SDV Insights

The draft legislation, entitled the Pandemic Risk Insurance Act of 2020 ("PRIA"), would establish a Federal Pandemic Risk Reinsurance Fund and Program (the "Program"), that is intended to provide a system of shared public and private compensation for business interruption ("BI") losses resulting from a pandemic or outbreak of communicable disease.

In response to the large number of COVID-19-related losses that businesses are experiencing, insurers have begun issuing statements informing their insureds of whether their policies will respond to the losses, and if so, what coverage will be afforded. Insurers cannot take a "one-size-fits-all" approach to the COVID-19 losses because, besides factual differences, the losses are occurring within all fifty states which means 50 different state law interpretations will apply.

As the COVID-19 pandemic affects companies' economic performance, we anticipate an uptick in Directors & Officers (D&O) Liability claims. Attempts by companies to downplay the effects of supply-chain disruptions or overall performance due to shutdowns are potential minefields for D&O claims

One aspect of many first-party property insurance policies that has been largely overlooked in association with the recent Coronavirus outbreak is protection of property coverage. Protection of property coverage, which can be found as a coverage extension or even as a condition in the policy, can take a variety of forms, but generally provides coverage for costs incurred to temporarily protect and preserve the insured property.

On March 26, 2020, Michelin-rated Napa Valley restaurants, French Laundry and Bouchon Bistro, and their celebrity chef, Thomas Keller, filed the second known coronavirus-related declaratory judgment (DJ) lawsuit by a restaurant. The restaurants filed their DJ against Hartford Fire Insurance Company just seven days after Napa County issued a Shelter at Home Order.

Companies across all industries have been deeply impacted by the social-distancing protocols and economic slowdown caused by the COVID-19 pandemic. Naturally, competent business owners have looked to their commercial business and property insurance programs to determine what coverage, if any, they may have to offset the financial losses being suffered. To their dismay, many such entities have discovered that their policies specifically exclude losses related to virus.

On Tuesday, March 24, 2020, the Chickasaw and Choctaw Nations (the "Nations"), located in Oklahoma, filed separate business interruption coverage lawsuits against their collective group of insurers who allegedly issued "all risk" policies to both Nations.

If approved, New York Draft Assembly Bill A10226 (the "Bill") would require property insurers to cover business interruption losses resulting from the COVID-19 pandemic. The Bill would have immediate retroactive effect applying to property policies containing business interruption and loss of use and occupancy coverage, and in force on March 7, 2020, the date Governor Cuomo declared a State of Emergency.

On March 24, 2020, the Massachusetts and Ohio legislatures proposed bills that would provide insurance coverage to small businesses for business interruption losses sustained during the COVID-19 pandemic. These new developments come less than two weeks after New Jersey became the first state in the nation to introduce legislation on this issue.

COVID-19 Business Interruption Challenges