Author: Liam Mennitt

Will Federal and State Governments Alter Insurance Contracts to Require Coverage for COVID-19 and Should Congress Fund Insurance Companies to Help Provide Coverage?

Posted on by Liam Mennitt

Business interruption insurance, also known as business income insurance, is commercial property insurance designed to cover loss of income incurred by a business due to a slowdown or suspension of its operations at its premises, under certain circumstances.  Business interruption insurance may include coverage for a suspension of operations due to a civil authority or order, pursuant to which access to the policyholder’s premises is prohibited by a governmental authority. Business interruption insurance is often paired with extra expense insurance, designed to provide coverage for additional costs in excess of normal operating expenses an organization incurs in order to continue operations following a covered loss. Contingent business interruption insurance is a related product and is designed to provide coverage for lost profits resulting from an interruption of business at the premises of a policy holder or supplier.

Business interruption coverage is generally triggered when the policyholder sustains physical loss or damage to insured property by a covered loss as defined in the policy. In the event of a claim for a business interruption related to COVID-19, insurance carriers and policyholders will dispute whether the physical loss requirement has been satisfied. In the aftermath of previous viral outbreaks early this century (e.g., SARS, rotavirus, etc.), the insurance industry responded by adding exclusions designed to preclude coverage for such losses. The insurance coverage arguments will be the subject of litigation over the coming years.

On March 10, 2020 members of the United States House of Representatives requested that four major insurance trade organizations cover business interruption claims arising from  COVID-19. The letter was addressed to the CEOs of the following organizations:

– The American Property and Casualty Insurance Association;

– The National Association of Mutual Insurance Companies;

– The Independent Insurance Agents & Brokers of America; and

– The Council of Insurance Agents & Brokers.

Members of Congress stated that business interruption insurance is intended to protect businesses against income loss as a result of operational disruption, and covering losses resulting from COVID-19 would “help sustain America’s businesses through these turbulent times, keep their doors open, and retain employees on the payroll.”

In response, the CEOs stated, “Standard commercial insurance policies offer coverage and protection against a wide range of risks and threats that are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.” While recognizing the impact of the pandemic, the CEOs argued: “The proposed retroactive application legislation would fundamentally change the agreed-upon transfer of prospective risk-of-loss exposure to coverage for a known and presently occurring loss, something the parties did not agree to, the insurer did not rate for, and the policyholder did not pay for.”

New Jersey has taken preliminary steps to directly alter the terms of insurance contracts issued to insureds in New Jersey. On March 16, 2020, New Jersey Bill A-3844 was introduced with the goal of assisting businesses impacted by COVID-19.

The principal provision of draft Bill A-3844 states:

“Notwithstanding the provisions of any other law, rule or regulation to the contrary, every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption in force in this State on the effective date of this act, shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic, as provided in the Public Health Emergency and State of Emergency declared by the Governor in Executive Order 103 of 2020 concerning the coronavirus disease 2019 pandemic.”

While no other state has taken any measure as extreme as the draft bill in New Jersey, it is possible other states will seek to influence whether insurers provide coverage for claims relating to COVID-19. On March 10, 2020, the New York Department of Financial Services mandated property casualty insurers provide to the department, “Certain information regarding the commercial property insurance it has written in New York and details on the business interruption coverage provided in the types of policies for which it has ongoing exposure.” Insurers must also provide the same information to policyholders. Several observers have noted this move could be a precursor to a draft bill similar to NJ A-3844 being introduced in New York.

With the anticipated passage (not finalized yet at the time of this article) of a $2 trillion economic relief package, it seems appropriate that Congress should assist insurers if they are going to ask insurance companies to pay for business interruption arising from COVID-19. By encouraging insurance companies to honor such claims, Congress seeks to support business and provide capital to the economy. Other industries such as the cruise industry and the aviation industry are receiving large bailouts as a result of COVID-19, under the theory that it’s “not their fault.” Perhaps given the extraordinary situation, the insurance industry can receive similar help in exchange for increasing the scope of coverage. In that way, the insurance industry would be required to be more reasonable when it considers coverage claims for COVID-19.

Business Interruption Insurance and COVID-19: Ocean Grill.

Posted on by Liam Mennitt

Business interruption insurance, also known as business income insurance, is commercial property insurance designed to cover loss of income incurred by an organization due to a slowdown or suspension of its operations at its premises, under certain circumstances.  Business interruption insurance may include coverage for a suspension of operations due to a civil authority or order, pursuant to which access to the policyholder’s premises is prohibited by a governmental authority. Business interruption insurance is often paired with extra expense insurance, designed to provide coverage for additional costs in excess of normal operating expenses an organization incurs in order to continue operations following a covered loss. Contingent business interruption insurance is a related product and is designed to provide coverage for lost profits resulting from an interruption of business at the premises of a customer or supplier.

Business interruption coverage is generally triggered when the policyholder sustains physical loss or damage to insured property by a covered loss as defined in the policy. In the event of a claim for a business interruption related to COVID-19, insurance carriers and policyholders will dispute whether the physical loss requirement has been satisfied. In the aftermath of previous viral outbreaks early this century (e.g., SARS, rotavirus, etc.), the insurance industry responded by adding exclusions designed to preclude coverage for such losses. The insurance coverage arguments will be the subject of litigation over the coming years.

The first case involving a business interruption loss due to COVID-19 has been filed. Cajun Conti LLC, et al. v. Certain Underwriters at Lloyd’s, London, et al., No. 2020-02558 (La. Dist. Ct., Orleans Parish, complaint filed March 16, 2020). The Plaintiffs, owners of a popular restaurant in New Orleans, Ocean Grill, seek a declaration from the court that this insurer, a Lloyd’s syndicate, must cover business interruption losses. New Orleans Mayor LaToya Cantrell ordered all restaurants in the city to limit operations to delivery only. That followed an order by the governor that barred any congregations of more than 250 people. Louisiana’s governor also closed bars and restricted restaurants to takeout orders until April 13 to prevent the disease’s spread. The policy at issue provides coverage for “property, business, business income, and extra expense…” The Complaint alleges that the policy is an “all risk policy” which covers all risk unless clearly and specifically excluded. The policy has only excluded losses due to biological materials such as pathogens in connection to terrorism. According to the Complaint, the policy therefore provides coverage for other viruses or global pandemics. Plaintiffs allege that Lloyd’s have accepted the policy premiums with no intention of provding coverage due to physical loss and/or from a civil authority shut down due to a “global pandemic virus.”

Also, according to the Complaint, the coronavirus is “physically impacting public and private property, and physical spaces in cities around the world” and “any effort by Lloyd’s to deny the reality that the virus causes physical damage and loss would constitute a false and potential fraudulent misrepresentation that could endanger policyholders and the public.”

The lawsuit maintains that the virus physically infects and stays on surfaces for up to 28 days and that contamination of the insured premises by the virus would be a “direct physical loss needing remediation to clean the surfaces of the establishment.”

It likens the coronavirus infection to cases where the intrusion of lead or gaseous fumes has been found to constitute a direct physical loss.

Plaintiffs ask the court to affirm that because the policy provided by Lloyd’s does not contain an exclusion for pandemic viruses, the policy provides coverage to Plaintiffs for any future civil authority shutdowns of restaurants in New Orleans due to physical harm from coronavirus contamination.

While Lloyd’s has not yet had the opportunity to respond, the CEOs of the four large insurance trade organizations sent a letter to Congress on March 18, 2020 stating, “Standard commercial insurance policies offer coverage and protection against a wide range of risks and threats that are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.”

Commentators supporting the insurers have suggested that any business interruption claims may be denied because government shutdowns are usually ordered as a precaution, not because of known contamination. Coverage can also be limited by the duration of any contamination. Commentators have argued that “in some ISO forms, the period of restoration has a waiting period, such as 72 hours, before coverage begins. And the period lasts only as long as it should take to repair the physical loss or damage using due diligence and dispatch. If the ‘physical damage’ is the particles of virus on surfaces of a building, how long should it reasonably take to use soap and water, or bleach, to clean those surfaces? It seems as though the battle lines are being drawn, and that the business interruption claims will be met with a fight.

 

Connecticut Approves Recovery Bridge Loan Program as of March 25, 2020

Posted on by Liam Mennitt

The State of Connecticut will immediately roll out a no-interest loan program, “The Connecticut Recovery Bridge Loan Program,” with assistance of up to $75,000 over an 18-month period for small businesses effected by the COVID-19virus (Coronavirus) crisis. “This plan is a meaningful and flexible plan, stated by David Lehman, Gov. Ned Lamont’s economics chief. Funding for the plan will be derived from the banking system, primarily because it is faster and would infuse cash into the economy rapidly for businesses. “The banks have the network, the relationships, and the ability to deploy the money efficiently,” stated Mr. Lehman. The program will be broken down into rounds of financing, the first of which will infuse a total of $20 – $25 million to small businesses, enough to finance about 600 businesses with a quick cash infusion in the range of $40,000 per business. The CT Recovery Bridge Loan Program is similar to those launched around the United States in the wake of the COVID-19 crisis. Similarly, Massachusetts has launched a program that is comparable in size (Dollar amount) and targeting small businesses. As per a Department of Economic and Community Development survey, approximately 90% of CT businesses have taken a hit to revenue. However, 50% are still working near full capacity.

This Statewide plan will be implemented in addition to the existing Loan Forbearance program, which 800 existing borrowers in the Small Businesses Expense Program received a 3-month reprieves for payments (a benefit worth approximately $5 million). In addition, the plan will fall under the legislative authorization Small Business Express Program and financed with paybacks from prior loans, reducing the need for legislation to be passed for the program. The CT program is in addition to the Federal Stimulus and Bailout which includes $50 billion for small businesses administration backed loans, which would infuse an additional $4 billion into the Connecticut economy in direct Federal aid alone. Major concerns for the CT Recovery Bridge Loan Program are related to banks’ lending more money to small businesses with current debt obligations, especially because the COVID-19 crisis has killed vast consumer and business spending. The federal and state stimulus in addition to unlimited Federal Reserve buying of Treasury Securities will have the effect of filling banks’ balance sheets with low or no-cost capital. Known as quantitative easing, or QU this practice could potentially drive down Treasury interest rates, which will provide private investors, businesses, and consumers to look for deals to help revive the economy.

Pastore & Dailey Managing Partner Receives AV Preeminent Rating for 2020

Posted on by Liam Mennitt

Pastore & Dailey LLC is proud to announce that Managing Partner, Joseph M. Pastore, III has been named by Martindale-Avvo to receive the AV Preeminent Rating for the year 2020. This rating is the highest possible rating in both legal ability & ethical standards for practicing attorneys. Mr. Pastore received this honor for his exemplary devotion to judicial standards and ethics practices as an attorney. Mr. Pastore has been a recipient of this honor for the past 10 consecutive years. In addition, Corporate Counsel & The American Lawyer magazines have named Mr. Pastore as a Top-Rated Litigator for the year 2020.

Pastore & Dailey Wins Jury Trial

Posted on by Liam Mennitt

Pastore & Dailey successfully concluded a contentious, multi-year litigation, defeating claims of fraudulent inducement and securities fraud brought against two hedge fund executives by a billionaire family office special purpose investment vehicle. The billionaire family office, the heirs to and founders of a well-known apparel store, had invested in the fund’s General Partner limited liability company.

In 2018, The United States District Court for the District of Connecticut granted a summary judgment in favor of the defendants. The summary judgment was subsequently appealed up to the United States Court of Appeals for the 2nd Circuit, before being remanded back to, and concluding with, a jury trial in the United States District Court for the District of Connecticut in New Haven, Connecticut. Pastore & Dailey was hired for the trial. After two weeks of evidence and 7 hours of jury deliberation, Pastore & Dailey was able to secure a favorable jury verdict for the clients.

 

Pastore & Dailey Retained in Billion Dollar Tech Deal

Posted on by Liam Mennitt

Pastore & Dailey has been retained by a technology company in connection with a possible Billion dollar distribution deal. The European based conglomerate manufactures and distributes off-patent healthcare products in the US and Europe. The parties will enter in an MOU, making the products available in 2021.

Pastore & Dailey Retained by One of World’s Largest Investment Management Firms

Posted on by Liam Mennitt

Pastore & Dailey has added one of the world’s largest research and investment management firms as a client. The client joins some of the largest broker dealers and insurance companies as clients of the Firm, where we represent them in many aspects of their businesses. In this case, the Firm is providing securities regulatory advice and cybersecurity advice.

Interest When Enforcing a Money Judgement and the Discretionary Power of Connecticut Courts to Impose a Reasonable Rate of Post-Judgement Interest

Posted on by Liam Mennitt

Prior to its repeal in 1983, General Statutes § 52-349 had provided generally for the collection of “legal interest in the amount of the judgment from the time it was rendered.” Presently, General Statutes § 37-3b provides for post-judgment interest in connection with actions “to recover damages for injury to the person, or to real or personal property, caused by negligence.” Additionally, General Statutes § 37-3a serves as the source for post-judgment interest on claims to which General Statutes § 37-3b does not apply (i.e. interest awards in certain civil action not involving negligence).[1]

Most credit agreements contain terms that allow for interest to accrue on unpaid balances.  These interest rates are usually anywhere from single digits to the high-teens.  Until recently many Connecticut courts would alter the contractual interest rate when entering judgment against a defaulting client. Courts were doing so based on Conn. Gen. Stat. § 37-3a which provides that post-judgment interest is discretionary and is capped at 10%.  Many Connecticut courts read this to mean that 10% was the most interest they could order after judgment but that they could award interest at a lower rate or even no post-judgment interest as they saw fit. Therefore, the discretionary nature of an order for post-judgment interest has become a product of case law development and interpretation rather than statutory provision.

The Connecticut Supreme Court in Sikorsky Fin. Credit Union, Inc. v. Butts, clarified the circumstances and interest rate for creditors to receive post judgment interest. In Sikorsky, a lender sued its borrower to obtain a deficiency judgment after the loan collateral (automobile) was repossessed and liquidated leaving a balance due on the loan. The loan documents contained an interest rate of 9.14 percent and further stated that the lender “may charge interest at a rate not exceeding the highest lawful rate” until the deficiency is paid.[2]

The Sikorsky Court found that Connecticut law provides for two distinct types of interest by statute under §§ 37-1 and 37-3a. First, Connecticut General Statutes § 37-1 provides that the court, as part of a judgment enforcing a loan, must award post judgment interest at the rate of interest agreed upon by the parties, or eight percent if the parties did not specify the rate for post judgment interest. The court is only relieved of this obligation if the parties disclaimed post judgment interest. Second, Connecticut General Statutes § 37-3a provides the authority for the court to award discretionary interest up to ten percent as damages for the detention of money, when the duty to pay arises from an obligation other than a loan of money or when the parties to a loan have waived or disclaimed interest.[3]

In Hartford Steam Boiler Inspection and Insurance Co. v. Underwriters at Lloyds and Companies Collective, the Connecticut Supreme Court awarded post-judgment interest in a commercial dispute, holding that “post-judgment interest is intended to compensate the prevailing party for a delay in obtaining money that rightfully belongs to him.”[4] In DiLieto v. County Obstetrics and Gynecology Group, P.C., the Connecticut Supreme Court held that “in the context of § 37-3a, a wrongful detention of money, that is, a detention of money without the legal right to do so, is established merely by a favorable judgment on the underlying legal claim, so that the court has discretion to award interest on that judgment, without any additional showing of wrongfulness, upon a finding that such an award is fair and equitable.”[5]

In Cavolick v. Desimone, a Superior Court held that maximum statutory rate of 10% was appropriate for an award of post-judgment interest even though greater than the rate generated at the time by conservative investments because it was less than the interest charged on other sorts of debt such as credit cards and “an amount greater than that generated by conservative investments may well provide some incentive to pay a judgment.” The 10% interest rate expressed in General Statutes § 37-3a is, however, not a required rate but, rather, is the maximum rate of interest that a trial court, in its discretion, may award.[6] Finally, in Cadle Co. v. Steiner, a Superior Court held that an award of post-judgment interest is discretionary and denied an award of post-judgment interest where the plaintiff sought execution on property and repeatedly demanded more post-judgment interest than it was entitled to. The court also held that when a judgment is ordered paid in installments, with no provision for interest, post-judgment interest does not run prior to a default in the payments ordered.[7]

In conclusion, the determination of a reasonable port-judgment interest rate pursuant to General Statutes § 37-3a is not a mandatory rate that applies generally to all applications of post-judgment interest. Rather, the statute and case law application provide that the 10% interest rate provided in § 37-3a, is a cap on post-judgment interest for damages. Additionally, the order for application of post-judgment interest is in the discretion of the Court, and determined on a case by case basis that requires a factual analysis in order to determine a reasonable rate of interest to be applied in order to compensate the aggrieved party.

Disclaimer: this article is for educational purposes only and to give you a general understanding of the law, not to provide specific legal advice. No attorney-client relationship exists by reading this article. This article should not be used as a substitute for legal advice from a licensed professional attorney in your state.

____________________________________________________________________________________

[1] § 6.8.Interest, 12 Conn. Prac., Unfair Trade Practices § 6.8.

[2] Sikorsky Fin. Credit Union, Inc. v. Butts, 315 Conn. 433 (2015).

[3] Sikorsky Fin. Credit Union, Inc. v. Butts, 315 Conn. 433 (2015).

[4] Hartford Steam Boiler Inspection and Ins. Co. v. Underwriters At Lloyd’s and Companies Collective, 121 Conn. App. 31 (2010).

[5] DiLieto v. County Obstetrics and Gynecology Group, P.C., 310 Conn. 38 (2013).

[6] Cavolick v. Desimone, 39 Conn. L. Rptr. 781 (Conn. Super. Ct. 2005).

[7] Cadle Co. v. Steiner, 51 Conn. L. Rptr. 480 (Conn. Super. Ct. 2011).

Pastore & Dailey Wins Motion for Dismiss Against Texas Based Oil and Gas Company

Posted on by Liam Mennitt

Pastore & Dailey represented a New York plaintiff in connection with a dispute over services provided in association with the acquisition and management of various oil and gas properties in Abilene, Texas. In anticipation of this suit, Defendants wrongfully instituted an anticipatory action in the Federal District Court for the Northern District of Texas.

Pastore & Dailey submitted a Motion to Dismiss the Texas action based on the premise that the action was anticipatory of the New York Action and was an act of inequitable forum shopping. The Court found that “compelling circumstances” existed that favored the dismissal of the Texas action. Pastore & Dailey will now continue to represent the Plaintiff in his home forum of New York.

Pastore & Dailey Wins Motion to Dismiss Against Texas Based Oil & Gas Company

Posted on by Liam Mennitt

Pastore & Dailey represented a New York plaintiff in connection with a dispute over services provided in association with the acquisition and management of various oil and gas properties in Abilene, Texas. In anticipation of this suit, Defendants wrongfully instituted an anticipatory action in the Federal District Court for the Northern District of Texas.

Pastore & Dailey submitted a Motion to Dismiss the Texas action based on the premise that the action was anticipatory of the New York Action and was an act of inequitable forum shopping. The Court found that “compelling circumstances” existed that favored the dismissal of the Texas action. Pastore & Dailey will now continue to represent the Plaintiff in his home forum of New York.