meet a litigation deadline, including a summary judgment deadline, parties shall use “best efforts” to stipulate to an extension. The implication, we think, is that if an attorney seeks a deadline extension during the shutdown, in good faith, Courts are more likely to consider that request, when deciding whether that motion was timely. As we and our colleagues on the bar, both plaintiffs and defendants, grapple with the challenges presented by the current climate, we think extensions of courtesies should be universal, and will be guided accordingly by J. Marks’s words.The remainder of the information below, originally posted on Monday, March 16, 2020, is largely still accurate, and has been updated for publication on March 20, 2020.
In the scheme of things, how we practice law and handle claims is far less important than your health and safety. To that end, we wish you all good health and safe (limited) travel, as we all navigate this new landscape. The past several days have been rife with uncertainty for all of us, within and without the United States, and we, like all of you, have been monitoring recommended COVID-19 protocols. As we noted in our emailed post on Friday, WCM remains fully operational, despite what has evolved into mandatory remote working for our attorneys and staff, for the next several weeks. Despite the social distancing directives, life goes, on, and we all have work to do. Going forward, we will continue to monitor Court updates, and will advise you all accordingly.
In keeping with the times, WCM had already implemented a remote access system and a cloud-based case management system. (In all candor, while we did not intend to roll this program out to all attorneys at once, in a 24 hour window, we are equipped to continue to practice, remotely.) As unprecedented and frustrating as this situation seems, we are all fortunate that COVID-19 did not surface as recently as five years ago, when remote work and paperless function were far less operational than they are in 2020.
Now, specifically, what direction have we received from the Courts about the impact of COVID-19 on our cases? It depends on the Court, and the answers seem to vary hour by hour. We will continue to monitor all the jurisdictions where we practice, but hereby provide an update on what we know, as of March 20, 2020. Just days ago, the CDC recommended that gatherings of 50 or more people be cancelled or postponed for the next eight weeks, which effectively eliminates jury trials and in-person court conferences into mid-May. We have collected the following information from our Courts of practice, as of this morning:
- In New York, effective March 16, 2020, all jury trials and in person court conferences are suspended until further notice. Courts are still functioning, motions are being submitted and decided without oral argument, and court conferences are being conducted via stipulation, among the attorneys.
- Pennsylvania Courts have taken different measures, depending on the County. Philadelphia remains the most backward as of this morning, but we expect an update soon. Montgomery County, for example, has officially suspended all jury trials through March 27, 2020, and we suspect, will extend this date in the coming days. While a few other counties have not made official press releases clear yet, the PA governor has strongly discouraged large gatherings, which essentially prohibits jury duty and in-person conferences.
- Update — Philadelphia is now shut down until April 1.
- In New Jersey, jury trials are suspended as of March 16, 2020, discovery deadlines are relaxed for the next two weeks , and court adjournments are being entertained on a case-by-case basis.
- Federal Courts’ directives differ based on locale, but the SDNY, for example, has suspended jury trials through April 27, 2020, whereas the Eastern District of PA has suspended them through April 13, 2020. Other federal courts are less specific, but we anticipate additional directives to be issues in the coming days.
So in terms of how the Courts are dealing with COVID-19, there are no appearances for the foreseeable future. We have not received any guidance from the Courts as to how COVID-19 will effect discovery end dates, but we will continue to monitor the situation.
But what about Depositions and Examinations Under Oath, which do not take necessarily require Court participation?
- While WCM is equipped and prepared to commence remote depositions, our adversaries have may have differing technological capabilities, and it takes global participation to make these arrangements viable.
- We also note that many of our vendors offer remote deposition capabilities, which we can explore, depending on the nature of the testimony.
- By March 30, 2020, we expect remote / telephonic depositions to become more normalized where we practice, and recommend a case-by case (or, in fact, a witness by witness) collaborative evaluation, as to whether remote testimony is worth pursuing.
The “big picture” takeaways for WCM and our partners are that jury trials are on hold for now and in-person Court conferences are suspended, which makes sense, given the social distancing recommended by the CDC. But Courts are still functioning, motions are being decided, and attorneys can still reach each other.
So our attorneys and staff are still working full time, remotely, as we continue to await further directives from the experts and authorities. Attorneys are most easily reachable by email, and all contact info is accessible at wcmlaw.com. We will continue to monitor updates in all jurisdictions where we practice, and will keep you apprised. In the interim, please stay safe, follow CDC recommendations, and please reach out to us with any questions.Read More