Opportunities and Hazards in COVID ... - Amazon Web Services

Preventive Law and Coronavirus Series

Thursday, June 18, 2020 Noon–1 p.m.

1 General CLE credit

Opportunities and Hazards in COVID-19 Business Interruption Claims

iiPreventive Law and Coronavirus Series: Opportunities and Hazards in COVID-19 Business Interruption Claims

FACULTY

Chris Keefer, KEEFER, Portland. Mr. Keefer helps manufacturers and businesses anticipate and react to risks before they materialize, including guiding these companies through complex commercial contracts, mergers and acquisitions, real estate transactions, developing compliance policies and training, management of insurance and litigation programs, and ultimately as a cost-effective resource for day-to-day business and legal strategies. He has presented nationally on risk management and insurance issues. Mr. Keefer is a member of the Oregon Entrepreneur Network and is admitted to practice law in Oregon and Indiana.

Benjamin Varadi, Modern American LLC, Portland. Mr. Varadi provides general counsel services to small businesses and nonprofits with a focus on emerging industries, including cannabis and regenerative agriculture. He also assists individuals in select matters of estate and real property law. He is a member of the Oregon State Bar Cannabis Law Section, Agricultural Law Section, Nonprofit Organizations Law Section, Real Estate & Land Use Section, Intellectual Property Section, and Solo and Small Firm Section. He volunteers with the Lewis and Clark Law School Small Business Legal Clinic and Low Income Taxpayer Clinic, and he is admitted to practice law in Oregon and Louisiana.

iiiPreventive Law and Coronavirus Series: Opportunities and Hazards in COVID-19 Business Interruption Claims

Table of Contents

Faculty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iiI. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1II. Business Interruption Defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1III. Theories of Recovery (Generally). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2IV. Communicable Disease Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2V. Civil Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3VII. Other Potentially Applicable Insurance Claims . . . . . . . . . . . . . . . . . . . . . . . . . 4VIII. Contract Causes of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4IX. Suggested Secondary Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4X. Additional Video Learning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5XI. Contact Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Presentation Slides: Opportunities and Hazards in COVID-19 Business Interruption Claims . . . . . 7

ivPreventive Law and Coronavirus Series: Opportunities and Hazards in COVID-19 Business Interruption Claims

1Preventive Law and Coronavirus Series: Opportunities and Hazards in COVID-19 Business Interruption Claims

Opportunities and Hazards in COVID-19 Business Interruption Claims Oregon State Bar CLE Presentation, June 18, 2020

Case Citations & Further Reading Ben Varadi & Chris Keefer

Program Code: BIIL20

I. IntroductionThank you all for attending this survey of the current state of business interruptionlitigation related to the COVID-19 pandemic. Following are references to the casescited in the order presented, and then some additional resources of potential use topractitioners. This is a rapidly developing area of law, and the presentation coveredonly a small fraction of the hundreds of matters in active litigation. Participants arestrongly encouraged to use these materials for general overview and to identifypotentially applicable keywords, but this list should not be considered exhaustive byany means. In preparing this document, prompt delivery has trumped Bluebookperfection, and hotlinks have been left enabled for convenience. The reader’sindulgence is appreciated.

II. Business Interruption Defineda. ISO Business Income (and Extra Expense) Coverage Form. Note policies may

contain different iterations of the ISO forms, e.g. ISO CP 00 30 04 02, ISO CP 0032 04 02.

i. We will pay for the actual loss of Business Income you sustain due to thenecessary “suspension” of your “operations” during the “period ofrestoration”. The “suspension” must be caused by direct physical loss ofor damage to property at premises which are described in the Declarationsand for which a Business Income Limit of Insurance is shown in theDeclarations. The loss or damage must be caused by or result from aCovered Cause of Loss…

b. Ingress & Egress Coveragei. Though my searches have not been extensive, this language appears to be

largely policy-specific. One article I’ve seen cited on the topic is ClarkSchirle, Civil Authority and Ingress/Egress Coverage, 37 GPSolo Mag. 55(2020) (available with membership athttps://www.americanbar.org/groups/gpsolo/publications/gp_solo/2020/january-february/civil-authority-ingress-egress-coverage/).

c. Catlin Syndicate Ltd. v. Imperial Palace of Miss., Inc., 600 F.3d 511 (5th Cir.2010). Casino projected income predicated on probable sales in absence ofhurricane, not continued operation during hurricane.

d. Evan Greenberg, Chubb CEO, “The industry will fight this tooth and nail…”April 2020 investor call quoted in Mark Hollmer, How Chubb Is NavigatingCoronavirus and Its Impact on Growth, Apr. 27, 2020,https://www.insurancejournal.com/news/national/2020/04/27/566365.htm.

https://www.americanbar.org/groups/gpsolo/publications/gp_solo/2020/january-february/civil-authority-ingress-egress-coverage/

https://www.americanbar.org/groups/gpsolo/publications/gp_solo/2020/january-february/civil-authority-ingress-egress-coverage/

https://www.insurancejournal.com/news/national/2020/04/27/566365.htm


III. Theories of Recovery (Generally)a. Cajun Conti LLC v. Certain Underwriters at Lloyd’s, London, No. 2020-02558

(La. Civil District Court for the Parish of Orleans, filed Mar. 16, 2020).i. NB: Due to COVID-19 the Orleans CDC court reporter has temporarily

suspended collection of subscription fees to subscribers. Accounts can becreated and docket accessed at http://remoteaccess.orleanscivilclerk.com.Readers would be wise to continue to monitor that policy if they don’totherwise have reason to subscribe to this court’s record.

b. Oregon Shakespeare Festival Ass’n v. Great Am. Ins. Co., No. 15-1932, 2016 WL3267247 (D. Ore. June 7, 2016) (later vacated by joint stipulation). Wildfiresmoke and ash constituted physical damage and loss when it forced cancellationof live performances.

c. Cooper v. Travelers Indemnity Co. of Ill., No. C-01-2400-VRW, 2002 WL32775680 (N.D. Cal. Nov. 4, 2002), aff’d 113 F. App’x 198 (9th Cir. 2004).Restaurant E.coli water supply contamination constituted direct physical loss.

d. Mastellone v. Lightning Rod Mutual Ins. Co., 884 N.E.2d 1130 (Ohio 2008).Mold staining on exterior of premises not physical loss where easily remediated.

e. Universal Image Productions v. Fed. Ins. Co., 475 Fed. Appx. 569 (6th Cir.2012). Mold & bacteria contamination in ventilation system not physical losswhere insured’s property was not lost or damaged, despite necessity to moveoperations entirely.

IV. Communicable Disease Exemptiona. ISO CP 01 40 07 06 (but see supra re: various versions of these forms. Read your

policy!) “We will not pay for loss or damage caused by or resulting from anyvirus, bacterium, or other microorganism that induces or is capable of inducingphysical distress, illness or disease.” Some versions include language stillrequiring physical loss.

b. Forfex LLC v. Hartford Underwriters Ins. Co., No. 2:20-cv-01068 (D. Az., filedJune 1, 2020). Policy argument to set aside virus exclusion relies in part onlengthy quote from President Trump, in part, “I’d like to see these insurancecompanies—you know you have people that have paid. When I was in private Ihad business interruption. When my business was interrupted through a hurricaneor whatever it may be, I’d have business where I had it, I didn’t always have it,sometimes I had it, sometimes, I had a lot of different companies. But if I had itI’d expect to be paid. . . . I don’t see the word pandemic mentioned. Now in somecases it is, it’s an exclusion. But in a lot of cases I don’t see it. I don’t see itreferenced. And they don’t want to pay up. I would like to see the insurancecompanies pay if they need to pay, if it’s fair.”

c. Treasure Island, LLC v. Affiliated FM Ins. Co., No. 2:20-cv-00965 (D. Nev., filedMay 28, 2020). Policyholder asserts had communicable disease coverageincluding impacts in general region, was automatically denied coverage forcleanup on basis that showing of physical loss and/or employee/patron infectionwas required.

https://remoteaccess.orleanscivilclerk.com/


d. ISO Business Income Changes – “Communicable Disease” and “FoodContamination” Extension. I have only been able to find internal insurancecompany references to this document thus far. Again, it’s imperative to read thespecific policy. Here, “We will pay for the actual loss of Business Income yousustain as a result of having your entire "operations" temporarily shut down orsuspended by an order from any local, state or federal Department of Healthhaving jurisdiction over your "operations." Such shutdown must be the directresult of an outbreak at the insured premises of a "communicable disease" such as,but not limited to, Meningitis, Measles, or Legionnaire's Disease, or to a “foodcontamination" caused directly by infectious or bacterial organisms such as, butnot limited to, infectious Hepatitis, E.Coli bacteria, or Salmonella. An actualbusiness shutdown must occur.”

V. Civil Authoritya. Sero, Inc. v. Berkley N. Pac. Group, LLC et al., No. 3:20-cv-00776 (D. Or., filed

May 13, 2020). Putative class action, Oregon restaurant asserts Oregon “StayHome, Save Lives” executive orders effectively required shutdown, in partrelying on additional nonbinding guidance from Dept. of Homeland Security.Chris notes that asserted rapid provision of renewal materials containing thatexclusion is a point worth considering in assessing insurer position.

b. U.S. Constitution takings doctrine (5th Amendment) mentioned in passing byanalogy with regard to deprivation of use.

c. Penton Media, Inc. v. Affiliated FM Ins. Co., 2006 WL 2504907 (N.D. Ohio2006), aff’d, 245 Fed. Appx. 495 (6th Cir. 2007). Takeover of Javits conferencecenter by FEMA following 9/11 deemed result of an act of terrorism, not civilauthority.

d. Philadelphia Parking Auth. v. Fed. Ins. Co., 385 F. Supp. 2d 280 (S.D. N.Y.2005). Grounding of airplanes following 9/11 did not constitute interruption ofairport parking garage that was able to accommodate people who theoreticallywanted to park there without flying anywhere.

e. Kean, Miller, Hawthorne, D’Armond McCowan & Jarman, LLP v. National FireIns. Co. of Hartford, 2007 WL 2489711 (M.D. La. 2007). No interruption for civiladvisory that did not formally forbit employees from entering the business, onlyadvised it.

f. Dicki Brennan & Co. v. Lexington Ins. Co., 636 F.3d 683 (5th Cir. 2011).Evacuation order in anticipation of hurricane that had not yet caused domesticdamage was not triggered.

g. Dakota Ventures, LLC et al. v. Oregon Mutual Ins. Co., No. 3:20-cv-00630 (D.Or., filed Apr. 17, 2020). Putative class action, Washington restaurants withcoverage through Oregon insurer assert closure orders trigger coverage, and thatphysical loss is implied in circular accompanying virus exemption (which was notincluded in this policy), such that its exclusion implies coverage.

VI. Legislative Effortsa. Please see Chris’ presentation content from the 6/18/20 Oregon Bar presentation

on BI insurance generally and note the presenters’ feelings that a) these measures


are unlikely to pass and b) Oregon has not proposed such a bill. Feel free to reach out to either of us for further discussion.

b. Letter from National Association of Mutual Insurance Companies, IndependentInsurance Agents and Brokers of America, American Property Casualty InsuranceAssociation, Reinsurance Association of America and the Council of InsuranceAgents and Brokers to U.S. Congress members, quoted in Zoe Sagalow, In Letterto Lawmakers, Insurers Say Pandemic Cost Is Too Great, Apr. 8, 2020,https://www.rollcall.com/2020/04/08/in-letter-to-lawmakers-insurers-say-pandemic-cost-is-too-great/ Insurers assert there isn’t enough surplus in the entireindustry to cover BI claims if virus and other exclusions are ignored.

VII. Other Potentially Applicable Insurance Claimsa. These matters are all highly dependent on the policies and circumstances

themselves.b. Dynea USA, Inc. v. Fairbanks, 250 P. 3d 389, Oregon Court of Appeals (2011).

MRSA case found to be injury, not ordinary disease, when contracted at theworkplace.

c. Weissberger et al. v. Princess Cruise Lines Ltd., No. 20-cv-2267 (C.D. Cal., filedMay 9, 2020). Passenger asserts Princess knew of likely COVID-19 symptoms inother passengers and did not inform. There are a significant number of relatedcases filed by other passengers.

VIII. Contract Causes of Actiona. These matters are all entirely dependent on the contracts and circumstances

themselves. Consider doctrines of force majeure, frustration, impossibility, andspecific lease obligations of both landlord and tenant beyond defaults.

IX. Suggested Secondary Resourcesa. William H. Danne, Jr., Business Interruption Insurance, 37 A.L.R.5th 41

(originally published in 1996, accessed 6/2020). The ALR is updated weekly andhas a host of foundation cases and practice guidance.

b. Paul S. White, Siobhán A. Breen, The Impact of the Global COVID-19 Pandemicon the Insurance Industry, 62 No. 4 DRI For Def. 22 (Apr. 2020).Comprehensive, if somewhat industry-biased, overview of insuranceconsiderations including discussion of event cancellation, E&O, generalcommercial liability, worker’s compensation and more.

c. John DiMugno, The Implications of COVID-19 for the Insurance Industry and ItsCustomers, 42 No. 8 Insurance Litigation Reporter NL 1 (May 2020). Extensiveand fairly current analysis of background cases and outcomes nationwide,including some comparison between policy language. This document wasfundamental in preparation of the presentation and is highly recommended.

https://www.rollcall.com/2020/04/08/in-letter-to-lawmakers-insurers-say-pandemic-cost-is-too-great/

https://www.rollcall.com/2020/04/08/in-letter-to-lawmakers-insurers-say-pandemic-cost-is-too-great/


X. Additional Video Learninga. American Bar Association, Understanding Business Interruption Coverage with

COVID-19 – More Important Than Ever, https://www.americanbar.org/events-cle/ecd/ondemand/398781549/ Substantially more conversation on preparingproof of loss and associated claim components. Free for ABA members, $45others. Website notes this 90-minute presentation is not eligible for CLE credit.

XI. Contact Information

Benjamin C. VaradiModern American, LLC www.modernamerican.life (503) [email protected]

Chris Keefer, Esq. Keefer Strategy www.keeferstrategy.com (971) [email protected]

https://www.americanbar.org/events-cle/ecd/ondemand/398781549/

https://www.americanbar.org/events-cle/ecd/ondemand/398781549/

https://www.modernamerican.life

https://www.keeferstrategy.com

mailto:[email protected]

mailto:chris%40keeferstrategy.com?subject=



Opportunities and Hazards in COVID-19 Business Interruption Claims

P RO G R A M C O D E : B I I L 2 0N O O N – 1 P. M . , T H U RS DAY, J U N E 1 8 , 2 0 2 01 G E N E R A L C L E C R E D I T

Chris KeeferBen Varadi

Introductions

Opportunities and Hazards in COVID-19 Business Interruption Claims - June 18, 2020

Chris Keefer, Esq. Keefer StrategyAdmitted to practice in Oregon, Indianawww.keeferstrategy.com(971) 256-9100 [email protected]

Benjamin C. Varadi, Esq.Modern American, LLCAdmitted to practice in Oregon, Louisianawww.modernamerican.life(503) 894-5880 [email protected]


Overview


• Business Insurance Defined• Theories of Recovery• Direct Loss & Contaminants• Civil Authority• Legislative Considerations• Other Potential Insurance Claims• Potentially Applicable Contract Causes of Action• Questions

Business Insurance Defined


• Typically found in commercial property policy.• May be required by lender.• Covers loss of business income resulting from a covered event.• Does not extend to dependent properties, unless there is contingent

business interruption coverage in place.

• Source of policy language: • ISO/Verisk• Individual providers


Theories of Recovery


• Direct Loss, Contamination• Infectious Disease Coverage• Civil Authority

Direct Loss, Contamination, Infectious Disease


• Direct Loss, Contamination• “…due to direct physical loss of or damage to property…”

• Infectious Disease Coverage• “We will not pay for loss or damage caused by or resulting from any

virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”

• “Louisiana Courts have interpreted the intrusion of lead or gaseous fumes constitute a direct physical loss…”


Civil Authority


“We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, caused by or resulting from any Covered Cause of Loss.

“The coverage for Business Income will begin 72 hours after the time of that action and will apply for a period of up to three consecutive weeks after coverage begins.”

Legislative Efforts


• New York, New Jersey, Massachusetts, Pennsylvania, Ohio, South Carolina, Louisiana all have proposed bills.

• Some retroactive to date of State of Emergency Declaration.• Challenges largely predicated on U.S. Constitution, economic policy.


Other Insurance Claims


• Civil authority extension endorsement• Supply chain risk insurance• Environmental insurance• Cyber Endorsements• Errors & Omissions• Employment Practices

Contract Causes of Action


• Force Majeure• Leases• Impossibility/Frustration


Questions?


Chris Keefer, Esq. Keefer StrategyAdmitted to practice in Oregon, Indianawww.keeferstrategy.com(971) 256-9100 [email protected]

Benjamin C. Varadi, Esq.Modern American, LLCAdmitted to practice in Oregon, Louisianawww.modernamerican.life(503) 894-5880 [email protected]

Documents

Opportunities and Hazards in COVID ... - Amazon Web Services