The editors here at the Insurance Coverage Law Center have capitalized on our relationship with several industry thought leaders, including some members of our Editorial Advisory Board, and posed questions asking them to reflect on 2020, as it was such a difficult year for the insurance industry, and predict trends for 2021. Below are some of their answers.
ICLC: What insurance litigation and court decision trends, including business interruption, did you see throughout 2020?
Coverage litigation in 2020 was dominated by cases seeking coverage for costs and losses incurred due to the coronavirus pandemic. According to the Hunton Andrews Kurth COVID-19 Complaint Tracker, of the 7962 complaints filed in response to the pandemic, 1414 of them, almost 18%, were lawsuits seeking business interruption coverage in connection with the COVID-19 pandemic that were filed. Of the cases in which courts have ruled on motions to dismiss or dispositive motions, 50% of the court orders dismissed the cases with prejudice, 25% were dismissed without prejudice, and 25% denied a motion to dismiss. These cases will likely continue to be at the forefront for at least the next 2 to 4 years, as these cases work their way through the trial and appellate process.
Cohen Ziffer Frenchman & McKenna chair Robin Cohen: The insurance industry was unprepared for the flood of claims and issued denials of coverage across the board, prompting hundreds of suits in federal and state courts across the country. The industry's response to the influx of law suits was to move quickly on cases that were poorly pled, or were filed by lawyers or firms without substantial experience in the coverage space, or sought coverage under policies that were likely inapplicable, resulting in most early decisions being found in favor of the insurers. However, that trend has begun to reverse itself as courts have begun evaluating better complaints and better strategies by policyholders, and have denied insurer motions and allowed more cases to proceed.
Morgan Lewis partners David Cox and Gerald Konkel: This year saw important decisions in California and New York that validated the rights of policyholders to deploy their insurance assets as they see fit in the context of long tail claims implicating multiple years of coverage, further eroding insurer arguments predicated on principles of "pro rata allocation" or "horizontal exhaustion." The California Supreme Court's Montrose decision in April facilitated insurers' ability to access excess insurance in a continuous trigger context, holding that a policyholder may proceed "vertically" through its excess program. On the heels of Montrose, the California Court of Appeals decision in SantaFe Braun extended the rationale of Montrose to hold that a policyholder need not horizontally exhaust its primary insurance in order to access umbrella and subsequent layers of coverage, marginalizing quarter-century old precedent that insurers had relied upon to stymie access to excess coverage. Finally, in October, the New York Appellate Division issued its Carrier decision that followed the Court of Appeals' 2016 Viking Pump "all sums" precedent while rejecting insurer arguments based on "noncumulation" provisions that would have wiped out years of coverage by telescoping the entirety of an insured's asbestos losses into a single policy year.
Bracewell LLP. partner Vincent Morgan: One interesting trend was an increasing tendency for carriers to file declaratory judgment actions in first-party cases. It has long been the routine in third-party cases on issues such as the duty to defend and indemnify, but it has been relatively rare in first-party cases concerning property damage or business interruption coverage. That has changed this year, and we have seen several cases where carriers are asking courts to wade into these issues.
ICLC: What insurance legislative and regulatory trends were significant throughout 2020?
Cohen Ziffer Frenchman & McKenna chair Robin Cohen: Again, the pandemic has driven most of the significant legislative and regulatory developments in the insurance space in 2020. At the onset of the pandemic, state legislatures and Congress introduced several legislative measures to address insurance coverage for pandemic-related losses. The proposals varied from prospective solutions for future pandemics such as federally-backed pandemic insurance program to attempts to provide coverage to small businesses in the pandemic, such as forcing insurers to pay claims and setting up a process whereby insurers can then seek reimbursement from states for the amounts paid out.Morgan Lewis partner Scott Fischer: In terms of the regulatory and legislative trend that was most pronounced was actually what did not occur. The start of the pandemic caused lock-downs and there were numerous calls for regulators or legislatures to eliminate or re-write pandemic, communicable disease or public order exclusions. A number of state legislators introduced bills to do just that. Those bills did not reach any governors' desks, nor has there been any significant efforts on the part of regulators to rewrite existing policies. State insurance departments had put on hold efforts by carriers to add exclusions to existing business interruption coverages. With some exceptions, regulators appear to be willing to permit those exclusions to move forward more recently.
Bracewell LLP. partner Vincent Morgan: The American Law Institute adopted the Restatement of the Law of Liability Insurance in 2019, and 2020 saw responses to that update by legislatures and regulators in a number of jurisdictions. There have of course also been several efforts to respond to COVID-19, ranging from bills introduced to address it to orders from regulators to specifically inform their policyholders about coverage for COVID-19 losses.
ICLC: What kinds of insurance litigation do you expect to see more of in 2021?
Industry experts predict that COVID-19 claims will continue to be significant, and that litigation arising out of the record 2020 hurricane season and wildfire destruction will also begin to ramp up. Industry experts also predict that we will see an uptick in litigation under the Medicare Secondary Payer Act for the recovery of money owed to Medicare Advantage Organizations ("MAOs") and entities that contract with MAOs to provide healthcare and administrative services to Medicare beneficiaries. In September 2020, the Eleventh Circuit Court of Appeals issued an opinion that has opened the door to this litigation.
Morgan Lewis partners David Cox and Gerald Konkel: In the wake of the favorable rulings for policyholders in the suits for coverage for the opioid lawsuits, there has been an outbreak of additional coverage actions initiated by policyholders and insurers that have been sitting on the sidelines in states like California and Ohio. In these cases there are huge amounts of money at stake, and the fact that certain insurers issued policies to multiple opioid lawsuit defendants, aggressive continued litigation, including appeals, is to be anticipated.
Bracewell LLP. partner Vincent Morgan: COVID-19 claims will continue to be significant, as well as litigation arising out of the record 2020 hurricane season and wildfire destruction. There has been a substantial increase in cyberattacks due to "work from home" policies, which will also potentially drive additional litigation over cyber-insurance issues.
Weber Gallagher partner Joe Monteleone: I expect to see a continuing increasing amount of coverage disputes being decided in Delaware. In 2020, insurers saw some significant wins before the Delaware Supreme Court, in the Verizon and Solera cases. We should begin to view Delaware less as an overly policyholder-friendly jurisdiction and more as a jurisdiction with a well-developed insurance coverage jurisprudence and a vehicle for quick resolution given the absence of intermediate appellate courts.
Norton Rose Fulbright US LLP partner John Finnegan: I expect that next year (2021), we will see an uptick in three areas: 1) Rep and Warranty claims; 2) claims arising from collateralized reinsurance transactions; and 3) disputes concerning the meaning and application of riot and insurrection exclusions. In addition, Covid-19 will continue to play prominently in litigation.
Cohen Ziffer Frenchman & McKenna chair Robin Cohen: 2021 will likely bring more litigation concerning claims for coverage for pandemic losses on property insurance policies, but the year will also likely bring the first significant liability insurance claims and litigation as suits are brought against policyholders claiming some action or inaction by a given policyholder exposed people to coronavirus. If insurers anticipate significant defense and indemnity costs will be incurred by their policyholders, they will likely decline coverage for those claims as they did en masse under property policies, which will trigger another wave of litigation.
ICLC: Is there anything else about the transition between 2020 and 2021 that you think will have an impact on the insurance industry?
Industry thought leaders predict that the Biden administration will have an impact on the insurance industry in the new year. The Biden administration's climate change policies and initiatives may have an impact on insurance companies' investment portfolios and underwriting practices. In addition, there may be a push for federal legislation to create a fund for natural disasters worsened by climate change. We also may see momentum on federal legislation to create a federal reinsurance program or fund to cover business interruption losses caused by a pandemic.
Bracewell LLP. partner Vincent Morgan: Calls for a national approach to pandemic losses will likely continue, though it is not yet clear if the federal government will adopt a legislative solution as it did by passing the Terrorism Risk Insurance Act in 2002 following the 9/11 terrorist attacks.
Cohen Ziffer Frenchman & McKenna chair Robin Cohen: The country is bracing for this pandemic to continue to have effects well into 2021, and that will continue to affect the insurance industry. In addition to the continued litigation and legislative efforts described above, policyholders will also start to feel the effects of the pandemic as reflected in their policy premiums going forward and the types of coverages available. Insurers will likely seek to raise premiums to cover the increased costs due to the pandemic, and will certainly attempt to more squarely address coverage for pandemic-related costs and losses with specific exclusions and specific coverages that will only be available for a high additional premium.
ICLC sends a huge thank you to the attorneys who contributed to this piece, including:
Robin Cohen is chair of new boutique insurance law firm Cohen Ziffer Frenchman & McKenna, she can be reached at [email protected].
David Cox, Scott Fischer and Gerald Konkel are partners at Morgan Lewis. They can be reached at, respectively, [email protected], [email protected], and [email protected].
John Finnegan is a partner at Norton Rose Fulbright US LLP, he can be reached at [email protected].
Joe Monteleone is a partner at Weber Gallagher, he can be reached at [email protected].
Vince Morgan is a partner at Bracewell LLP, he can be reached at [email protected].