DISTRICT OF COLUMBIA: An Introduction to Insurance: Policyholder

Chambers Practice Area Overview – District of Columbia: Insurance: Policyholder - 2022

Insurance law across the United States is influenced heavily by attorneys based in Washington, D.C., and there are more insurance lawyers listed in the Chambers USA-Nationwide Insurance rankings from the nation’s capital than from anyplace else. In the District of Columbia and nationwide, COVID-19 remains at the center of insurance recovery litigation, and that trend is expected to continue throughout 2022. The following is a discussion of the Washington, D.C. and nationwide Insurance Recovery landscape, from the perspective of policyholders, as of April 18, 2022.

COVID-19 Business Income Claims 

Since COVID-19 first began in March 2020, there have been thousands of lawsuits filed under the Business Income (also known as Business Interruption) section of standard property insurance policies, seeking to recover the revenue lost during COVID-19 related closures. The insurance industry has refused across the board to settle or to pay Business Income claims, and to date, the majority of court decisions have gone in favor of insurers. These cases generally have been decided based on a single issue, i.e., whether closures due to COVID-19 or coronavirus constitute “direct physical loss or damage” to property, and the majority of trial and appellate courts that have addressed that question have answered it in the negative. However, almost all of the appellate decisions on this critical issue have come from the United States Courts of Appeals, rather than state appellate courts, and there has yet to be a decision by the highest court of any state. Insurance is governed entirely by state law, and therefore decisions by federal courts are merely predictions as to how state courts would rule on an issue. Therefore, the final and most significant chapter will be written when state Supreme Courts apply Business Income policy wording to COVID-19 losses. Several high courts are expected to rule on the issue in 2022, and those decisions will be closely watched by policyholders and insurers alike.

COVID-19 Has Caused Intense Focus on Business Income Insurance

COVID-19 has caused more Business Income lawsuits to be filed in the past two years than in the last fifty years combined. As a result, businesses, lawyers, and judges have developed a better understanding and increased focus on Business Income insurance, and additional Business Income and similar first party claims, not necessarily related to COVID-19, can be expected for years to come. A vast body of law has developed addressing not just Business Income coverage itself, but also companion coverages such as Civil Authority, Ingress & Egress, Dependent Business Premises, Prohibition of Access, and several others. As a result of the increased attention, developing case law, and scholarly writing on these lines of coverage, businesses are pursuing claims that they might not have considered prior to COVID-19.

COVID-19 Event Cancellation Claims 

Policyholders have fared better in lawsuits under event cancellation policies arising from the COVID-19 pandemic than they have fared in Business Income suits. Event cancellation policies lack the “direct physical loss or damage” requirement and are designed to cover the type of scenarios that resulted from the pandemic. Some of the most watched event cancellation cases involve the cancellation of Broadway shows, rock concerts, sporting events, and trade and professional conferences. In the months preceding the pandemic, some insurers made hasty attempts to add exclusions for COVID-19, but in many cases the exclusions were poorly written. Thus, the scope and application of those exclusions are being tested in courts across the country. Many significant event cancellation cases are expected to be decided, either by trial or on summary judgment, during the remainder of 2022 and in 2023.

COVID-19 Disputes and Losses Giving Rise to Novel Insurance Claims

The various disputes flowing from COVID-19 that will test the bounds of different lines of insurance policies are practically endless. These scenarios include shareholders alleging that companies did not adequately manage the COVID-19 crisis; customers alleging that closures or errors by businesses during the COVID crisis caused them damages; victims of data breaches alleging that businesses let down their guard due to COVID-19; employees alleging that they became sick because employers required them to work; residents of nursing homes and hospitals alleging wrongful death; schools and businesses accused of re-opening without adequate protections, and many others. These types of suits will require policyholders to seek coverage under traditional lines of liability insurance, such as General Liability, Directors & Officers, Errors & Omissions, Cyber Liability, and other lines of third party coverage.

Increased Focus on Representations and Warranty Insurance

Representations and Warranty (R&W) insurance has become common in recent years in corporate transactions as a means to shift the risk of breaches of representations and warranties, away from the buyer and seller, to a third party insurer. The level of activity in the R&W insurance marketplace, measured both by the purchase of R&W policies and by the claim volume, correlates to the level of merger and acquisition activity. During the pandemic in 2020, mergers ceased almost altogether, but then increased dramatically in 2021, and are continuing at a brisk pace into 2022. As a result, substantially more R&W policies have been placed in 2021 and 2022 than in 2020 and claims activity can be expected to increase as well.

Policy Pre-Reviews are More Important than Ever

Sophisticated policyholders frequently utilize their insurance counsel to review and negotiate their policies as part of the renewal process. Most claim disputes arise out of just a few provisions, and an experienced insurance litigation attorney can identify those provisions, and then negotiate improvements to language that can mean the difference between success or failure in the event of a coverage dispute. COVID-19 has brought business pressure on policyholders and insurers alike, and as a result, insurers are tightening coverage and looking for ways to limit their exposure. Now more than ever, policyholders should rely on experienced counsel to review and negotiate their terms, just as they would do with any other contract potentially worth millions of dollars. Some of the types of policies where review and negotiation by counsel will be most fruitful are Directors & Officers, Cyber liability, Errors & Omissions, and various specialty policies, since these policies are less standard and their terms are more flexible than other lines, such as general liability insurance.