October 19, 2020

COVID-19 and Unprecedented: Litigation Insights, Issue 28
This 28th edition of Unprecedented, our weekly update on COVID-19-related litigation, includes a number of updates on the mounting number of business interruption coverage disputes -- including a claim against a broker whose alleged failure to obtain infectious disease coverage left the insured without coverage for COVID-19-induced losses. Other topics include continued litigation over government responses to the COVID-19 pandemic, state-specific liability protection legislation, nursing home wrongful death claims, Paycheck Protection Program fraud, and securities litigation over allegedly false public statements on COVID-19 business impacts.
We hope you enjoy reading.
Coronavirus Lawsuit Standards for Businesses, Health Care Workers Approved in Michigan Senate
"House Bill 6159, sponsored by Rep. Roger Hauck, R-Union Twp., does not hold workers liable for injuries to patients under their care, except in instances of gross negligence."

Why this is important: As the federal government continues to debate the specifics of another COVID-19 relief package and whether such a package should include liability protections for businesses, some states are trying to enact liability protections of their own. For example, the Michigan Legislature has passed a bill that would establish civil action immunity for health care workers providing COVID-19 care, except in situations where the health care worker acts with gross negligence. The Michigan Legislature also passed a bill that would require hospitalization before an employee can sue a business when a worker is exposed to the coronavirus. Another recently passed bill includes protections for businesses following public health guidelines if an employee contracts the coronavirus, unless the employer willfully exposed the individual to the virus. These bills now head to Governor Gretchen Whitmer for her signature. In the absence of any federal legislation on the issue, we are likely to see more states enacting similar laws in an effort to balance protecting businesses, customers, and employees. --- Joseph A. (Jay) Ford
Wisconsin Judge Upholds Governor's Statewide Mask Mandate
"In his ruling, St. Croix County Judge Michael Waterman sided with Evers and a series of executive declarations granting him emergency powers and denied a temporary injunction requested by the Wisconsin Institute for Law and Liberty."

Why this is important: Face covering requirements are just the latest flashpoint in the ongoing dispute over how governments can and should respond to the COVID-19 pandemic. In this Wisconsin case, for instance, three state residents sued Governor Tony Evers over his statewide mask mandate, alleging that the Governor had exceeded his powers by renewing the underlying emergency declarations after their 60-day expiration dates. The state trial court, however, refused the residents' request for a temporary injunction, finding that the request was inappropriate when the residents were attempting to change -- rather than preserve -- the status quo. The state trial court also questioned the premise that Governor Evers had exceeded his powers by renewing the emergency declarations after each had expired, holding that there was no clear prohibition on this action and the Legislature maintained the power to "overrule" him by concurrent resolution. (In this regard, state law matters significantly: a recent Michigan decision held that Michigan Governor Whitmer has no such renewal power.) Perhaps most interestingly, though, the state trial court questioned the public interest that three individual residents could have in undermining face covering restrictions that impact the entire state. --- Joseph V. Schaeffer
Court Allows Capitol Hill Baptist Church to Hold Outdoor Services, for Now
"The church argued that the District was violating its First and Fifth Amendment rights by refusing to allow the church's entire congregation, which numbers roughly 850 people, to gather for worship."

Why this is important: Capitol Hill Baptist Church in Washington, D.C. believes that in-person worship is central to the celebration of its Christian faith. Under the District of Columbia's mass gathering restrictions, however, the church was prohibited from holding services with more than 100 people -- whether indoors or out. After being denied a waiver from the District of Columbia, the church sued. And a little more than a week ago, a federal district court granted an injunction in favor of the church, holding that the District of Columbia's restrictions likely violated the federal Religious Freedom Restoration Act ("RFRA"), 42 U.S.C. ยง 2000bb. Under RFRA, the federal government and the District of Columbia are prohibited from adopting even neutral laws if they substantially burden a person's exercise of religion. The only exception is if the laws are in furtherance of a compelling governmental interest and are the least restrictive means of furthering that compelling governmental interest. Given the church's long history of acting consistently with its asserted interest in in-person worship, the district court had little trouble finding that this belief was sincerely held. The district court also had little trouble finding that the District of Columbia lacked a compelling interest or that it had employed the least restrictive means for enforcing it. The district court emphasized that, while denying the church's request for a masked outdoor religious gathering, the District of Columbia had permitted (and encouraged) both mass protests as part of the Black Lives Matter ("BLM") movement and permitted outdoor "streateries" without any occupancy permits. Without any evidence distinguishing those gatherings from the church's proposed gatherings, the district court held that the District of Columbia could not meet its burden. The rest of the injunction factors -- the irreparable injury, balancing of the equities, and public interest -- fell into place from there. Although the federal RFRA underpinning the district court's decision does not apply to the states, the reasoning is nonetheless likely to be persuasive in similar cases brought under state variants of that statute. But perhaps more importantly, the district court's decision highlights the difficulties that governments' responses to the BLM protests have created for their continued enforcement of mass gathering restrictions in other contexts. --- Joseph V. Schaeffer
Erie Insurance, Other Companies Face Mounting Litigation 
"The general theme that emerges is that plaintiffs say they bought policies to protect them from losses related to a business shutdown and that their policies contained no specific exclusion for a pandemic."

Why this is important: Insurers continue to face mounting litigation over business interruption claims, in spite of the clear threshold coverage issue, that the insured must experience direct physical loss or damage to its property (a tangible loss). The term itself, "business interruption coverage", has surely lent itself to a great deal of misunderstanding by many insureds who have never had to turn to this coverage for a loss. Despite the sympathetic nature of these claims, which Erie and other insurers acknowledge, claims decisions are based upon policy language (a contract). To do otherwise, would create significant problems for insurers of setting precedent, waiving contractual provisions, and estoppel (taking inconsistent positions). The article notes upwards of 1,126 federal lawsuits having been filed nationwide seeking payment from insurance companies for COVID-19 losses, many of which have taken the form of class actions. Yet, in spite of these numerous filings, decisions are routinely being returned from courts around the country in favor of insurers (supporting no tangible property loss because of an alleged virus exposure). There is no denying the impact upon businesses that have been shuttered or have faced catastrophic financial loss as a result of COVID-19. These businesses are in a no-lose situation to challenge insurers' denials, especially if there is a law firm willing to take the matter on a contingency fee. It must be remembered, however, that insurance is formulated, in large part, upon the ability to estimate future risk and loss costs, as anticipated by covered claims. It is important for insurers to evaluate the facts of each of these claims on a case-by-case basis, to review the coverage, to look for coverage, and to provide the insureds with a proper analysis of any coverage decision, if coverage is ultimately not to be afforded. It is likewise important for insureds to sit down with your agent and review your policy to make sure you understand what you may, and may not have, coverage for. --- Glen A. Murphy
Cyber Risk Co. Says AJ Gallagher Botched Virus Insurance
"Network Standards Corp., which does business as NetDiligence, says it asked its broker of 18 years to procure the infectious disease coverage but was shocked to find that it was not there after the coronavirus outbreak forced the cancelation of several of its summits."

Why this is important: Since the beginning of this pandemic, a great deal of businesses have sustained significant losses due to the shutdown. In order to remain in business, several companies have turned to their insurance policies to recoup their losses. Most insurers have been denying such claims for business interruption coverage due to the lack of physical damage to the policyholder's property and/or the language in the policy that excludes coverage for viruses. As an aside, insurers began placing virus exclusions in insurance policies around the time of the SARS outbreak in 2003. However, some insurers began offering specific infectious disease coverage in the past few years. 
In this case, the policyholder, NetDiligence, a cyber risk company that hosts networking summits all over the world, is alleging that prior to the COVID-19 pandemic, it requested its broker, AJ Gallagher, to procure infectious disease coverage. NetDiligence contends that AJ Gallagher gave its account to an inexperienced broker who failed to secure this infectious disease coverage. As a result, NetDiligence was left with no coverage for all of the events that it was forced to cancel due to the shutdown. Accordingly, it is alleging negligence, negligent misrepresentation, negligent supervision, and breach of fiduciary duty against AJ Gallagher and its employee.
This case is important because given the wave of denials that insurance companies have issued, which have been upheld by a majority of the courts, this case could provide another path for policyholders to recoup some of their losses due to the pandemic. --- Laura E. Hayes
Wins & Losses: How to Move Forward with COVID-19 Lawsuits
"In the ensuing six months, we have seen a handful of court decisions mostly favoring insurers but with some policyholder wins."

Why this is important: In the past several months, businesses have filed hundreds of lawsuits alleging that their insurance policies cover the losses they have sustained due to the pandemic. The majority of those lawsuits have been dismissed on the grounds that the virus does not cause a physical alteration of the property such that coverage is triggered. However, a few lawsuits have survived motions to dismiss, allowing the cases to proceed to the discovery stage. In one lawsuit, Studio 417, Inc., et al. v. The Cincinnati Insurance Company, Judge Stephen Bough of the U.S. District Court for the Western District of Missouri found that the policyholders sufficiently alleged that access to their property was "prohibited to such a degree that coverage was triggered." However, it is likely that this decision will be appealed. 

In addition to litigation, lawmakers in California, Louisiana, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, South Carolina and the District of Columbia have introduced legislation to try to force insurance companies to cover the business losses. However, it remains to be seen whether any of these bills will pass. Even if these laws were to pass, they would likely face challenges for violating the contracts clause, the due process clause, and the takings clause of the U.S. Constitution.
As the United States proceeds to navigate this ever-changing time of COVID-19, it is clear that policyholders will continue searching for ways to recoup their losses. However, due to the catastrophic amount of losses that have been sustained thus far, if those losses are recouped through insurance policies, it is likely that some insurers will declare bankruptcy. --- Laura E. Hayes
Houston Rodeo Slaps Insurer with Lawsuit Over BI Claim Denial
"In a lawsuit filed in Harris County district court, Rodeo officials claimed its insurer, Hallmark Specialty Insurance Company, acted in bad faith and breached its contract when it refused to pay Rodeo's 'all risks' policy worth more than $79 million."

Why this is important: The Houston Rodeo joins a long line of businesses doing battle with their insurance companies over coverage disputes relating to COVID-19. Like insurance coverage generally, the questions posed relating to coverage hinge on the language of the contracts between the insurer and its insured and the court's interpretation of that language. In this case, the interpretation looks to center around whether the threat of COVID-19 is an 'actual physical loss.' These provisions are generally contemplated to address physical damages done to a business that prevent their being open, such as flooding, fire, or perhaps the result of an accidental stampede. The COVID-19 closures are based on CDC regulations, local ordinance, and efforts to make decisions to protect clients and employees, not based on property damage, but they are enacted in response to the existence of a physical problem. Either way, it amounts to the same functional outcome: the rodeo is closed and losing money. The question is who bears the risk of the loss. The courts will likely continue to grapple with this until a case makes its way up on appeal and some guidance can be issued to trial courts about the appropriate interpretation of these clauses. --- Risa S. Katz-Albert
Hotel and Golden Corral Owners Accused of Misusing COVID-19 Funds
"The lawsuit accuses the Patels of using $1.9 million from the federal Paycheck Protection Program to pay off their mortgages."

Why this is important: Loans under the Paycheck Protection Program, which are designed to incentivize small businesses to keep employees on their payroll, are eligible for forgiveness as long as the funds are used for payroll and expenses. To be fully forgiven, 60 percent of the loan must be used to pay employees, with the remainder being used for interest on mortgages, rent, and utilities. It is no surprise, however, that some recipients of the loans have misused the funds, and even less surprising that recipients are going to great lengths to conceal their misuse. The recent lawsuit against owners of several Golden Corral buffet restaurants, as well as a Saratoga Springs hotel, accuses Niral and Nirmala Patel of attempting to hide the misuse of $1.9 million (and shield those funds from creditors) by transferring the funds through different accounts, and ultimately using the money to pay off their personal mortgages, a use which is obviously unauthorized. As repayment -- or forgiveness -- nears, this case is but one cautionary tale that should encourage recipients of PPP loans to assess where they stand and take necessary steps to either apply for forgiveness or make plans for repayment. --- Megan W. Mullins
Third Suit Filed in Fatal Veterans Home COVID-19 Outbreak
"A third wrongful death lawsuit has been filed in connection with a COVID-19 outbreak at Yukio Okutsu State Veterans Home in Hilo that has killed 27 residents."

Why this is important: Another wrongful death lawsuit has been filed in connection with a COVID-19 outbreak in a Hawaii veterans home. On October 14, the family of a veteran who died from COVID-19 sued the facility. The lawsuit alleges that the facility breached a duty of care to the veteran due to the lack of infection protocols at the facility. Two other lawsuits have been filed in connection with the COVID-19 outbreak in this facility. Given the congregate nature and high-risk population served, the CDC has specific guidance for nursing homes and long-term care facilities. Facilities that care for older adults should monitor these CDC guidelines and other regulatory requirements to minimize the risk of future liability. --- Kayla I. Russell
Royal Caribbean Cruise Line Hit with Shareholder Lawsuit Over Coronavirus
"The plaintiffs allege that the company was not upfront about how the virus was affecting its bookings or how its safety protocols were working."

Why this is important: Royal Caribbean Cruise Line joins Norwegian Cruise Lines and Carnival Corporation in a coronavirus-related securities lawsuit. Here, a Florida city's retirement plan sued on behalf of investors who purchased stock between February 4 and March 17, 2020. Allegedly, these shares were purchased at artificially high prices after Royal Caribbean misrepresented the impact COVID-19 had on its overall business and the policies and procedures implemented to prevent the spread of the virus on Royal Caribbean ships. Shortly after the stock purchases, prices dropped 19 percent when the cruise line indicated that the pandemic was negatively impacting its overall business, hundreds of COVID-19 cases were reported on Royal Caribbean ships, and lawsuits were filed in connection with passengers and crew members contracting the virus. Were these alleged misrepresentations just optimistic statements made in the earlier months of the pandemic in an effort to secure and attract business or were they poor management decisions that misled investors? It will be interesting to see how these cruise line cases turn out because it will create precedent for all public companies who commented on the pandemic's business impact and procedures it implemented to prevent the spread of the virus. --- Victoria L. Creta
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