AI Wisdom Ep. 28: COVID-19 Business Interruption Litigation – Lessons Learned

Insurance Industry News & Views - November 5 2020

On this episode of the “AI Wisdom – Talking Innovation in Insurance” podcast, host Ron Glozman speaks with Laura Gregory, Partner at Sloane and Walsh, LLP about COVID-19 business-interruption claims litigation and the lessons learned to date. Click the play button to listen or read the full transcript below.

Full Transcript

Ron Glozman: Hello and welcome to “AI Wisdom Talking Innovation in Insurance." On this podcast, we talk to business and InsurTech leaders about how artificial intelligence is transforming the way we buy and sell insurance. I’m your host Ron Glozman, Founder and CEO of Chisel AI and a strong believer in the power of AI to help people work smart and enrich their lives. So, let’s get into it.

Ron: In the wake of COVID-19, many businesses of all sizes worldwide were forced to close their doors leading to lost revenue and a spike in business interruption claims with many lawsuits filed against commercial property insurers for substantial losses caused by coronavirus litigation state by state has resulted in disruptions and disputes and mixed rulings on COVID-19 business interruption claims. I’m very excited to have with me here today, Laura Gregory, Partner at Sloane and Walsh LLP to talk a little bit about COVID-19 insurance and business interruption claims. Laura, thank you so much for taking the time. Do you mind introducing yourself?

Laura: Thank you so much, Ron, for inviting me on to your podcast. As Ron said, my name is Laura Gregory. I’m a partner at the law firm Sloane and Walsh, which is based in Boston, which is where I’m based. I’ve been doing insurance coverage and bad faith litigation for almost 30 years now. I am one of the few people that really enjoy the nitty-gritty coverage details. So, great for me, and great for them that they don’t have to do it. I am also an elected official in the town I live in Andover, Massachusetts, about 25 miles north of Boston, and survived successful re-election during the COVID quarantine. So, I think I bring a little bit of a different perspective in that respect and I’m looking forward to talking about business interruption, which is the hot topic in insurance these last few months. We’re seeing more and more of these cases. So, should be an interesting discussion.

Ron: I’m very excited. I think you’re the first legal expert and elected official we’ve had on the call. So, this will definitely be a different view. So, kicking it right off, one of the experts we had earlier this season on the podcast was Dr. Robert Hartwig or Bob, who is an expert and has studied on the economic side what the potential fallout could be if the industry had to bear all of the claims that would be filed and his statement was that the industry has estimated that the payout that would be caused by business interruption payouts or claims could approach 400 billion per month, and for businesses with fewer than 100 employees. I know you’ve been keeping a scorecard of BI claims and how the courts are ruling, I would love for you to weigh in, where do we stand now?

Laura: Well, the insurers are, quote-unquote, winning at the moment. I have gotten some information in the last 24 hours about some additional cases that I haven’t been able to put my hands on the decision. So, I can’t give you a number right now, we’re somewhere around 30 cases for insurers to 8 or 9 in favor of insureds. But these aren’t really wins for insureds because these are all in the context of right now motions to dismiss. So, what’s happening is the insureds are filing complaints and then the insurance companies are responding to those with a motion to dismiss saying that the case should be dismissed because they have not in their complaint pledged facts that would trigger coverage under the policy.

The primary issue is whether there’s direct physical loss that’s caused by the coronavirus or by the government orders related to the coronavirus. And on those motions to dismiss the insurance companies are predominating on those. There have been a few the eight or nine that I mentioned in favor of the insureds the policyholders and what that means is that the courts have refused to dismiss the case right out of the gate. They’ve allowed the case to continue. So, they have not said that there is coverage.

I’m not aware of any cases that have come down to say there is coverage for these claims. That doesn’t mean there won’t be any, but we’re early on in the legal process. So, we haven’t gotten to that point yet. But most of the motions to dismiss currently have been decided in favor of the insurance companies and primarily because the policy language requires a direct physical loss in order for there to be business interruption coverage and because of the nature of the virus or the orders and the plaintiffs allegations about those, they have come down in the cases in favor of the insurance companies as not having direct physical loss.

One exception, there was a case that came down about a week ago, a beer distributor for Disney made a claim saying that the beer that they tried to deliver and sell to Disney went bad because Disney wouldn’t take it because they were shut down. They were making a claim for their lost business because they weren’t able to sell to Disney. The court actually said there was direct physical loss that the spoilage of the beer was direct physical loss, but then went on to say that there was no covered cause of loss that was alleged in the complaint and went ahead and dismissed the complaint.

So that’s the only one that I’m aware of where the court has found there was direct physical loss. And even then, the insurance company prevailed on the motion to dismiss. A much longer answer than you wanted. I’m sorry.

Ron: No, I think that’s perfect. That’s exactly why we’re here. I’ll sort of throw in a couple more things that I would love for you to expand on. There’s been talk among federal judges about a concept called Grouping. What does Grouping mean? And how would Grouping cases affect insurers?

Laura: What you’re referencing is called The Multidistrict Litigation or MDLs. There are a number of MDLs on a variety of subjects, probably the most famous one right now has to do with the claims against the manufacturers of opioids. There was an attempt to create one of these that would have put in a single group or a single litigation, all of the business interruption claims that were pending in federal court across the country, the panel that had to make the decision on that decided against a multidistrict litigation. So, what that means is the individual cases will proceed individually. There’s one exception to that and that is there were a couple of small groups that were allowed to have sort of what we’ve been calling mini-MDLs. Those were against individual insurers. So, they group together. It was much smaller numbers of cases; one group is as small as I think 15 or 20 and another was more around 100 cases. But those were against individual insurers. I believe there were three of those that have been allowed to proceed. At least two of them are in the Northern District of Illinois, Chicago area and I think maybe one is in Wisconsin, not positive about that. But those limited circumstances have been allowed to go forward as many mini-MDLs.

The reason that I think that for the most part, these MDLs are not useful because the policy language is not uniform, even by an individual insurer, they can vary. Additionally, even with the same policy language, the facts of each of these claims are much different. For example, the restaurant making a claim may be in a very different situation because they could, for example, do takeout in most states even during times when nothing else was open. On the other hand, if you were a retail store or a hair salon, you were shut down entirely. So, it’s a different circumstance.

Of course, if there is a determination of coverage, then each individual policyholders’ business would have to be reviewed to determine the damages. So, certainly, damages would be entirely individualized, as they have to be. As a result, in my view, there were minimal efficiencies with the MDLs. These mini-MDLs seem as if they could be more efficient because they are single insurers, and it appears that they are based on the same policy language from those insurers. I don’t know the policyholders involved it may be that they are say all restaurants in a limited geographic area so there are fewer government orders to review as well. That tended to happen in some of these that had a restaurant book of business so that the policyholders that were involved were likely to be restaurants and would have similar claims, particularly in similar geographic areas.

So, there may be some efficiencies with the mini-MDLs we’ll see. As far as a single national MDL that has not happened, and I don’t see that changing in the future, there’s no real mechanism to change that.

Ron: Understood. So, from a slightly different angle, Patrick Kelahan of the Insurance Elephant stressed recently that if insurers don’t find a creative solution on their own, regulators eventually will attempt to enforce one on the industry. Are you seeing any type of out of the box thinking today maybe new products or discussion around new products or changes in legislation that are coming from insurers in response to the coronavirus crisis?

Laura: Well, first of all, let me say I’m a big fan of Patrick Kelahan. He’s taught me so much during quarantines about parametric insurance, and some of these out of the box solutions. As I’m sure you know, parametric insurance has been available for a while but in more limited ways and hasn’t necessarily been adopted by the bigger carriers, at least not in lines of business that are significant in the communities. This I think could be an opportunity to change that. There are easier ways to create coverage that would maybe make coverage available in situations like a pandemic, where they could have a particular thing that triggered the coverage have maybe a more limited coverage so it would actually be affordable for businesses and then those payments could be made quickly without a long analysis.

One thing that hasn’t come out very much in the discussions in the traditional press and the cases about business interruption is that the damages component of a business interruption claim is very challenging. It is very document-intensive and is not generally a quick process. The insured has to provide a lot of documentation about their income in the past, and their impacts as they have, in this case, it would be to address the pandemic.

They’re very individualized, they are a lot of documents, they oftentimes require a CPA, and it’s not something that even if it’s absolutely clearly covered, is going to be quick in most circumstances. So, if we could look at through, say, a parametric type policy, something that would limit those situations, it might be possible to get coverage out to more insureds at a price that they could afford. And in the event of a covered claim, get the money out to them faster, which of course, speed is very important when particularly you’re a small business, and you want to get the coverage if you’re entitled to it. So, if we could set up a situation where we have parameters that are easily determined, easier said than done, I’m sure. But then we could have a situation where the business owner say the restaurant owner could make the claim there could be a determination that the parameters have been met and that business owner could then quickly receive a check because we have a different situation and they don’t have to go through all the documentary proof, which delays necessarily so but delays things in a traditional business interruption type environment.

Ron: So, you mentioned something there that I would love to get your view on. I recognize that it’s not a necessarily a legal question you touched there on media, and perception as far as general public perception. Legally, as we’ve discussed, it’s very hard, you got to provide documentation to actually get a BI claim so that’s one thing, but there’s also the media and the public perception of that. How do you think the insurance companies are doing as far as it comes to the optics and PR side of the issue?

Laura: Well, I think on the personal coverages, they’re doing better. Auto insurers have given a lot of money back to their insureds. I know I received a check back a few months ago without having done anything and I’m certain that probably the majority of auto-owners in the US have. I also assume always dangerous that homeowners’ claims have probably increased because people have been home a lot more. So, on the personal side, I think people are generally more positive about their insurers. I’m starting on the commercial side; it’s not going well.

Never before have I seen business interruption coverage discussed in The New York Times and The Washington Post, this is not the kind of stuff that most people would normally be reading about.

It’s clear that most of the businesses that have this coverage didn’t know too much about it. So hopefully, people have gotten informed, but not necessarily in the best way. And frankly, I think we need to have some changes, but that the change has got to be going forward and making sure that people understand this complex area of coverage that is really important. I think people are now realizing how important it is, but not necessarily understanding it better. So, we definitely have work to do in that area.

Ron: Agreed. So, we’re going to take a quick 20-second break to tell you where you can find more information and insights about insurance innovation. We’ll be right back.

[If you liked this episode of AI Wisdom, subscribe to our blog, Writing the Future: AI in Commercial Insurance at for feature articles, interviews, opinions, and more.]

We’re back with our featured guest, Laura Gregory. Let’s jump right into the next question, you mentioned that in addition to being an attorney, you’re also an elected official. What role do you think politics plays in all this?

Laura: Well, first, let me say in my local elected official role I do very, very little with insurance, other than I am always one to make sure that whenever there’s something involving the town that the appropriate insurance has been obtained, and I tend to drive our town council a little crazy on the insurance issues to make sure everything’s adequately covered. But beyond that, I don’t have a policymaking role in town with regard to insurance. And really, insurance is primarily a state-regulated rule. We’ve seen some of that with regard to some of the legislation that’s been filed in six or eight different states that would essentially create business interruption coverage regardless of what the policy language says. Today, none of those have passed and there’s also actually one at the federal level, which also has not passed. I suspect that some of those have been filed as an effort to support local businesses, which I totally understand and the local businesses are hurting and we’re doing at the local level, everything we can to support our local businesses. I certainly am personally eating out at my local restaurants, getting takeout trying to support my local retailers and those sorts of things.

I hope everyone is, but I don’t think personally as a contract lawyer, that throwing out the contract language is the way to go. I also think like we were saying a few minutes ago that officials that are running for office are not going to be too concerned with insurance companies, they’re going to be concerned with their constituents and voters who probably don’t have a high opinion of insurance companies.

So, any efforts that would support insurance companies are probably not something we’re going to see until after the elections are over. We do have several potential ways to address some of these issues at the national level that have not really gone anywhere. They were filed several months ago at this point and haven’t done anything. Mostly, they would address things going forward, which isn’t helpful either. I think it’s not helpful to the current problem and I don’t think that’s been made clear to people either.

As in most things, this is a difficult situation, and there is no easy fix. So, is there a political component? Certainly, especially when it comes to filing some of this legislation. But I think getting it passed is a whole different ball of wax. We’ll see what happens hopefully sooner rather than later on addressing some of these potential programs to create a framework for pandemic insurance because it’s now clear that we’re all living at what the impact is of something like COVID-19. And we’re also understanding that this is probably not the last time we’re going to experience a pandemic and that we need to plan for the next one, unfortunately.

Ron: From a slightly different angle, what about, for example, in Canada, we have this thing called CERB, which is a $2,000 a month stimulus that the government is providing. So, the government has stepped up maybe where insurance programs haven’t, and said, we’ll pay it out of taxpayer money, or putting aside the specifics, they’ve stepped up and said, we’re going to pay out X amount of money every month.

Laura: We have done some things like that, at the national level in the US, there have been a number of essentially extensions on unemployment and payment to people that qualified with a whole variety of stipulations for qualifications. I believe those have all now ended and in true political fashion, Congress is at a standstill on further monetary support for individuals and small businesses. So, right now, I think the US is kind of waiting for the election and we’ll see after the election, what Congress is going to do on that front if anything. Certainly, a political issue and one that I’m glad not to be directly involved in.

Ron: Understood. One thing that I see you often talking about on LinkedIn, or you’re quoted as saying on LinkedIn is the devil’s in the details. You talked a little bit about that, especially in your role as an elected official at least when it comes to the insurance policies. Can you share a little bit about what you mean by this statement and why it’s so important?

Laura: Well, ultimately, insurance coverage law, which is what I practice is a particular part of contract law. In insurance contracts, the policy is the contract. So, to me, it’s not surprising. But of course, I’ve been doing this for 30 years, that the language in that contract is very important and the insurance contract interpretation is a little bit different than standard contract interpretation in that, generally, there are exceptions. But generally, insurance contracts are what are called Contracts of Adhesion, which basically means that one of the parties to the contract, in this case, the insurance company, is the drafter of the contract. So, they have the control of the language of the contract. And the second part of a Contract of Adhesion is essentially that the non-drafting party has the option to accept the terms or not, but not to really change them.

So, because of that, insurance policies, the terms of them are read against the insurance company. So, what that means is, if anything is ambiguous, which generally means there are two different reasonable interpretations of the language, then the interpretation of that language that would benefit the insured, the policyholder is the one that is going to prevail. So, because of that, the language is very important.

I primarily represent insurance companies and I’ve had cases where we went to the appeals court here in Massachusetts on the meaning of the word “on”. So, it can be very much down to the minutiae, there are cases that deal with punctuation and how that meant. I was recently reading a non-insurance decision that had to do with the Oxford comma and what did the Oxford comma mean, or its lack of being a comma there meant in a case that resulted in millions of dollars being paid out to employees in Maine. So, those are the details that I’m talking about, what language is used? Why is it used? How does it fit within the context of the particular phrase at issue and within the policy as a whole? All of those details are important. The policy language matters.

Ron: That’s a great example I would have never and It’s funny, the Oxford comma being from Canada, as you know, we have the British spelling and so we typically follow the British like the Oxford comma and all of that and it’s just interesting that even something so minute in some sense can be worth millions of dollars. As we wrap up, I would love for you to share a piece of wisdom and it doesn’t have to be legal wisdom, just any wisdom that comes to you top of mind that you want to share with your peers in the industry.

Laura: I would just say right now, particularly with regard to business interruption insurance, but I think in regard to a lot of different kinds of insurance right now, that anyone in the insurance industry needs to keep up with what’s happening in the courts on these coverages.

Business interruption is very hot right now. We’re going to have more law made on business interruption in 2020 and 2021 than probably the sum of all law before that. It is generally not something you see in court much and now I’m seeing decisions every day. I posted on LinkedIn today about three new decisions in the last week. So, keep up with what’s happening and know your area.

The business interruption is such a good example because we’re seeing decisions that come out today that in the decision that the court is writing, they’re discussing a decision that came out the week before or maybe two weeks before. So, the lawyers involved in these cases have to keep up with what’s going on and potentially file additional briefs after their oral arguments if there’s new case law coming down all the time. It’s a very interesting time to be doing this. Of course, most people don’t find this interesting. But for those of us who do (laugh). And then I would just add that I’m hopefully keeping up with most of these on LinkedIn. So, if you follow me on LinkedIn, that should give you a good handle on what’s happening on the business insurance, on the business interruption coverage cases, as well as, I post on a variety of coverage issues across the country, new case law.

I have a series called Insurance 101 where I’m trying to hit basic topics and explain them for people who either aren’t familiar with insurance in general or do one type of insurance but are less familiar with another type of insurance. And post daily on insurance and legal matters, would love to have people follow me it’s Laura M Gregory CPCU on LinkedIn. My hashtag on LinkedIn is #LauraHasItCovered.

Ron: That’s amazing. I love that you have your own hashtag, Laura. And if people want to find Sloane and Walsh?

Laura: Website is Sloane S-L-O-A-N-E, you have to get the E on there that’s the one that screws everyone up. And Walsh. It’s spelled out and so And you can look up my information on there and Laura Gregory. I look forward to hearing from anyone who made it to the end of the podcast.

Ron: Awesome. Thank you so much for your time and as always everyone stays safe.

Laura: Thank you.

Ron: That’s a wrap for this episode of “AI Wisdom” hosted by Chisel AI and me, Ron Glozman. Thanks for listening.

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