P&C industry braces for a ‘second wave’ of COVID liability

There is an old saying: ‘Fool me once, shame on you. Fool me twice, shame on me.’

As schools across the nation re-open, and as COVID-19 virus infection rates across Canada once again begin to climb, Canadian P&C industry observers are keeping a watchful eye on their clients’ liability exposures.

The risks related to re-opening the economy during the so-called “second wave” of the virus are particularly great since ignorance of how the virus is spread — and its potentially lethal consequences — is no longer an excuse.

“The potential for liability claims is a major unknown, and we are seeing rumblings of class actions,” Pat Van Bakel, president of Crawford (Canada), stated in a recent Crawford report, Responding to a market in flux: What does the pandemic mean for the insurance industry? “During the early stages of the first COVID-19 wave, we were learning new things about the virus daily, so proving negligence in cases where employees and the public may have been put at risk was challenging.

“However, as we see the second wave develop and lockdown restrictions are relaxed to restart economies, companies now have a much clearer idea of what they are dealing with, so if employees are put at risk the potential for litigation is much greater.”

Crawford’s report cites a recent U.S. study by Lex Machina, which shows that between Mar. 1 and July 4, the leading practice areas with confirmed case filings directly resulting from COVID-19 were insurance (424 cases), contracts (397 cases), and employment (102 cases). These cases “would not have been filed if not for the pandemic, and/or have claims substantially exacerbated by the pandemic,” as Crawford’s report notes.

The focus of class actions in Canada announced publicly thus far has generally been on pandemic exclusions to business interruption coverage. But there have been lawsuits issued against long-term care providers and their residences, where the bulk of COVID-19 deaths have occurred. And in Ontario, teachers’ unions are exploring legal options to maintain a safe workplace environment, according to CTV reports.

Brokers interviewed for the August cover feature in Canadian Underwriter‘s print edition reported they are finding it more challenging to place directors’ and officers’ insurance lately, particularly for publicly-traded companies. This is partly a result of shareholders blaming company boards for not being prepared to cope with either the virus itself or its economic aftermath.

As far as D&O lines go, “there will be new exposures as a result of COVID based on how executives and business leaders have handled it,” predicted Eric Osborne, president and CEO of Jones Deslauriers Insurance, a Navacord brokerage. “If you are a publicly-traded company, there could definitely be exposure based on how executives acted to keep up with public health recommendations, shutting down offices and stores.”

Uncertainty around COVID is creating pressure for underwriters to anticipate potential claims during the next phase of the pandemic, says Paul Meinschenk, chief operating officer and executive vice president of Totten Insurance Group. Like Osborne, he spoke to Canadian Underwriter for its August cover feature.

“There is the uncertainty of COVID claims and reserves,” Meinschenk said. “Call it ‘COVID loss creep.’ What is that? It includes potential losses arising out of a possible second wave [of COVID infections], social inflation, unforeseen and underestimated losses, extended lockdowns, any retroactive legislation, emerging long-tail claims. Underwriters are on the fence [about writing some specialty risks] because they don’t know how [COVID-19] related losses are going to pan out.”