COVID-19 Impact on the Practice of Law: Insurance Edition

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In the world of insurance, predictability is king and this pandemic is off-the-(actuarial)-charts unprecedented. Insurance carriers are facing claims across their entire portfolio in the billions of dollars due to COVID-19-related business closures, and when some claims inevitably get denied, litigation quickly follows. 

This looming surge of litigation is not hypothetical. Federal class action lawsuits have already been filed against several insurance companies for denying policy claims related to the business closures as a result of the pandemic and dozens of cases relating to restaurant, cinema, and other service industry closures have also been filed across the nation. Understanding potential exposure and having the right technology to meet the needs unique to litigation is key to driving to favorable outcomes.

What’s driving the surge of insurance litigation 

Shelter-in-place orders and government-mandated closure of restaurants, bars, movie theaters and more has created wide-ranging economic impact and proprietors have turned, en masse, to their insurance policies to cover these coronavirus-related losses. Litigation has been the natural result, specifically whether business interruption losses arose from physical loss to property and/or whether exclusions for virus and pandemic apply. The stance many carriers are taking, that policies were not intended to cover the virus, combined with the scale of the impact has created a perfect breeding ground for a large-scale litigation tsunami. 

Ambiguity in the terms of insurance contracts and the unprecedented nature of the pandemic creator a fertile ground for disputes and litigation to arise. Claims relating to bad faith, failure to investigate, failure to pay claims, unfair settlement practices, breach of contract, violations of state insurance codes, unfair business practices, and frequent questions around the trigger of coverage are all being raised. It is important to understand the judicial posture on many of these recent cases both as insured and insurers to understand potential exposure. 

Insurance carriers perspective vs. considerations for insured

Insurance carriers are facing portfolio-wide claims in the billions of dollars as the insured turn en masse to their policies to get economic relief. Terms of coverage are unclear and trigger events are vague, so litigation often follows. Considerations in insurance litigation differ substantially between the insured and their carriers. 

Insurance Carriers

Insurance keeps business afloat by assuming much of the potentially catastrophic risk individuals and organizations face in an uncertain world. The burden to pay up when things go wrong for an insured coupled with the fact that the industry is highly regulated and rife with constituents with varying objectives makes litigation and ediscovery a common occurrence for insurance carriers.

In this crisis, the sheer volume of claims all hitting at the same time is enough to bankrupt even the most established insurance carrier, so it is a matter of survival to ensure that only claims explicitly covered by policy are paid out. American Property Casualty Insurance Association estimates the prospective cost of coverage just for businesses with 100 or fewer employees to be in the range of $255B to $431B per month, or up to $5.2T per year. Litigation is a means of messaging to the larger ecosystem of policyholders your position on claims and a means to control the deluge. 

As Travelers said in a letter to New York policyholders:

Insurance for business interruption can provide coverage when a policyholder suffers a loss of income due to direct physical loss or damage to covered property at its location or another locationIt does not cover loss of income due to market conditions, a slowdown of economic activity, or a general fear of contamination.

In the discovery process, most of the data resides with the insured (unlike other serial litigants), causing carriers to walk the tightrope between privacy rights and contractual obligations of the insured in seeking data. This balancing act combined with the pressing cost-consciousness in a matter where the end goal of avoiding paying out claims places extra burdens on the discovery process 


As the costs related to business interruption and COVID-19 in general continue to rise, businesses are turning to their insurance carriers to help offset the devastating economic impact. If their claims are rejected, they are filing claims alleging wrongful denial of coverage for coronavirus-related losses. The volume of claims is so high that two motions were filed on April 20 with the Judicial Panel on Multidistrict Litigation (JPML) to consolidate the myriad of federal claims. 

Whether in a consolidated class or as standalone litigation, the claims tend to focus on one of these main considerations: 

  • Whether the virus causes physical damage to the property
  • Whether the coverage is triggered when the virus is present on or near a policyholder’s property
  • The validity of clauses excluding coverage for pandemics
  • Whether business interruption “related orders of civil authorities” were excluded

Coverage implicated by COVID-19 

There are several varieties of coverage that the insured can turn to to seek relief during the pandemic depending on the type and scope of insurance they possess. Each main recovery mechanism has some unique considerations. 

Business Interruption

Restaurants, retailers, and even law firms all have faced economic impact due to orders to shelter in place and or shutter due to COVID-19. The main question in these matters is whether the presence or potential presence of COVID-19 constitutes damage that triggers coverage. Under strict interpretation of many business interruption clauses coverage, the virus may not trigger coverage. But much like in the aftermath of 9/11, some legislators are suggesting insurance carriers retroactively recognize financial losses relating to COVID-19 under commercial business interruption coverage for policyholders. 

Civil Authority

Triggered when a “civil authority” prohibits access to the policyholder’s property, this is becoming a more common mechanism for recovery with COVID. As with business interruption, some policies possess specific language requiring a “physical loss” of property to trigger coverage. 

Directors’ and Officers’ (D&O) 

These policies provide coverage for claims made against the senior employees for wrongful acts committed in connection with business operations. With directors and officers at cruise lines and pharmaceutical companies already facing claims that they either failed to disclose potential risks of COVID-19 or to adequately prepare for the pandemic, D&O insurance litigation is set to spike. 

Commercial General Liability (CGL) Insurance

CGL insurance policies offer coverage for claims by third parties for things such as bodily injury and property damage. The pivotal factor in triggering coverage under CGL policies is legal liability, that negligent behavior was the proximate cause of the actual damages. Behavior such as allowing a known infected employee to continue to work, disobeying shutdown orders, and not adhering to proper social distancing or disinfection protocols may all suffice to trigger coverage in the event a third party is impacted. 

Event Cancellation 

Following the cancellation of major music festivals like SXSW and Coachella and nearly all professional sporting events and concerts, people are demanding refunds in droves and organizations that fund these events are turning to their event cancellation coverage to make themselves whole. Unlike some other types of coverage, event cancelation often expressly included disruption due to disease or pandemics. In recent months some carriers have moved to expressly exclude COVID-19 and other pandemic disruptions.

Ediscovery considerations for insurance litigation 

Insurance was already a heavily litigated industry and COVID-19 has amplified the need for cost effective, time-sensitive solutions that equip the insured and the carriers with actionable insights to determine their litigation or settlement posture early. 

David vs. Goliath requires cost consciousness

Insurance litigation often involves a major resource asymmetry between insured and the insurance carrier in-terms of budget for ediscovery. Cost recovery rulings have reduced the tendency for one or both sides to ask for everything and the kitchen sink, and practitioners facing this type of matter ought to narrowly tailor their ESI protocols and data requests. Leveraging advanced AI to parse through large data volumes without incurring large-scale costs associated with human review is another way to ensure key information is surfaced without incurring undue costs. 

Get triggered

In the case of insurance litigation, the trigger event is the same as for any matter: reasonable anticipation of litigation. In the case of COVID-19, given the volume of class actions and insurance litigation already in play, many carriers should operate as if any rejected claim may spawn litigation and preserve accordingly early and broadly, using ECA and AI to refine what ultimately progresses to review. 

Time > Money

Insurance carriers are dealing with hundreds or thousands of claims while the insured are facing existential financial hardships, time is of the essence. While cost containment is key, finding key information to determine case or settlement posture is invaluable. Leveraging AI-powered managed review or active learning technology to mitigate the amount of time humans have to review data while surfacing key information in a fraction of the time empowers both sides to make informed decisions early and without incurring undue cost. 

Reduce, reuse, recycle

Reusing work product or simply not starting each case at zero is invaluable to both the classes of insured and the carriers being bombarded by claims. DISCO’s AI model sharing is a great resource for either side to accelerate time to insight and learn from each iterative case, reducing review time and surfacing insights quickly. 

The current volume of claims facing carriers, the scale of economic impact, and the friction between both sides is a fertile ground that has already spawned dozens of lawsuits. As the deluge continues, having the right arsenal of ediscovery resources to efficiently manage the growing volume of cases will help both sides stay afloat and reach case conclusions in an informed and timely manner. 

Also in this series:

COVID-19 Impact on Bankruptcy

COVID-19 Impact on Class Action Lawsuits

COVID-19 Impact on Construction

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Cat Casey
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