Financial R&R: Insurance Company Trends - Litigation Response to COVID-19 Insurance Claims
By Alliant Specialty
COVID-19 insurance claims are starting to make their way through the court systems, and there is a heightened focus on how settlements and judgments in these cases will impact the insurance industry. Ron Borys, Steve Shappell and Blake Cramsie, Alliant, discuss the current insurance company market environment, litigation response to COVID-19 claims, and how insurance companies can best prepare for upcoming renewals in light of changes in underwriter risk appetite and product offerings.
Welcome to Financial R&R a show dedicated to financial insurance and risk management solutions and trends shaping the market. Today. Here are your hosts, Ron Borys and Ryan Farnsworth.
Ron Borys (00:14):
Well welcome. My name is Ron Borys and I'm the financial institution's practice leader at Alliant. I am thrilled to have, two guests with me today, part of our regular podcast series. First Blake Cramsie leads our insurance company practice and is our subject matter expert on everything around insurance companies, policies, etcetera, and Steve Chappelle, a lawyer in our group who leads specialty claims and just a phenomenal legal mind relative to exposure claims or covers and all sorts of things going on in our business. So, lots to talk about in the area of insurance companies, Blake, I know we wanted to cover sort of a few themes here, notably COVID and how COVID is impacting the world of insurance companies and how they operate. Certainly, the civil unrest claims and experience we've seen over the course of the last, I guess call it now 18 to 24 months. And then obviously as we know, insurance is a state-regulated product, so, lots of changes going on at the various state levels. So, why don't you kick us off and sort of start talking about some of the things that our insurance company, clients and folks who aren't working with us today should, should need to know.
Blake Cramsie (01:23):
Thanks for having me on the call today, guys. Yeah, there's a lot going on specifically with respect to COVID certainly civil unrest, a few states in particular to watch out for some of which are new. We'll start, I guess, with COVID, what we're seeing as you can imagine a vast upswing in bad faith-related claims, business interruption-related claims, employment practices liability-related claims, and really all things that kind of fall around the employer, employee fiduciary responsibility, all around. What started first, if we kind of back up about 12 months ago was really just a lot of uncertainty with respect to COVID panic in the marketplace, both from an insurer and an ensuring company point of view from the insured company point of view, what we started to see almost immediately was what we thought was an overreaction.
Carriers started to see an inundation of notices with respect to business interruption, all things really related to the employee. You fast forward now about 12 months, and here we are, and we're starting to see employment practices liability claims, bad faith claims, and even starting to see some fiduciary claims. It's just been really interesting to watch. We're monitoring things very closely, but we are starting to see some pretty unique actions being taken by the insurance carriers. Steve, do you have anything you want to add on that point?
Steve Shappell (02:53):
Yeah, I mean, we obviously follow this really closely and try to keep our finger on the pulse of what is getting insurance companies in litigation and then kind of the frequency and severity of it. And it's been interesting to watch. I mean, there isn't a substantial uptick, right? To call it an uptick is probably doing an injustice to it. I mean the number of federal and that's the easiest for me to track. So, I kind of compare it, if I compare it pre-pandemic to post-pandemic, you know, 30, 40, actions a day in federal court involving insurance companies just today. For example, today there were 113, Friday there were 84, 77 the day before that. So tremendous amount of litigation is being filed involving insurance coverage disputes.
And a lot of this is to your point like being driven by COVID-19 issues. So, we're seeing, when I looked at my alerts today, I think I counted five decisions from courts on coverage litigation involving business interruption on COVID. And it's probably a pretty consistent theme, 5, 6, or 7 rulings a day. And they're interesting. And they're kind of all over the place to your point about different jurisdictions kind of being a kind of hotbed for litigation. And it evolving, I was one looking at the Illinois multidistrict litigation case, for example, right. Involving 40 different claims rolled into one multidistrict litigation ruling where the court did not dismiss the case. And while most courts are dismissing, when I say most it's an interesting split where courts are finding as London did right in the UK, the court took this issue up and they ruled that there is coverage for these business interruptions. And we're seeing more and more courts here in the US, reach similar results or at least preliminary and letting these things go to trial. So, a lot of litigation on COVID and on the business interruption alone, and then we see a great deal of event cancellation friction. These are challenging facts and challenging times. So, long-winded way of saying a lot of litigation going on related to this COVID, involving an insurance company.
Ron Borys (05:23):
I think one of the things that sometimes people forget is how broad of an industry insurance really is. I mean, you have all different aspects of insurance whether it's life insurance, whether it's property and casualty insurance. So, are there any themes, is there any segment of insurance that's being impacted harder than the other, or does it seem to be sort of pretty random with regards to how these things are occurring?
Steve Shappell (05:52):
Well, I'll hit that first, then I'll pass it to Blake. So there's no great theme. And to Blake's point earlier, right? We're seeing more and more areas of insurance be implicated. I was reading a piece today about California regulators getting more aggressive about insurance companies, overcharging their clients during this COVID period. And that was, and that's a theme. We saw a lot of insurance commissioners around the country raise their hand and say, we're going to really carefully watch this because insurance companies are not adequately analyzing this issue. And while some are voluntarily giving back some premium, others are not. And so, it's just another layer of regulation and enforcement that we're going to see against carriers.
Blake Cramsie (06:41):
Yeah, no, I mean, I think that is the theme, right? I mean there's a huge focus on this. If you look at just the sheer level of inquiry that we've had to respond to as insurance brokers on various policies, it's virtually every single insurer that we represent more perspective insured that we speak to is asking what potential coverage could be for all things related to COVID. So, that theme in of itself, it's causing a lot of people, a lot of anxiety, frankly, it's causing the insurance carriers who are insuring these folks, a lot of anxiety as well, because there is in their view, I think pretty strict language that stipulates that by and large, most things pandemic related or communicable disease related are not covered and are not intended to be covered, but there's a lot of obvious out there, obviously who think otherwise.
And there's, there's a lot of folks who'd like to have that coverage. So, as an expert in someone who places insurance company professional liability coverage on behalf of our insurance company, and clients, it is a real concern. And one of the themes that we've seen this year, which is extremely concerning is the fact that the carriers are looking to ring-fence those liabilities and put those liabilities that are still ongoing underneath one policy period. So, in many instances we've seen this on a couple of event, cancellation type insurers or folks that are providing travel insurance or event insurance, where they've received hundreds and some in cases, thousands of claims and a subsequent set of bad faith claim where their insurance companies that are writing E&O coverage for them, which is protecting against the extra-contractual professional liability, the punitive damages they're running away from the risk, if not putting on exclusions that limit the exposure on a go-forward basis. So that's a big theme, Ron.
Ron Borys (08:44):
So, Blake, if I'm an insurance company risk manager and obviously we know the impact that COVID and sort of the civil unrests and the CAT storms have had on the broader industry over the last year or so, what should I expect, right? Realizing that insurance is such a broad universe, how can I best differentiate myself so that I'm not necessarily being grouped in with sort of other areas of the business that quite frankly have very different challenges than I do.
Blake Cramsie (09:17):
Yeah. That's a great question, Ron. There’s a lot there and I'll add some things and maybe Steve, you want to jump in here, but I think you should expect a lot of questions this year for your renewal depending on the segment that you may operate in and the jurisdiction you may operate in and where you're located. There's going to be a lot of concern, particularly if you're in, you know, say Portland or San Francisco or Denver, areas that have more liberal governments, there's been a tremendous amount of civil commotion, which has caused a substantial amount of damages to properties. And it continues to go on an that's just one facet of this whole thing, what we can expect. And I think for the foreseeable future is expect your insurance underwriters to really dig in and ask a lot of questions.
Also expect that they don't know everything, and that they need help and that they need guide. So, in this day and age, I think you get extra credit for giving more information and giving less information. And not everybody likes to do that, but I think it bodes well in your favor as an insured, if you're going the extra step, providing the extra information and trying to show how you're different, there is an element of portfolio underwriting at every carrier. Some carriers mask that a little bit better than others, but that is a real theme. And in order for insurance carriers to write business profitably it's got to work on a portfolio basis and an individual basis. And the fear that I have is that our insureds are getting lumped into the wrong bucket and therefore experiencing overly punitive renewal terms. So, I think it's very important that you have a subject matter expert, whoever that is, that really knows the nuances of the insurance companies and can articulate that really well on the marketplace, on your behalf.
Ron Borys (11:11):
Like we know who that subject matter expert is, that subject matter expert is you. But seriously, I mean what's the best way to answer those questions, right? I mean, we hear often a lot of clients that we're meeting with that, yeah, no, we haven't marketed our deal in a couple years, or we haven't met with our insurance carriers or our underwriters in a while. What’s the best, what's going to yield the best outcome. What's the best approach.
Blake Cramsie (11:35):
Yeah. I mean, none of those things are going to yield a good outcome. I mean, the right answer is you got to start early and often, if you're not out six months in advance on your renewal four months at the absolute latest, then you're doing something wrong. If anybody tells you that they can get it done a little bit faster, then I'd probably shop around a bit. The reality of it is things are taking a lot longer to get done in today's insurance market for a variety of reasons, and COVID is contributing to that. The market has hardened and continues to harden and that's forcing the broker's community to put things to market at a faster, more aggressive pace, so as a former underwriter, you think about, well, I've got 25 deals on my desk.
I can only get to five how are you going to get your deal to the top of that underwriter's pile and make sure that that person gives it their full attention and make sure that they've got proper buy in for management. So, you've got to leverage everything starting with a sound submission is just one thing. But for folks who are not doing underwriting meetings, I firmly advise against continuing that practice, start having underwriting meetings with your underwriters, get to know these folks on a personal basis. It does matter develop the real relationships and pick your advocate. But I think that those are definitely some of the strengths here that we bring to the table, for sure. And there's others out there as well. Steve, if you have anything else you want to add to that?
Steve Shappell (13:06):
The only thing I would add Blake would be that I agree with the notion of underwriting meetings to drill down on some of these unique circumstances that we're seeing in this claims environment, right, where insurance companies are almost by definition in place to handle these unique, catastrophic, one-off events. This pandemic has really highlighted some of the risk and the need to differentiate in kind of a global insurance climate and insureds being hit with unique claims, but they're being brought across the country, across the world. You had hit on the, the civil unrest claims, right? Those are interesting. And for those clients with some of those exposures, and there's a lot of this exposure around the country, right. Having a detailed conversation at the time of underwriting is really going to be beneficial to address and distinguish the exposures that, you know, what particular insurer might have.
Ron Borys (14:11):
Yeah. I think to hit on your point earlier, Blake, I mean reaching out early enough, and if you think you have a claim that you need to deal with, or you anticipate a challenging renewal. I think just getting out in front of this stuff, talking throughout the year, right. We all know the renewal process is not just a month or two or three months before actual renewal date. It's a collaborative process, it's a collaborative partnership that really sort of benefits from off cycle meetings. And I think at Alliant when we’re working with our clients it's really pushing that more rewarding way to manage risk and not just sort of treating it like a transaction. So, you two have offered some great perspective here.
I think the folks that are listening in today are going to really find a lot of real benefit here and for whatever reason you're out there, and there's some things that you're struggling with either on the brokerage side or the claims side, Blake Cramsie and Steve Chappelle, are absolutely two of the best when it comes to helping manage this. So, with that we'll wrap up today's podcast. Thank you all for tuning in, if there's any questions or you want additional information on our firm, please visit www.alliant.com. Otherwise, we'll talk to you again real soon. Thanks so much.
Alliant note and disclaimer: This document is designed to provide general information and guidance. Please note that prior to implementation your legal counsel should review all details or policy information. Alliant Insurance Services does not provide legal advice or legal opinions. If a legal opinion is needed, please seek the services of your own legal advisor or ask Alliant Insurance Services for a referral. This document is provided on an “as is” basis without any warranty of any kind. Alliant Insurance Services disclaims any liability for any loss or damage from reliance on this document.
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