Rise in COVID-19-Related Class Action Lawsuits Exposes Companies to Risk

Businesses are facing many hurdles as they continue to deal with the effects of the COVID-19 pandemic and the challenges of reopening. The “new normal,” however temporary it may be, exposes businesses to different risks in areas that aren’t always included in a commercial general liability (CGL) insurance policy. Those risks include class action lawsuits, which are on the rise across many sectors. Now is the time to assess the risks your company may face and assure you have the appropriate coverage.

Companies facing “lower exposure” class actions lawsuits increased 63.5% year over year, according to the 2020 Class Action Survey by Carlton Fields. However, companies facing high-risk class action suits decreased 10.6% to its lowest level since 2015.

That said, many companies do not have appropriate coverage for class action suits. Only 22.2% of companies reported that some portion of their defense costs were covered by insurance. Companies noted higher deductibles and exclusions in their insurance policies that limited coverage. Add that to the fact that more class action suits are continuing through to trial — 8.5% of cases this year compared to 2% last year — it’s important for businesses to consider their current protections, and how those could be improved.

By the end of May 2020, more than 560 COVID-19 class actions had been filed nationwide. In California, there were more than 100, and New York, Florida and Illinois each had more than 40. Twenty-five percent of those cases were business interruption related and 35% were refunds for education, gyms, venues and entertainment. As colleges and universities shut down, some students sought to recover fees for tuition, room and board through class action lawsuits. By September, a total of 60 class actions had been filed against higher education institutions, likely with more to come.

CGL insurance provides coverage for third-party claims of bodily injury or property damage, along with coverage for certain personal and advertising injuries. If the class action lawsuit a company is facing does not fall into those categories or involves a breach of contract, the policy may not cover it. However, there are additional policies companies can look into to further protect against class actions lawsuits, such as:

  • Management liability insurance, which is insurance for exposures faced by executives (directors, officers, managers, etc.) and can include directors and officers (D&O) liability insurance, employment practices liability insurance, fiduciary liability insurance and “special crime” insurance. The coverages can be separate or packaged together.
  • Professional liability insurance, which is liability coverage for professionals (accountants, attorneys, real estate brokers, consultants, etc.) to protect them from liability as a result of errors or omissions in their work. Professional liability typically covers economic losses suffered by third parties, and doesn’t cover bodily injury and property damage, which CGL usually covers.

The appropriate combination of insurance policies is different for every company, but it’s important to examine the possibilities, especially with the rise of class action lawsuits. Companies may face exposure because of exclusions in their CGL policies that they do not realize. It may be time to add an additional policy, keeping in mind the anticipation of a continued rise in class actions.

If you have any questions about this topic, you can contact us here or by calling 800-242-2433.

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