The coronavirus pandemic has triggered a large uptick in class action lawsuits against insurance companies. Many of the cases revolve around coverage disputes and the exclusionary language in most insurance policies around ‘pandemic’ and ‘virus’. So far, we’ve seen cases come out of the hospitality industry, with restaurants and hotels suing insurers for business interruption losses after they were forced to close during government shutdowns. We’ve seen litigation in the travel industry, the healthcare industry, the education sector – almost everywhere you look, COVID-related litigation is arising thick and fast.
Unfortunately, insurance brokers are not immune from this trend. As the situation around COVID evolves and more companies try to recover economic losses, there will likely be a rise in class action litigation against the broker community, targeting errors and omissions (E&O), according to Laurie LaPalme, partner in the Insurance and Reinsurance Group at Cassels.
“As the cases against insurers get dismissed, the plaintiffs will amend their pleadings and will look for other deep pockets,” said LaPalme during a panel discussion entitled ‘Shaping your business in the time of COVID’ at the IBAO virtual convention. “[They will look for those] deep pockets in the insurance broker community because brokers have strong and significant E&O coverage, and sophisticated plaintiffs’ bar know that. […] The main area of claim will be failure to advise on potential risks regarding pandemics, and the failure to advise on how the business interruption coverage actually worked in their policy.”
Brokers are not only at risk of litigation coming from their insureds and their customers. There could also be situations where their insurance partners – the carriers – actually cross-claim against or cross-sue them. Those most at risk of this, according to LaPalme, are the managing general agents (MGAs) and program administrators who draft policies and policy language on behalf of the carriers. If that policy language is not akin or as robust as the carrier’s current language, they may have cause to cross-claim.
What can brokers do to protect themselves? LaPalme advises brokers to stay informed by reading the literature being shared by law firms like Cassels, and talking to insurers and reinsurers about best practices. She said it helps for brokerages to designate an individual within their company whose responsibility it is to keep up to date with the latest developments.
“Secondly, keep in communication with your insurance carriers. Make sure you submit all claims and make no representations with respect to those claims. You want to make sure you document, document, document,” La Palme stressed. “You want to cross all your t’s and dot all your i’s and ensure that every communication is properly documented. Spend the time with your insureds to talk about what they’re doing, but again, don’t make any promises. Look at your marketing material, including your websites, so that you’re not promising any coverages.
“And most importantly, be understanding, be empathetic and be patient with your insureds. Maintaining a great relationship with them during this time of COVID, where we know that there’s heightened mental health issues can avoid conflicts before they even start.”
Even if brokers adopt all of those best practices, they may still be hit by a lawsuit. If that happens, it’s important to have a tried and tested plan of how to proceed and respond. LaPalme concluded: “Class actions are here and they’re going to be here for a while. We’re going to see a lot of developments and there’s going to be a lot that keep coming up in the news. Just be wary of them and keep the communication open at your organization.”
