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Reflections on Legal Ops: A Prescription for Clearer Vision in 2020 and Beyond

Blog by Mike Russell, Lean Leader – Legal Operations, Trane Technologies

Cobra recently convened a panel of experienced legal operations professionals to provide insight to the volatile, uncertain, complex and ambiguous times that have become the new normal. Indeed, this VUCA – a common military acronym for the world in which they operate – can help us decide where to expend resources to attain results in times of uncertainty.

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The Changing Legal Landscape in the Wake of COVID-19

As the global population grapples with the unprecedented health and economic fallout of the COVID-19 pandemic, law firms have an opportunity to modify how they conduct business and service their clients. While dozens of law firms have announced cost-cutting measures such as layoffs, furloughs, and salary cuts, any near-term slowdowns in legal systems should give way to an upturn in litigation and restructuring practice areas. In addition to stalled litigation matters coming back to life, the legal industry should expect a surge of COVID-19 related litigation. Court filings have already shown a rise in protracted litigation related to COVID-19, and along with it, large-scale discovery. Some examples of the various types of COVID-19 related litigation include:

While law firms may see an increased demand for certain legal services, their clients will be weighing the significant risks facing the global economy as countries slowly reopen. Although analysts are predicting significant third quarter growth, the general consensus is that even the expected rapid recovery will still leave the United States economy with an output gap. As often happens during economically perilous periods, companies will reassess how they use and pay for legal services. Law firms can anticipate such assessments by fostering open and honest communication with clients, while exploring innovative and flexible ways to deliver legal services.

Businesses are experiencing the same anxieties felt by individuals during these uncertain times. Accordingly, law firms should assure clients they have a partner to help them through the forthcoming economic recovery. Law firm partners should connect with clients and truly listen to and process clients’ concerns and needs. Firms should then take concrete steps to adjust to clients’ shifting needs in the current environment. Receptive firms will take the lead in providing legal solutions, anchored in hard data and impartial advice. The deluge of information currently being churned out can confuse clients. To avoid getting lost in the fray, firms should highlight how they can leverage their specific expertise and resources to assist clients. Clearly defined solutions tailored to clients’ unique situations will stand apart from generic articles and email blasts.

The projected increase in COVID-19 related litigation coupled with economic uncertainty will also place pressure on pricing and require shifts to alternative delivery models. Flexibility and creativity are essential to addressing clients’ pricing concerns. Law firms may consider pricing models that offer clients greater cost certainty by capping fees or by implementing outcome-based fee structures. In lieu of across-the-board rate reductions, firms may elect to offer one-time discounts, flexible payment terms, or credits toward future legal services.

Law firms should also evaluate opportunities to collaborate with alternative legal service providers to help reduce costs and increase productivity.  Alternative legal service providers can provide litigation support, legal research, contract review, and/or e-Discovery services that simultaneously provide access to expertise or resources firms may lack in-house and allow firms to use existing resources more efficiently and strategically.

The COVID-19 pandemic has compelled innovators across industries to identify underutilized tools and implement alternative work paradigms. Businesses, including many law firms, have adjusted with surprising speed and ease. Entrenched ways of doing things have been supplanted with effective and efficient alternatives that, in many instances, have led to increased productivity and output. Law firms would do well to build upon that momentum to provide customer-centric, data-based legal solutions.  Guiding clients through the current social and economic storm can and will produce stronger, more productive partnerships.

 

Coronavirus & Business Interruption Disputes

The effects of COVID-19 (coronavirus) have swept across the US and most other countries. While the initial focus was on learning about the coronavirus and our public health systems’ response to it, the trickledown effect of coronavirus-initiated lawsuits didn’t take long to make its way into the U.S. court system. March 2020 was a pivotal moment in the US response to the coronavirus: escalating travel restrictions, declarations of national and regional emergencies, and stay-at-home orders. While governments, companies, and individuals were grappling with how to adjust to these rapid developments, the first coronavirus-related lawsuits were popping up.

As more stay-at-home orders were put in place nationwide, businesses began filing business interruption claims with their insurers to recoup their losses from those closures. Insurance providers denied the claims, stating the policy coverage must be triggered by physical damage, like a fire or earthquake. Some business owners found their insurance policies specifically excluded virus-related losses, language added by some insurers to their policies following a string of million-dollar claims from the SARS outbreak in the early 2000s.  The recent rioting has spurred a large number of physical damage related claims but some are finding the response mixed.  These claims, like the business interruption claims, are sure to be complicated and lead to litigation.

Insurers have also denied claims related to state or municipality stay-at-home orders and asserted under civil authority clauses. Civil authority coverage is tied to a government order prohibiting access to the business property due to physical damage of a nearby property. Civil authority coverage was strictly interpreted in 9/11-related insurance litigation, where courts found travel closures resulting from the attacks did not directly cause damage to the policy holders because they were put in place based on fear of future attacks.  Similar to business interruption coverage, civil authority coverage usually has a physical damage requirement that is the crux to insurers denial of claims.

Lawsuit claims quickly followed after businesses began to receive coverage denials from their insurers or after stay-at-home issues were ordered. One of those first lawsuits was filed by Oceana Grill in late March against its insurer in Oceana Grill v. Certain Underwriters at Lloyd’s, London. The New Orleans-based restaurant saw coronavirus-related orders issued by the Louisiana governor as a qualifying event for their all-risk policy.  Filed the same day as the Oceana suit, the Choctaw and Chickasaw Nations brought claims against their insurers arising out of their casino closures, just hours after the Oklahoma governor announced a stay-at-home order. Since March 24th, a variety of businesses across several states have filed business interruption and civil authority coverage suits (wig shops, movie theater operators, scuba stores). The restaurant industry is so heavily affected by this issue that leading chefs and restaurateurs, such as Wolfgang Puck, founded the Business Interruption Group, a non-profit focused on advocating for insurance payouts caused by losses from the coronavirus.

Insurance companies’ statements regarding business interruption coverage in relation to the coronavirus reiterate the physical damage requirement for coverage, along with policy-specific exclusions that would preclude coverage in a pandemic. One insurance company has even filed its own declaratory judgment action against a law firm policy holder in federal court, saying the insurance claims by the defendant were not covered under the policy because there has been no physical damage to the law firm.

While most of these suits have been filed in state court, there are at least two plaintiffs asking the  U.S. Judicial Panel on Multidistrict Litigation to consolidate cases due to the volume of similar cases being filed. These two petitions are scheduled to be reviewed by the Multidistrict Litigation Panel in late July.

As these cases work their way through the court system, state and federal governments may try to resolve these issues via legislation. Several states, including New Jersey, New York, and Pennsylvania, have proposed bills that would require insurers to pay out coronavirus-related claims. At the time of this writing, none of the bills have passed and are being opposed by the insurance industry.

The sweeping nature of the coronavirus pandemic and how it has affected business will play out in the courts system over time, as will any potential legislation. While they procedurally work through their respective systems, it will be interesting to see if there is a rise in demand for pandemic-specific insurance policies.  Organizers of Wimbledon had the foresight to take out such a policy after seeing the effect of SARS, resulting in a payout of more than four times what they paid in insurance premiums after the 2020 tournament was cancelled because of the coronavirus. We will ultimately have to wait and see how the courts, legislation, and the insurance industry respond to these unprecedented times.

 

*To read more about the impact of coronavirus in the legal profession, check out this article on Deploying D&O and Cyber Insurance Coverage Against COVID-19 Claims.