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With the first anniversary of the COVID-19 lockdowns fast approaching, policyholders considering litigating denied business interruption claims against their insurers should check their policies to see if there is a 12-month deadline for doing so.
Experts say a substantial minority of policies have such a deadline, although various state laws may override such policy provisions giving businesses more time. Texas, for instance, has a two-year statute of limitations.
Policyholders need file only brief complaints to satisfy any policy-incurred deadline and follow up with a more substantive, amended complaint later, they say.
California, Illinois and New York were the first states to go into lockdown on March 19, March 21 and March 22, respectively, before being followed by others.
About 1,500 lawsuits have been filed against insurers for their refusal to pay business interruption claims under their property policies.
Policyholders have used various arguments to secure coverage, including that the presence of the virus or government-ordered shutdowns related to the virus constitute physical damage triggering coverage. Insurers often argue that policyholders must have suffered tangible damage to their property and also point to virus exclusions in many policies.
While insurers have prevailed in most cases to date policyholders have also won a growing number of decisions and some believe there is now more of a trend toward policyholder victories.
“A substantial number” of property policies, although not a majority, include the 12-month limitation period, which is a significant concern for policyholders, said Tamara D. Bruno, a partner with Pillsbury Winthrop Shaw Pittman LLP in Houston.
Cary B. Lerman, an attorney with Munger, Tolles & Olson LLP in Los Angeles, said, “Obviously, policyholders have to look at their policy. Unfortunately, policies are written in such jargon that it is difficult for policyholders to really understand what’s in there, so I would very much encourage them to talk to their broker, who probably placed the policy for them.”
Policy wordings can vary significantly, he said.
“There is the question of what does the one-year statute of limitation run from, even if you have one,” he said. Is it from when you “first suffered a loss (or) is it when you knew, or should have known, that you had a claim under the policy?”
If an insurer took several months to deny a claim, courts will usually agree to add that period onto the time in which the policyholder has to file a lawsuit, Mr. Lerman said.
To be safe, though, policyholders with a 12-month policy provision “really do need” to file their lawsuits within that time, Ms. Bruno said. Insurers may agree to a tolling agreement, which is a written agreement signed by both sides to a potential lawsuit that suspends the statute of limitations for an agreed amount of time, she added.
K. James Sullivan, a partner with Calfee, Halter & Griswold LLP in Cleveland, said some insurers may take a hard line and say “no extensions.”
Experts say state laws differ, with some allowing policyholders more time to file suit. The upshot is, policyholders need to know what their specific state laws says, Mr. Sullivan said. “You can’t just assume it because your friend in another state says, ‘Don’t worry.’”
The good news for policyholders is that complaints can be short, experts say.
“You don’t have to file an elaborate lawsuit in a court. You can file a complaint that is minimal,” whose purpose is to give the defendants notice of a claim against them, Ms. Bruno said.
“You’re in much better shape if you get something on file, even if it’s only a couple of pages long,” that simply says there was a claim the insurer refused to pay, Ms. Bruno said. “You can always amend your initial complaint.”
Pandemic outbreaks are now among the top business risks globally, while political risks and violence have returned to the ranks of the top global perils for the first time in three years in the Allianz Risk Barometer 2021, released Tuesday.