Department of Labor Issues Updated FFCRA Regulations in Light of Recent Federal Court Decision

On September 11, 2020, the U.S. Department of Labor (“DOL”) released a temporary rule updating certain FFCRA regulations.  The temporary rule is scheduled to be published on September 16, 2020 and will be effective immediately through the expiration of the FFCRA’s paid leave provisions on December 31, 2020. 

The temporary rule updates FFCRA regulations issued in April 2020 in response to a recent federal District Court decision which found four portions of the initial regulations invalid:  provisions related to whether the FFCRA applies if employers do not have work available for employees; the timing for which employees must request the need for leave; the definition of health care provider; and the availability of intermittent leave. 

While many anticipated that the DOL would appeal the decision, the DOL elected to reaffirm and clarify its position on some of these issues, while choosing to revise or update others. Thus, while the court’s order was limited to companies operating in New York (or potentially only those in the Southern District of New York), the DOL’s revisions to the regulations apply to all employers subject to the FFCRA (inside and outside New York). 

The District Court’s order and the updated regulations are discussed in more detail below.

New York Federal District Court Decision

Soon after the FFCRA regulations were implemented, the State of New York sued the DOL in the United Stated District Court for the Southern District of New York claiming the DOL exceeded its authority when it implemented several provisions of the FFCRA regulations. The District Court agreed in part and, in August, the court issued an order invalidating several portions of the FFCRA regulations.

  • Work Availability Requirement – The original regulations limited the availability of emergency paid sick leave and expanded FMLA leave to certain situations where the employer’s business is open or the employer has work for the employee, but employee is unable to work due to a COVID-19 qualifying reason.  The court vacated this requirement, making the FFCRA available even if the employer does not have work for the employee, such as situations where the employee is furloughed, or the business is closed.
  • Documentation – The FFCRA statute requires employees to notify an employer of the need for leave “after the first workday” during which an employee requires paid sick time; however, the initial FFCRA regulations required documentation to be provided to the employer before any sick time is taken. The court determined this was beyond the scope of the statute and vacated this requirement. The content of the documentation and the need for documentation was not eliminated, just the timing of when it must be provided.
  • Definition of Health Care Provider – The initial FFCRA regulations used an expansive definition of health care provider, which included individuals who work in support of health care operations, such as cleaning staff, food service professionals and cooks, maintenance workers, IT staff, or other administrative support staff who support health care operations.   The district court vacated the definition of health care provider, finding it overbroad.
  • Intermittent Leave – The initial regulations allowed employees to take intermittent leave in certain situations with employer approval/agreement.  The court found this inconsistent with the statute and rejected this aspect of the regulation as an impermissible limitation on the availability of intermittent leave. 

Updated Regulations

In the updated regulations, DOL reaffirms its regulations related to the work availability and intermittent leave requirements but provided further clarification or explanation of its regulations.  The DOL revised regulations related to the definition of “health care provider” and notice requirements.  The rationale and changes are discussed more fully below:

Work Availability

Specifically, for purposes of the work availability requirement, the DOL affirms that neither emergency paid sick leave nor expanded FMLA under the FFCRA may be taken unless the employer has work available for the employee (the “work availability” requirement).  The FFCRA statute provides that leave under the FFCRA is available if an employee is unable to work (or telework) “because of” or “due to” a qualifying reason under the FFCRA.  The DOL cites to U.S. Supreme Court authority that interprets “because of” or “due to” language to create a “but for” test or analysis. Thus, FFCRA leave must be the “but for” cause of the employee’s inability to work.  Furthermore, the DOL reasons that the plain meaning of the word “leave” in this context, and based on longstanding DOL interpretation, means that someone has to be absent from work at a time the employee would otherwise be working. Thus, the DOL stands by its original regulation and provides that an employee cannot take FFCRA leave if there was no work available from the employer for the employee to perform. 

Finally, the DOL explains that this requirement was intended to apply for all qualifying reasons under the FFCRA, not just those that were initially listed in the original regulations.

Intermittent Leave

The FFCRA is silent about the availability of intermittent leave, but as the DOL notes in the preamble to the updated regulations, the DOL was given broad authority to develop rules under the law.  Thus, consistent with FMLA regulations, the DOL interpreted the availability of intermittent expanded FMLA leave for employees working onsite similar to how it applies for purposes of FMLA, which may also require employer approval.  For emergency paid sick leave, however, there is opportunity for spreading COVID-19 in the workplace.  Thus, it would be contrary to the purpose of the FFCRA to allow someone to take emergency paid sick leave intermittently (unless caring for a child whose regular day care provider is unavailable due to COVID-19). Therefore, for employees working on-site, the DOL reaffirms its decision to only allow intermittent leave for expanded FMLA leave purposes.  The DOL confirmed, however, as originally provided, that intermittent leave may be available for any FFCRA qualified reason if an employee is teleworking, as there is no risk the employee would spread COVID-19 at a worksite.  In any intermittent leave context, however, permission from the employer is still required.

Health Care Provider Definition

In an effort to ensure the public health system could maintain its necessary function during COVID-19 pandemic, the FFCRA allowed employers to exclude employees who are “health care providers” or “emergency responders” from eligibility for expanded FMLA leave and emergency paid sick leave.

The DOL took an expansive approach in defining “health care provider” in its initial FFCRA regulations to ensure health care operations would not be hampered, such as ensuring maintenance to health care facilities, trash collection, food services for hospital workers, and other similar services.  The District Court found this approach to be overly broad and, therefore, per the District Court’s order, the DOL opted to revise its definition of health care provider.  In the updated regulations, health care providers include employees who are health care providers under existing FMLA regulations and “any other employee who is capable of providing health care services such as diagnostic services, preventive services, treatment services, and other services that are integrated with and necessary to the provision of patient care and, if not provided would adversely impact patient care.”

This could include a variety of health care practitioners other than doctors, including nurses, nurse assistants, medical technicians, and laboratory technicians.  The preamble and rule provide numerous examples of what would constitute diagnostic, preventive or treatment services, and services integrated with these that are necessary for patient care, such as bathing, dressing, or feeding patients, among several others.  Food service professionals, IT professionals, building maintenance workers, HR professionals, or other individuals who do not provide health care services even though their work impacts health care services are no longer included in the definition of health care providers.

Employees falling within the new definition of health care provider can work in a variety of settings including, but not limited to, hospitals, clinics, doctor’s offices, medical schools, local health departments, nursing or retirement facilities, nursing homes, home health providers, laboratories, or pharmacies.

Notice of the Need for Leave

In the updated regulations, the DOL clarifies that notice of the need for emergency paid sick leave must be provided as soon as practicable (instead of before emergency sick leave is taken), which is consistent with the position the plaintiffs took when they challenged the original regulations.

Additionally, the DOL revised the regulations regarding notice of expanded FMLA leave.  For a foreseeable need to expand FMLA leave, the employee must provide notice as soon as is practicable, which may mean the employee may have to provide advance notice of the need for leave if the facts and circumstances support prior notice.  Prior notice is not required for unforeseeable need for expanded FMLA leave.  Finally, the employer may require an employee to substantiate the need for leave as soon as practicable, which may be at the same time notice is provided.

The DOL also updated its FFCRA FAQ’s consistent with the updated regulations.


As mentioned previously, the DOL’s updated regulations impact all employers subject to the FFCRA, not just those with employees in New York. Thus, all impacted employers should familiarize themselves with the updated regulations and administer them accordingly moving forward. 

To the extent an employer has employees impacted by the revised regulations, such as individuals previously included in the DOL’s broad definition of health care provider or employees who were denied emergency paid sick leave for failing to provide advance notice, they should consult directly with counsel to discuss how to address those specific

Some Policies Should Have Paid Out for COVID BI Claims, UK Court Rules

The impact that COVID-19 has had on businesses all around the world has been, simply stated, devastating. Property insurers have, thus far, nearly universally declined business interruption claims caused by the possible contamination from the virus to one’s property or the fact that governments (civil authorities) in many jurisdictions required many businesses to close for a period of time. In some cases the insurers have also sighted the existence of what is a common exclusion for damage caused by ‘virus or bacteria’ perils. Here at Morris & Reynolds we have encouraged our client’s to file claims with their insurers so as to determine their insurer’s exact position. We also continue to follow a variety of COVID-19 business interruption court cases all over the world as businesses test coverage declinations from their insurers through their local courts.

With these mounting court decisions in mind the recent ruling in what is being called a ‘test case’ from a London High Court this week is very interesting. In a case brought by the UK Financial Conduct Authority (FCA), a regulatory body that oversees nearly 60,000 financial services firms and  markets including 1,500 banks, credit unions, insurers and investment firms, the High Court reviewed nearly two dozen insurance policies from eight insurers written in the UK. And while the FCA acknowledged that most policies written in their country exclude losses from a pandemic bit focused on areas of ambiguity within the legal wording of the various policies and rightfully take the position that policy-holders deserve clarity in how those contracts are written. In a decision that could help businesses around the world the justices ruled that while such losses were not covered in some contracts many of the policies should have paid for COVID-19 claims.   

Christopher Cross, the CEO of the London & International Insurance Broker’s Association, commented about the 162 page ruling by stating the following:

“Clients deserve clarity, and the fact that this case had to take place at all is a rebuke to our industry and the often obscure language we use. Customers deserve to understand exactly what it is they are getting in language they recognize. The swift action taken by the FCA to bring clarity after the fact is to be commended. Many other countries are looking on with interest as their BI cases grind slowly through their legal systems.”

We could not agree more with Mr. Cross’ comments and while it’s possible that this ruling will be appealed it is most certainly worth following its ongoing evolution not only for businesses in the UK but around the world including here in the United States. You can read a Breaking News article on this ruling from Advisen below and within same find a copy of the actual ruling itself from the London High Court.  Here at Morris & Reynolds we will continue to follow this and other such cases closely. Our professional agents and underwriters are happy to answer any questions that you might have on this topic, help you file a claim for your business or assist in any manner that you might need. 305.238.1000.  

Some policies should have paid out for COVID BI claims, UK court rules

By Erin Ayers, Advisen

Policyholders in the United Kingdom claimed a win after a London High Court ruled that some insurers should not have denied thousands of claims for business interruption losses caused by the COVID-19 pandemic.

In a test case brought by the UK Financial Conduct Authority (FCA), the High Court of Justice evaluated 21 different policy wordings used by eight insurers. While not all language was deemed to provide coverage for non-damage business interruption losses, many of the policies examined should have paid out, according to the justices.

Arch, Argenta, Ecclesiastical, Hiscox, MS Amlin, QBE, Royal & Sun Alliance, and Zurich agreed to be part of the FCA’s test case and to be bound by the results, although the ruling could be appealed. Some policies, including those by Zurich and Ecclesiastical, held up to the court’s scrutiny.

The FCA had estimated that about 370,000 policyholders could be affected. The financial regulator agreed that most policies in the UK insurance market expressly do not cover pandemics but identified some areas of ambiguity. The policy provisions at issue largely address non-damage business interruption clauses that in some cases specifically covered diseases and in others covered prevention of access to the insured premises.

“We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market,” said Christopher Woolard, FCA interim chief executive. “We are pleased that the Court has substantially found in favor of the arguments we presented on the majority of the key issues. Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders.”

He added, “Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.  They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.”

Woolard said that if any insurers appeal the ruling, it should be done as quickly as possible, bearing in mind that “thousands of small firms and potentially hundreds of thousands of jobs are relying on this.”

The Association of British Insurers (ABI) said insurers had supported the court process initiated by the FCA and commented that the judgment “divides evenly between insurers and policyholders on the main issues.”

“The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts,” said Huw Evans, ABI director general in a statement. “Insurers always regret any contract dispute with their customers and will continue to reflect on feedback from recent events.”

He added, “This is a complex judgment spanning 162 pages and 19 policy wordings and it will take a little time for those involved in the court case to understand what it means and consider any appeals. Individual insurers will be analyzing the judgment, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead.”

Christopher Croft, CEO of the London and International Insurance Brokers Association (LLIBA), commented on social media, “Clients deserve clarity, and the fact that this case had to take place at all is a rebuke to our industry and the often obscure language we use. Customers deserve to understand exactly what it is they are getting in language they recognize. The swift action taken by the FCA to bring clarity after the fact is to be commended. Many other countries are looking on with interest as their BI cases grind slowly through their legal systems.”

Sonia Campbell, partner with Mishcon de Reya, which represents many businesses with BI claim disputes, called the ruling “a real lifeline” for some smaller businesses in an interview with Sky News. “This rips up all previous denials of cover,” she added.

Hiscox, which in August increased its COVID-related loss estimates, said it is assessing the ruling and believes the financial results will be less than expected.

“As a result of the Judgment, the Group estimates additional COVID-19 claims arising from business interruption to be less than £100 million net of reinsurance. This encompasses claims from all divisions including Hiscox Re and is a reduction of £150 million from the upper end of the Group’s previously published risk scenario,” the specialty insurer said in a statement.

Zurich Group praised the ruling for affirming that its policy wordings do not provide cover for pandemic-related BI claims.

Zurich’s CEO Mario Greco said, “While we welcome the judgment of the High Court in respect of Zurich’s wordings, we recognize that COVID-19 has caused immense suffering for our customers, their families and their businesses. We will continue to do all we can to support our customers and our communities at this time.”

AM Best reported that the decision will likely have a “material impact” on UK commercial property insurers’ earnings for 2020, but overall solvency should not be threatened. Some clarity has been achieved, but “questions remain” on the number and severity of now-valid claims, the rating agency said in an analysis. Insurers’ ability to recover from their reinsurers also remains to be seen, Best said.

COVID-19 Insurance Coverage Litigation

The impact of COVID-19 to businesses all over America continues to present unprecedented, and in many cases catastrophic, challenges. A growing number of businesses have filed business interruption claims with their property insurers in hopes of finding coverage for government mandates that have forced them to temporarily close or retract their hours of operation and in other cases for the possible damage the virus has caused to their property. As we have shared in prior posts, the insurance industry has largely thus far been relying on the fact that most such policies contain common exclusions for a variety of losses such as war, nuclear disasters and, yes, virus and bacteria claims. In other cases the insurer’s responses have been to believe that the virus has not caused ‘direct physical damage’, a requirement that most income policies have to consider coverage. As noted, claims continue to be filed as due lawsuits and with the importance of this topic to so many we are pleased to provide another in a series of updates.

Thanks to our friends at Advisen and the folks at the law firm Gfeller Laurie, LLP, we are pleased to present the following September 9th update article on the status of some of the COVID-19 business income claims and litigation entitled COVID-19 Insurance Coverage Litigation:

Since our July 29, 2020 Update, three of the business interruption actions filed near the beginning of the pandemic progressed through decisions on motions to dismiss or for summary judgment. Two of those have been wins for the insurer and one (temporarily) for the insured.

There has been a decision from the Judicial Panel on Multidistrict Litigation denying the motion to centralize all COVID-19 business interruption cases, but leaving open the question of MDL’s against single insurers.

There have also been many new complaints filed seeking coverage for business interruption losses. None of the complaints have presented substantially new theories for recovery. However, there is a recurring strain of allegations that the insurers have not conducted sufficient investigations prior to denying coverage. Others seek to demonstrate that virus exclusions do not extend to a pandemic. The validity of that distinction is highly questionable.

One very unusual complaint filed in state court in New York seeks to combine business interruption claims by fifty bars and restaurants against twenty-seven insurers into a single action.

Finally, looking ahead to the non-coverage litigation likely to follow attempts to reopen, we present an analysis of the effects of pre-injury exculpatory waivers executed by individuals and provided to various organizations.

Case Activity of Special Interest

Rose’s I, LLC v. Erie Ins. Exchange, Civil Case No. 2020 CA 002424 B (D.C. Super. Ct, decided Aug. 6, 2020.)  The court granted summary judgment in favor of the insurer, holding no coverage existed for business interruption caused by governmental orders (“orders”) for a number of prominent D.C. restaurants that purchased an “Ultrapack Plus Commercial Property Coverage” policy. The court framed the issue by writing that “at the most basic level, the parties dispute whether the closure of the restaurants due to Mayor Bowser’s orders constituted a ‘direct physical loss’ under the policy.” The court ruled for the insurer on three grounds. First, standing alone and absent intervening actions, the orders did not cause any direct changes to the properties. Second, plaintiffs presented no evidence that COVID-19 actually was present at their premises and the “orders did not have any effect on the material or tangible structure of the insured properties.” Third, even if the term “loss” were construed to include “loss of use,” coverage would require “direct physical intrusion” onto the properties. This was an issue of first impression in the jurisdiction. The court analogized to an earlier decision from the District of Columbia Court of Appeals which found no coverage when a restaurant was forced to close due to a curfew imposed because of riots following the assassination of Dr. Martin Luther King, Jr. Bros., Inc. v. Liberty Mutual Fire Ins. Co., 268 A.2d 611 (D.C. 1970).

Diesel Barbershop, LLC, et al. v. State Farm Lloyds, Case No. 5:20-cv-00461-DAE (U.S.D.C. W.D. TX, decided Aug. 13, 2020). The court granted a motion to dismiss the complaint of a group of Barbershops seeking business interruption coverage under a Businessowners Policy. Several local and state orders had been issued. The policy required an “accidental direct physical loss.” The court acknowledged that some courts have found coverage even without tangible destruction to covered property, and some have found coverage for losses associated with ammonia, E. coli, and carbon monoxide. It nonetheless found the cases requiring tangible injury to be more applicable and persuasive, noting that the Fifth Circuit requires a “distinct, demonstrable physical alteration of the property.” Hartford Ins. Co. of Midwest v. Mississippi Valley Gas Co., 181 F. App’x 465, 470 (5th Cir. 2006).

The policy also contained a Virus Exclusion embedded within an Anti-Concurrent Causation Clause. Even though arguments were made about the meaning and application of the Anti-Concurrent Causation language, the court found the clause to be unambiguous and enforceable. It held that the presence of COVID-19 in the county was the primary root cause of the business closure. And finally, the court found that on these facts, the policy’s Civil Authority provision was not triggered.

Studio 417, Inc. v. The Cincinnati Ins. Co., Case No. 20-cv-03127-SRB (U.S.D.C., W.D. MO, decided Aug. 12, 2020) is the first ruling in the U.S. allowing an action by insureds to proceed. It concerns a claim by hair salons and restaurants for business interruption coverage under five policy provisions of all-risk property policies. It bears emphasis that this case is not a ruling on the merits, but merely the denial of a motion to dismiss. The court placed much emphasis on the plaintiffs’ express allegations that their properties had, in fact, been physically contaminated by the COVID-19 virus.

The court began by stressing that the policies expressly covered “physical loss or physical damage.” (Emphasis by the court.)  It held that the two terms must mean different things. Neither is defined in the policy. The court thus examined the dictionary meanings of “direct,” “physical” and “loss,” and determined that they supported a conclusion that plaintiffs adequately alleged coverage. The key allegations were that COVID-19 “is a physical substance” that “live[s] on” and is “active on inert physical surfaces,” is “emitted into the air,” and that it attached to and deprived plaintiffs of their property. Again, plaintiffs expressly alleged physical contamination of their premises. Thus, the court found sufficient allegations of “physical loss” to permit the case to proceed to discovery.

The court also declined to dismiss the claim for Civil Authority coverage. It explained that it was doing so “for substantially the same reasons as discussed above.” It also found that even though the restaurants could remain open for take-out services, and the order did not prohibit access to the hair salon, only operations, plaintiffs adequately alleged that access to plaintiffs’ property was prohibited. The court found the policies require that civil authorities prohibit “access” but not “all access” or “any access.” In the court’s view, access was prohibited to such a degree as to trigger coverage. The court went on to permit the claims to continue under Ingress and Egress Coverage and Dependent Property Coverage (again, in each instance, “substantially for the same reasons discussed above.”)  Finally, the court found that plaintiffs had adequately stated a claim for a covered loss under the Sue and Labor provisions. It rejected the insurer’s argument that this provision is not an additional coverage, but rather the imposition of a duty on the insured to prevent further damage and record expenses.

The court concluded by reiterating its ruling was merely that plaintiffs have pled enough facts to proceed with discovery and that the insurer could reassert its arguments at the summary judgment stage.

Judicial Panel on Multidistrict Litigation Decision

We previously reported on the pending efforts to consolidate into multidistrict litigation a broad swath of cases involving claims for business interruption coverage. As noted above, the Judicial Panel on Multidistrict Litigation (“JPML”) recently (August 12, 2020) denied motions to centralize all COVID-19 business interruption cases before it but left open the question of MDL’s against four single insurers. The ruling addressed motions by two groups of policyholder plaintiffs, one of which sought to centralize the nation’s federal business interruption cases in the Northern District of Illinois in Chicago and the other in the Eastern District of Pennsylvania in Philadelphia.

Noting the fact that the cases involve more than 100 insurers and a wide variety of different policy forms, the JPML concluded that an “industry-wide MDL in this instance will not promote a quick resolution of these matters” because the request involves “very few common questions of fact, which are outweighed by the substantial convenience and efficiency challenges posed by managing a litigation involving the entire insurance industry.” More specifically, the panel explained that each case targets only a single insurer or insurance group and the cases involve “different insurance policies with different coverages, conditions, exclusions, and policy language, purchased by different businesses in different industries located in different states.”

However, the JPML expressed that it may still be appropriate to create a smaller body of “single-insurer” MDLs to centralize actions as to specific insurers facing a high volume of cases, including The Hartford, Cincinnati Insurance Company, various underwriters at Lloyd’s of London and Society Insurance Co. These single-insurer MDLs could be viable, it said, because cases against a single insurer are “more likely to involve insurance policies utilizing the same language, endorsements, and exclusions” and could, therefore, share common discovery and pretrial motion proceedings.

Newly Filed Complaint of Note

Abruzzo Docg Inc., et al. v. Acceptance Indemnity Insurance Co., et al., No. 514089/2020 (N.Y. Sup., Kings Co., filed Aug. 4, 2020) is a highly unusual complaint brought in State Court in Brooklyn. Approximately fifty bars and restaurants sued twenty-seven insurance companies, purporting to share the common legal threshold question of “whether the insurers must provide coverage for direct physical loss or damage caused by the ‘unprecedented executive orders’” limiting their operations. The 138-page, ornate complaint includes color photos of the restaurants and diagrams showing how their floor plans have changed. The bars and restaurants are described glowingly, as if in a travel guide. The complaint is here.

There are thirty-seven Causes of Action. Two are by all plaintiffs against all defendants, the first is for Declaratory Judgment and the second is for Unjust Enrichment. The other thirty-five are for Breach of Contract by individual plaintiffs against their respective insurers. Needless to say, the attempt to join dozens of insurers whose policies contain materially differing terms and conditions, and whose claim scenarios are unique, raises formidable questions about the propriety of the complaint. Many procedural challenges will be brought.

Pre-Injury Exculpatory Agreements and COVID-19

As states throughout the country begin permitting businesses to reopen during the COVID-19 pandemic, Congress and certain state legislatures are considering legislation to provide new liability protections for businesses. However, while legislatures debate the merits of expanded liability protections, businesses that have reopened or are considering reopening face the dilemma of whether they should ask patrons or other parties with whom they interact to execute pre-injury exculpatory agreements (“exculpatory agreements”) to protect against future claims of exposure to COVID-19; and if so, whether to include such language in an existing exculpatory agreement or in a separate document.

Exculpatory agreements are employed by certain businesses, often those providing recreational services, to minimize or eliminate liability for personal injury occurring while a patron is engaged in an activity that includes certain inherent risks or dangers. The law relating to exculpatory agreements and their enforceability varies greatly from state-to-state. Certain jurisdictions hold exculpatory agreements void as a matter of public policy while others require that exculpatory agreements contain specific language or relate to a specific inherently risky or dangerous activity (e.g., skiing, horseback riding or sky diving).

Businesses located in jurisdictions that generally enforce exculpatory agreements may be tempted to insert waiver language related to COVID-19 into an existing document. However, the concern with this approach is that it could dilute the overall effectiveness of the existing exculpatory agreement and create unfavorable law.

Generally, courts in jurisdictions that enforce exculpatory agreements reach their conclusions by looking to statutes, regulations and/or the common law to determine whether the exculpatory agreement is enforceable or void as against public policy. As a result of the scrutiny courts employ when determining the enforceability of an exculpatory agreement, many exculpatory agreements are narrowly tailored to encompass risks inherent to a particular activity. Courts confronted with an exculpatory agreement containing a waiver for potential exposure to COVID-19 could rule that the risk of COVID-19 is not inherent in a particular activity and, therefore, strike the entire exculpatory agreement as over-reaching and unenforceable. Such a ruling could negatively impact the future enforceability of exculpatory agreements generally in that particular jurisdiction and erode previously favorable case law there.

Given these concerns, perhaps the better approach to minimizing the risk created by COVID-19 is for businesses to create a separate exculpatory agreement for COVID-19 distinct from any existing documents. A separate document not only alleviates the concerns addressed above but also alerts patrons more clearly and conspicuously to the risk posed by COVID-19 and the acknowledgment of same and/or waiver of rights relating to same, which they are being asked to sign.

For jurisdictions where exculpatory agreements are unenforceable, businesses can rely on an “acknowledgment of risks” document wherein a patron explicitly acknowledges that he or she understands that exposure to COVID-19 is a risk inherent in everyday life, as opposed to a risk inherent in a particular activity. The same principles of conspicuousness for an exculpatory agreement would also apply to an acknowledgment of risks document.

COVID-19 is a novel risk to the public and, at this time, it remains unknown how courts will address potential liability claims involving exposure. The guidance provided in this Update is a basic overview, with high-level advice, and it should not be applied in the drafting of documentation without further consideration of the specific state laws and factual circumstances involved therewith. For more information on this topic or advice on specific questions related to managing risk for your business in the pandemic, please contact one of our COVID-19 Coordinators, identified below.

Please know that the agents and underwriters here at Morris & Reynolds are happy to discuss any coverage or claim questions you might have, file a claim for you or assist in any manner possible. We will also continue to not only follow-up on the many claims we have filed for our clients but the continued evolution of this topic in the courts and update you with any news. Until then, please contact us at any time for any reason.

Insurers Support Public/Private Solution for Future Pandemics

As the insurance industry, businesses, courts and governments continue to seek coverage solutions to offer insurance protection options to businesses for future pandemics like COVID19 the recent news from Washington last week is interesting. New York Representative Maloney hosted a meeting related to her proposed PRIA legislation, H.R. 7011) that included a range of shareholders including insurers, businesses, trade groups and others so as to share their views on creating an insurance solution.

There is, of course, decades of precedent for such a public-private partnership for risks that the private insurance industry has deemed uninsurable within the private market. Such programs include the National Flood Insurance Program, dating back decades and administered within FEMA, the Federal Crop Insurance Corporation, the Terrorism Risk Insurance Act (TRIA) and the Federal Deposit Insurance Corporation in addition to a large number of state programs such as Florida’s property and windstorm insurer, Citizens Property Insurance Corporation.

Whether such a program for pandemics will ever be created remains to be seen (our guess is one will be created) but as we follow this important topic we want to share the following recent article about the proposed federal legislation from our friends at Advisen which we think you might find useful.     

Risk and insurance leaders offer support for PRIA backstop measure

By Erin Ayers, Advisen

Business and insurance representatives last week urged Congress to quickly craft a federal solution for insuring pandemic risk moving forward, with most advocating for a public-private partnership between insurers and the government.

Rep. Carolyn Maloney (D-NY) hosted a roundtable on her PRIA legislation (H.R. 7011) last week, inviting stakeholders from businesses, associations, and the insurance industry to offer their views. She cited tremendous interest in her bill, saying she had “never authored a bill that has generated as much support as this one.”

“There is broad consensus that we need a program like the one created by PRIA – to provide business owners and our economy with better stability in the event of any future pandemics,” she said. “Congress needs to be proactive in helping businesses protect themselves from economic losses as a result of pandemics, which, as we’ve seen, can be devastating to businesses of all sizes — from the mom and pop grocery down the street to institutions like Lord & Taylor.”

According to Patrick Sterling, head of risk management for the Texas Roadhouse restaurant chain and a member of the RIMS board of directors, RIMS “does not agree with those who say that pandemics are not insurable.”

He told the group that many RIMS members’ insurance policies have “failed to cover” the impact of the pandemic.

“As a united front, carriers and the federal government can develop a solution to share the financial risk of future pandemics. RIMS members believe a public-private program will establish a viable insurance market and create certainty for businesses across the country,” said Sterling.

Jean Prewitt, president and CEO of the Independent Film & Television Alliance, told listeners that for IFTA members, “this year has been disastrous” with production shutdowns and cinema closures. The entertainment industry is looking not for new coverage with PRIA, but resumption of coverage that was readily available before the pandemic, she added. Communicable disease exclusions have been instituted since March, leaving many film and TV productions unable to proceed.

“At the end of the day, what we really want to see is the insurance industry coming back … to fulfill the role that they have fulfilled in the past,” said Prewitt. “We’re not just talking about the future and some event that may not happen. We are still in this pandemic. We need to start putting in place the essential elements to get business restarted.”

The insurance industry’s largest trade groups favor a different approach than PRIA, but individual firms and the National Association of Professional Insurance Agents (PIA) and the Council of Insurance Agents and Brokers (CIAB) support the measure.

“The last several months have demonstrated that traditional insurance solutions — and the commercial insurance market — cannot fully provide businesses and others with the protection they need from the enormous costs of pandemics. Only the credit and power of the US government can help create the necessary risk program to harness the financial and social benefits of insurance to mitigate pandemic related economic losses and provide greater certainty about a sustained recovery. But the insurance industry has a role to play, too,” said Tarique Nageer, terrorism placement advisory and leader for Marsh & McLennan Companies’ property practice. The partnership would fuel economic recovery as well as encourage pandemic risk preparedness, he said.

The government must absorb the “lion’s share” of losses, according to Joe Wayland, executive vice president and general counsel for Chubb, but “the private insurance industry can and should take on some of that risk.”

“It is essential to develop a program now that will provide certainty about prompt relief to allow businesses, particularly small businesses, to keep their employees on the payroll and to pay rent and other expenses,” said Wayland.

Robert Gordon, senior vice president of policy, research, and international for the American Property Casualty Insurance Association, told the group that “a multilayered approach” with a federally funded base layer of coverage is necessary, creating a “scaffold” for the private industry to “potentially build on over time” and provide additional coverage.

Maloney, who was active in the passage of the Terrorism Risk Insurance Act in 2002, told attendees of the videoconference that TRIA had “been a screaming success” in helping the economy recover after the Sept. 11 attacks and she now hopes to do the same for pandemic risk. Even TRIA and later extensions did not sail through Congress, she said, adding, “It was always a huge struggle to get it passed, even though it was a good idea and it worked.”

Maloney introduced the PRIA bill in May. She said it would not be retroactive or mandatory for insurers.

“I do not believe in retroactive legislation … I think people need to know the rules of the game. “I do not believe in forcing insurers to pay for losses that were never covered in their business plans, I think that’s terribly unfair,” said Maloney, adding, “I don’t understand why anyone’s against it, because you don’t have to participate in it if you don’t want to.”