Nearly Two Years In :: COVID-19 Coverage Update + Recommendations for Policyholders

As the COVID-19 pandemic recedes to endemic equilibrium, litigation nationwide remains in its early stages over the billions in business interruption coverage denied policyholders for pandemic-related losses.

So far, insurers have been winning the lion’s share of coverage disputes based on industry-wide assertions that pandemic-related causes of loss are not covered, including the pandemic generally, the coronavirus and COVID-19 in particular, and civil authority orders issued prophylactically or in response to viral outbreaks.

Nonetheless, as one insurers’ counsel recently acknowledged, the pandemic coverage litigation is far from over:

There is a lot of fight left and still tens of thousands of insureds on the sidelines…. There isn’t anybody with a business interruption policy that doesn’t have a COVID claim. When we think of the hundreds of decisions, that barely scratches the surface of the potential claimants out there. 

For those “thousands of insureds on the sidelines,” the next year could prove pivotal for filing suit. One bright spot for policyholders: state supreme courts—not the federal courts—are the final arbiters of insurance law, and thus far not a single state supreme court has decided a COVID-19 coverage case. Accordingly, any decisions from state supreme courts favoring policyholders would immediately reverse the prevailing insurer-friendly trends in any courts—state or federal—applying the law of those states going forward.

Given the prospect of more favorable legal terrain for policyholders over the course of 2022, policyholders with potential COVID-19-related business interruption claims should consider taking the following steps to ensure the viability of their legal claims and maximize recoveries:

• If you have not done so, provide the company’s insurers with notice of the business interruption claim. 
  
  Notice to the insurer is the first step in submitting a claim and commercial property policies usually contain specific provisions governing notice and related requirements. Although some jurisdictions may not require strict compliance with these notice provisions, the advantages of compliance far outweigh the disadvantages.

  If it becomes necessary to initiate coverage litigation, the company’s interests are best protected by setting up the claim properly from the outset and complying with policy terms relating to notice.

• Check the policy(ies) covering the period of loss for provisions requiring the insured to bring suit within a specified time.
  
  Although not enforceable in Texas to the extent they purport to shorten the two-year statute of limitations, these provisions are enforceable in many other jurisdictions. For policies containing a provision requiring suit to be brought within two years, that two-year deadline will likely be coming up in early 2022 for many policyholders (since COVID-19 was first documented in the US in January 2020 and most initial civil authority orders incident to the pandemic were issued in March 2020). For example, if the policy contains a two-year contractual deadline to file suit and a civil authority order first required the company to close or curtail business operations by midnight on March 20, 2020, the company would need to file suit by March 20, 2022 (arguably March 19—just to be safe) to avoid the risk of time-barred claims.

• Continue to meticulously document pandemic-related losses and proactively communicate with insurers.

  Many commercial property policies require a “sworn proof of loss” specifying the covered losses sustained in a claim. In some jurisdictions, failure to file a proof of loss can be fatal to coverage. If you have submitted a claim and not heard from the insurer for some time (some insurers have “ghosted” policyholders with COVID-19 claims), reach out to the claim adjuster and ask whether additional information is required for proof-of-loss compliance and whether an insurer-promulgated proof-of-loss form is required (if so, you should request, complete, and submit that form). If the insurers have requested information relating to the claim, make sure you have provided all information reasonably requested, including the evidence the company will need to prove its claim. And follow up. Continued correspondence with the insurer not only demonstrates good faith and due diligence on the part of the insured, but also helps move the claim process forward.

• Keep track of claims correspondence and timing.

  Apart from breach-of-contract claims, many jurisdictions recognize causes of action for statutory or common law bad faith claims handling and payment delays. Classic examples of bad faith include unjustified delays in claim processing (for which “ghosting” carriers in the COVID-19 claim context could be liable) and unjustified denials of coverage (e.g., denying coverage for a loss that is plainly covered—a more likely scenario in COVID-19 claims handling if state high courts begin issuing decisions holding that common policy language clearly covers coronavirus-related causes of loss).

  The policy or applicable law may also require the insurer to comply with specific timing requirements, e.g., requiring the insurer to acknowledge claims, state coverage positions, and issue payment within a certain number of days. Carefully document delays to assess the insurer’s potential liability under prompt payment statutes.
  
  Moreover, the Texas Insurance Code requires insurers to:

  • promptly provide a reasonable explanation for denying a claim;
  • affirm or deny coverage within a reasonable time; and
  • conduct a reasonable investigation before refusing to pay a claim.

An insurer’s failure to comply with these mandates constitutes statutory bad faith. Tex. Ins. Code § 541.060(a)(3), (a)(4)(A), and (a)(7). An insured may therefore have a bad faith claim against a “ghosting” carrier even before receiving a coverage denial letter. Note that the Texas Insurance Code requires written notice to the insurer of alleged statutory violations at least 60 days before the lawsuit is filed. See Tex. Ins. Code § 541.154. The pre-suit notice requirement is excused if it is impracticable to provide notice due to limitations. Tex. Ins. Code § 541.154(c).

Finally, under Texas law, both common-law and statutory bad faith claims are subject to a two-year statute of limitations regardless of any contractual limitations provision in the policy.

To recap, rulings to date in COVID-19 coverage litigation have overwhelmingly favored insurers, but even a few 2022 policyholder-favorable state court decisions could rapidly transform the legal landscape. If your company sustained COVID-19-related losses but has not yet filed suit, ensure careful compliance with policy requirements to maximize the company’s recovery in the event of future litigation—and mind the deadlines!