Insights
‘The people you work with are often more important than the work you do – make sure you surround yourself with a supportive team and environment’
Great advice given to Nicole Gabryk, a key member of Legalign’s Cyber team at Wotton + Kearney in Sydney, who kickstarts our new People Behind the Suits Series interview. Nicole shares her backstory, what attracted her to the profession and other fascinating insights, including who would play her in a Netflix version of Legalign…
Nicole will be speaking on panel at the Zywave Cyber Risk Insights conference in London on Wednesday 19th April – there’s is still time to register for tickets http://bit.ly/3mwO5hn
Tell us about your journey to becoming a partner at Wotton + Kearney.
I moved from South Africa to Australia in late 2021 and requalified in a new jurisdiction (after practicing as a lawyer in South Africa for over 10 years). I have been working in cyber insurance and data protection since 2015 (at which stage the area of law and insurance was very much in its infancy) and have focused on understanding the unique challenges faced by our insurance clients as a result of the ever-growing cyber risks in the Australian market. I have been very fortunate to be surrounded by brilliant colleagues who supported my career progression to become a partner in a niche and emerging field of law.
What made you decide to become a lawyer?
I was always interested in the legal profession and how law was a field that was able to shape society. Cyber Insurance and privacy law is a new field and a fantastic area of law to be involved in as it adapts and responds to newly emerging digital challenges.
What do you think is a major issue facing your area in insurance law?
Each month the cyber landscape seems to shift – threat actors get more sophisticated and new laws are enacted (or adapted) to protect individuals in the digital era, the challenges facing cyber insurers continue to evolve – this includes everything from increased third party risks (for example higher regulatory penalties and more class action lawsuits), increased first party and business interruption costs resulting from cyber incidents and more complex regulation for insureds.
What’s the best piece of advice (work or personal) that you have been given.
The people you work with are often more important than the work you do – make sure you surround yourself with a supportive team and environment.
What do you enjoy most about being part of a global alliance
The ability to share knowledge and insights with my fellow Legalign colleagues to ensure that we are keeping up to speed with global trends that impact the insurance industry, which in turn helps me provide more informed advice for local Australian clients.
What do you get up to outside of the office
I love being outdoors with my family – we love to go fishing, head out on the boat or to the beach
Complete this sentence – If I weren’t a lawyer, I would be…
amazed to have so much time on my hands… and hopefully use that time to be off travelling to new places (so much to see, so little time)
If Legalign were a fictional law firm on Netflix, who would play you ?
As a career in law can sometimes resemble The Hunger Games … I would go with Jennifer Lawrence
Alexander Holburn is pleased to have 22 lawyers featured in the 2021 edition of The Best Lawyers in Canada®, with close to one-third of the firm’s lawyers recognized by their peers as outstanding professionals in their practice areas. Recognition in Best Lawyers is based on peer review and feedback from leading lawyers on the professional abilities of their colleagues within the same legal practice and location.
Our full listing is below. Congratulations to you all.
Recognized Lawyers – Canada
Aviation
Construction
Corporate + Commercial Litigation
Corporate Law
Family Law
Health Care Law
- F. Stuart Lang
Insurance Law
- Hollis Bromley
- Jo Ann Carmichael, QC
- Todd Davies
- Bruno De Vita, QC
- James Dowler, QC
- Laura Hanson
- David McKnight
- Robert McLennan
- Susan Sangha
Maritime Law
Medical Negligence, Personal Injury Litigation
Transportation Law
Trusts + Estates
With the Provincial vaccination delivery programs being implemented across Canada, now is the time for employers to draft and implement a mandatory COVID-19 Vaccination Policy (CVP) as a condition of continuing employment. Here, we review the considerations necessary to ensure your CVP is reasonable, necessary, and flexible so that it is both enforceable and creates a safe work environment.
Can an employer lay off or terminate an employee if they refuse to get vaccinated?
For an employer to lay off or terminate an employee who refuses to get vaccinated, the employer must invest in ensuring that its mandatory COVID-19 Vaccination Policy is reasonable, necessary, flexible and clearly implemented.
Any CVP will have to overcome the tension between an employer’s obligation to provide a safe workplace and the employee’s rights and entitlements under common law and/or collective agreement.
To begin, there are at least five issues which an employer should consider and address to create an enforceable mandatory CVP:
- Scientific evidence regarding available vaccines;
- The purpose of the mandatory CVP;
- Occupational Health & Safety considerations;
- Human Rights considerations; and
- Compliance with Privacy Laws and Avoiding Constructive Dismissal.
1. Understanding the Available Vaccines: Their Benefits and Limits
The first issue and a key challenge to implementing an enforceable CVP is that the scientific evidence regarding the vaccines is developing daily. Consider retaining an expert to provide reliable advice regarding the efficacy and reliability of the vaccines. Use this expert advice as the basis for the CVP and secure the advice in a manner so that it can be produced as evidence in support of the CVP, if necessary.
To date, Health Canada has authorized two vaccines: Moderna COVID-19 vaccine and Pfizer-BioNTech COVID-19 vaccine.
Moderna COVID-19 vaccine
Health Canada reports: “Based on studies in about 30,000 participants, the Moderna COVID-19 vaccine was 94.1% effective in preventing COVID-19 beginning 2 weeks after the second dose.”
Pfizer-BioNTech COVID-19 vaccine
Similarly, “Based on studies in about 44,000 participants, the Pfizer-BioNTech COVID-19 vaccine was 95% effective in preventing COVID-19 beginning 1 week after the second dose.”
Generally, the reported percentages mean that people vaccinated with either vaccine may still be vulnerable; of 100 vaccinated people, approximately five were reported to be COVID-19 positive, although with generally less severe symptoms and no deaths.
Further, it is not yet known whether vaccination with either vaccine means that a person cannot be a source of infection for others.
2. What is the Purpose of the Mandatory CVP?
Ask: do I need the employees (or some employees) to be vaccinated to make the workplace safe?
Some environments, such as warehouses, distribution centers, and construction sites, which are referred to as ‘congregate work settings’, require workers to work for periods of time in proximity to one another which can lead to massive COVID-19 outbreaks as reported by CTV News Toronto. These and similar work environments represent a higher risk of transmission of COVID-19 amongst workers, compared to others, and in these workplaces, it will be reasonable to implement a mandatory CVP.
However, an employer must not implement a blanket CVP but must consider whether less intrusive options for workers (or some workers) would suffice instead. Consider the potential protections offered by physical distancing, PPE, masks, plexiglass barriers and whether some employee’s job descriptions are such (or can be modified) so the employee can work from home.
Importantly, any policy for mandatory vaccination should show that it is considered, flexible, and predicated upon ensuring a safe workplace for all.
A recent decision by an Arbitrator regarding a nursing home (healthcare environment) workplace with unionized workers provides some insight into the considerations employed in the enforcement of a similar policy.
In Christian Labour Association of Canada v. Caressant Care Nursing & Retirement Homes 2020 [i], an Ontario Arbitrator dismissed a grievance challenging the reasonableness of a unilaterally imposed policy implementing mandatory COVID-19 testing.
The union tendered evidence that the employer’s policy was overbroad and argued the testing was only reasonable in circumstances where an employee is symptomatic. I note that this position did not address the employees who may be COVID-19 positive, but asymptomatic.
The employer tendered evidence that the testing was an “important tool” recognized by both medical professionals and the Ministry in controlling and tracking outbreaks. The employer allowed throat swabs instead of nose swabs when requested for medical reasons, and compensated the employees for the time taken to undergo testing conducted by third parties.
“Controlling COVID infection is not the same as monitoring the workplace for intoxicants”
Arbitrator Dana Randall held that the rationale found in drug & testing cases, relied upon by the union, was a “reasonable starting point for the analysis” because the appropriate analysis requires “weighing the privacy breach against the goals of the policy”. However, Arbitrator Randall concluded, “controlling COVID infection is not the same as monitoring the workplace for intoxicants…” [ii]
In the nursing home workplace, the intrusiveness of the test was found to be reasonable when compared to the goal which was to prevent the spread of COVID-19. Essentially, the legal determination will require a balance of the intrusion on the employee’s privacy and breach of dignity against the control of a highly infectious and potentially deadly disease.
Therefore, in support of the CVP, the employer must conduct a workplace assessment. This assessment is factual, and should also take into consideration the scientific findings and explanations regarding the protections the vaccines can or may deliver in the workplace.
We do know that vaccination combats the spread of the virus; a factor which led Arbitrator Randall to conclude: “What is known is that it is highly infectious and often deadly for the elderly, especially those who live in contained environments.” Like testing, vaccination is of limited value to the individual employee who is vaccinated, but it is of high value to the employer who is responsible for all workers, the workplace and customers.
In summary, record the workplace assessment and consult an expert for advice where necessary. This record of workplace consideration in light of applicable science will also assist in the defence of the CVP.
If an employer requires an employee to be vaccinated, and is subsequently sued or faces a human rights or labour board complaint, how can one limit or avoid damages?
3. Occupational Health and Safety Considerations
When performing the workplace assessment to form the basis of the CVP, an employer should consider its occupational health and safety obligations: generally, the Ontario Occupational Health and Safety Act (OHSA) and its regulations require employers to take every precaution reasonable in the circumstances for the protection of a worker’s health and safety.[iii]
Under this legislation, employers should consider whether all (or some) employees should be vaccinated to make the workplace safe. Employers should assess functions carried out by their workforce to ensure they take action to protect against the hazards presented by exposure to COVID-19. For example, equipment operators, material handlers, office staff, distribution or operations managers and other warehouse sector employees participate in the nature of work that requires interaction with co-workers, customers and work surfaces.
These interactions, as well as the need to touch surfaces, could increase the likelihood the employees or customers could come into contact with the virus. Some employees though may be exempt from this nature of work. Therefore, the workplace assessment is very important to ensure that the foundation for the CVP not only takes into account the functions carried out by the workforce, but it is flexible enough to reflect the different roles employed by various workers.
Employers will have to contend with opposition, however; until we know whether vaccination reduces risk of transmission to others, there is scope for employees to argue they do not wish to undergo the risk of vaccination, particularly since there is no accepted proof their undertaking of this risk will protect others.
This argument, however, does not address the fact that a person who is vaccinated likely has less risk of serious illness due to COVID-19. After a 2-week period during which a person is recognized as potentially being a contagious virus-host, the likelihood of transmission by a vaccinated person will decrease until the risk is eliminated.
When it is proven that vaccination does inhibit the ability to spread the vaccine, then the unvaccinated would be proven to represent the risk of contagion. Not only do the unvaccinated take on the risk to themselves, but they pose a risk to the five persons who are vaccinated, but who are still potentially susceptible to COVID-19.
4. Human Rights Considerations
Employers who implement a mandatory CVP must anticipate that some employees may present a medical or other (protected) reason to avoid vaccination. With a mandatory CVP, the employer may lay off the non-vaccinated employee or terminate their employment if a worker’s continued refusal to be vaccinated leads to the worker frustrating the employment contract — particularly where a work from home option is unavailable for that position.
In the event, the employee claiming a medical reason is laid off or their employment is terminated, they may file a complaint with the Ontario Human Rights Tribunal.
The employee would allege their right to be accommodated under the Human Rights Code for their disability is violated by the employer which refused to accept their medical reason to avoid vaccination.
However, a claim alone is insufficient to win an award. The employee’s claim would have to be supported by a physician who would testify regarding the reason to avoid vaccination based upon scientific evidence. (An employer who has already consulted an expert to ensure their CVP has a scientific basis will be able to show that it has obtained expert evidence supporting the mandatory vaccination policy in advance of the complaint which is credible and persuasive.)
If the employee’s scientific evidence supports a medical reason to avoid vaccination, then the employer could continue to require all employees to take precautions within the workplace, including requiring vaccinated employees to practice physical distancing (staying 2 metres away from others); minimizing contact with droplets of mucous or saliva; keeping hands, surfaces and objects clean, and preventing contact with potentially infected people for an indefinite future.
However, if the employer is unable to enforce vaccinated employees to comply with COVID-19 related restrictions (where the vaccinated employees have taken the risk of being vaccinated to alleviate the requirements to take precautions indefinitely), the employer may be able to prove that it has accommodated the non-vaccinated employee to the point of undue hardship required by Ontario Human rights law.
Employees who chose not to vaccinate could counter the employer’s undue hardship defence by arguing they do not need to attend at the workplace and, for example, explain they can perform their duties at home. However, this will have been addressed, in advance, with the workplace assessment on a position by position basis. With this evidence obtained in advance of the complaint, forming the basis for the CVP, the evidence of undue hardship for accommodation is credible and persuasive in favour of the employer.
5. Privacy & Constructive Dismissal Considerations
Implementation of the CVP contemplates requiring employees to report or prove their vaccination status and perhaps changes their job descriptions. Either aspect can lead to a breach of privacy laws or constructive dismissal.
In advance of implementation, ensure the reporting requirements comply with privacy law obligations.
Further, evaluate whether the implementation of the CVP can result in a unilateral substantial change to a fundamental term of employment for if so, the affected employee may conclude they have been constructively dismissed.
An award of damages for constructive dismissal can include significant termination costs, depending upon whether an employee has an enforceable termination provision in their employment contract, or if not, whether the employee is entitled to reasonable note at common law.
In anticipation of this issue, consider requesting and obtaining consent to the Mandatory CVP, or providing reasonable advance notice of the implementation date of the Policy, calculating roughly, one month per year of employment for the average employment term of the employees: for example, if the Policy is implemented for June 1, 2021, but not put into effect until January 1, 2022, then the employees (who do not consent) will have received 6 months notice. Whether this is sufficient notice would require a legal determination on an employee by employee basis; but as a guide, it indicates the benefit of a notice requirement for the implementation of a Policy intended to control a highly contagious and potentially deadly disease.
References
This article is intended for information only and Heather’s premise is untested (since the vaccine is not yet generally available); success will depend upon the development of scientific knowledge regarding vaccines, and a company’s evaluation of whether the requirement for the vaccine is reasonable and necessary which will require a workplace-specific assessment (i.e. healthcare v. congregate work environments) and, likely, legal advice. Use this article as a guideline but consult a lawyer for legal advice.
[i] Caressant Care Nursing & Retirement Homes and Christian Labour Association of Canada, COVID Testing Grievence, Arbitrator Dana Randall, December 9, 2020, Barrie Ontario
[ii] Emphasis added
[iii] https://www.wsps.ca/WSPS/media/Site/Resources/Downloads/covid-19-warehouses-health-and-safety-guidance.pdf
Existing Business and Opportunities Drive Expansion in Thriving Markets
New York, NY ‒ (June 1, 2021) – National law firm Wilson Elser announced today that it has expanded further in the Southeast, opening new offices in Raleigh, North Carolina, and Charlotte, North Carolina.
“Wilson Elser is pleased to be able to expand into the Tar Heel state where the firm has existing client needs,” said firm Chair Daniel J. McMahon. “This is part of our overall regional strategy, and we look forward to adding capabilities in these offices as our client base grows in North Carolina.”
The North Carolina offices will handle insurance and reinsurance coverage and defense, commercial litigation, aviation law and financial services, among others. The firm’s national Aviation Practice co-chair, Kathryn Grace, will serve as supervising attorney of the Charlotte office, and of counsel Erik Tomberg will take the helm in Raleigh.
“North Carolina’s key industries include banking, transportation, biotechnology and pharmaceuticals, health care and information technology,” said Wilson Elser Managing Partner R. Douglas Noah. “We represent leading businesses in these industries and provide a range of legal services from aviation litigation, to products liability and regulatory matters, to life sciences, transportation and cybersecurity, so this move plays well to several of our strengths.”
“People are relocating to the Carolinas,” he added. “Wilson Elser belongs in North Carolina.”
In addition to Ms. Grace and Mr. Tomberg, two senior associates are joining the North Carolina offices. They are David Williams, who will work in Raleigh, and Jamie Winokur, who will work in Charlotte.
This most recent expansion gives the firm 41 offices in the United States and solidifies the coverage Wilson Elser provides in the Southeast. The Charlotte and Raleigh offices join 14 established full-service offices in Georgia, Florida, Tennessee, Kentucky, Alabama, Mississippi, Louisiana and Texas. For decades, Wilson Elser has maintained a strong presence in the Mid-Atlantic and Northeast.
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About Wilson Elser
Wilson Elser helps individuals and organizations transcend challenges and realize goals by offering an optimal balance of legal excellence and bottom-line value. More than 800 attorneys strong, Wilson Elser serves clients of all sizes, across multiple industries and around the world. Wilson Elser has a national network of strategically located offices in the United States and another in London. It is a founding member of Legalign Global, a close alliance of some of the world’s leading insurance law firms created to assist companies doing business internationally. This depth and scale make Wilson Elser one of the nation’s most influential law firms, ranked 105 in the AmLaw 200 and 57th in The National Law Journal’s NLJ 500. For more information, go to www.wilsonelser.com.
Five Wilson Elser attorneys were named to the prestigious Chambers USA 2021 Guide. Law firms that have a national presence also are ranked in the Nationwide tables, which focus on those firms that are the country’s best in their respective areas of practice.
Cannabis Law: Western United States and Nationwide
Dean Rocco (Partner-Los Angeles, CA) and Ian Stewart (Partner-Los Angeles, CA). This section encompasses the full spectrum of work involving companies in the cannabis industry. Ranked firms and lawyers will show strong ties to the sector. Types of work may include, but are not restricted to M&A and financings; intellectual property for cannabis-based products and medicines; and regulatory compliance and litigation, on either a statewide or federal basis. This is the first year Cannabis Law has been represented in the regional categories.
Insurance, New Jersey
Thomas Quinn (Partner-Florham Park, NJ). The Chambers Insurance category includes both contentious and non-contentious insurance and reinsurance matters. On the contentious side, are coverage claims litigation, brokers` negligence and both facultative and treaty reinsurance disputes. There is also an element of professional negligence issues arising from insurance disputes. On the non-contentious side are all forms of M&A, capital raisings, demutualization and other regulatory issues. Chambers also recognized Tom Quinn in its 2020 Guide.
Transportation: NTSB Specialists – Nationwide
Thomas Tobin (Partner-White Plains, NY | New York, NY). Transportation is a broad industry category that covers a number of discrete areas. Attorneys highlighted in this practice area are those offering significant capabilities in transactional, regulatory and contentious issues affecting road carriage and logistics operations. Chambers added NTSB Specialists – Nationwide to the Transportation category in 2021. Tom is the only attorney ranked in this category. Chambers recognizes Tom’s skills in managing “business-critical investigations on behalf of pipeline companies following damaging and fatal explosions” and acknowledges his years of experience in representing rail and road sector companies in National Transportation Safety Board proceedings. Tom also assists aviation operators with NTSB investigations.
Transportation: Shipping/Maritime Litigation (outside New York) Nationwide
Antonio J. Rodriguez (Partner-New Orleans, LA). This section encompasses shipping and maritime litigation involving breach of charter-party disputes, cargo and bills of lading claims, the arrest of vessels and cargoes, marine insurance claims, collision, salvage and environmental liabilities. On the noncontentious side, law firms advise on contractual arrangements for construction, financing and registration of vessels, customs and licensing, and documentation relating to charter-parties and bills of lading. Chambers also recognized Antonio Rodriguez in its 2020 guide.
In an order dated December 15, 2020, a California federal court found in favor of an insurance broker, dismissing a professional negligence claim whereby the plaintiffs alleged that the broker failed to procure business interruption coverage sufficient to cover business interruption losses arising from COVID-19.
Background
On June 26, 2020, the plaintiffs, entities that provide rehabilitative and medical-surgical services, filed a complaint in California state court against an insurer and an insurance broker. The Complaint alleged that the insurer breached its business interruption insurance policy with the plaintiffs by denying them coverage for losses caused by the COVID-19 pandemic. In addition, the Complaint alleged a negligence cause of action against the broker that sold the plaintiffs the policy for failing to obtain appropriate coverage, failing to accurately represent and report the coverage obtained, and failing to properly warn the plaintiffs of potential coverage limitations, gaps or exclusions.
On August 26, 2020, the defendants removed the action, asserting that the court had diversity jurisdiction because the plaintiffs were all citizens of California, the insurer was a citizen of Connecticut, and, while the broker also was a citizen of California, the defendants asserted that the broker was fraudulently joined and so its citizenship should not be considered. The plaintiffs moved to remand, contending that the broker was not a sham defendant.
Arguments
The insurer argued that the plaintiffs could not establish a cause of action for negligence against the broker because in California an insurance agent ordinarily only has an “obligation to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.” The insurer further argued that none of the exceptions applied that would give rise to a heightened duty of care.
Conversely, the plaintiffs argued that three exceptions applied that created a heightened duty of care owed by the broker. The plaintiffs reasoned that while insurance agents generally do not have “a duty to volunteer to an insured that the latter should procure additional or different insurance coverage,” that rule does not apply when (1) the agent misrepresents the nature, extent or scope of the coverage being offered or provided; (2) there is a request or inquiry by the insured for a particular type or extent of coverage; or (3) the agent assumes an additional duty either by express agreement or by “holding himself out” as having expertise in a given field of insurance being sought by the insured. The plaintiffs argued that all three exceptions were applicable.
Ruling
The court held that the broker was not negligent because none of the exceptions applied. Specifically, the court ruled that (1) a broker warranting that the plaintiffs would receive “full and adequate insurance” is a generalized statement that is insufficient to amount to a misrepresentation that would trigger a heightened duty; (2) the broker did not have an affirmative duty to warn of potential coverage gaps or exclusions absent a specific inquiry; and (3) the broker was not “holding out” as having expertise when it discussed business interruption coverage on the broker’s website.
The court ruled that since none of the exceptions to the general rule applied, the plaintiffs could not prevail on their negligence claim against the broker. The court therefore dismissed the negligence claim against the broker and denied the plaintiffs’ motion for remand, as removal based on diversity jurisdiction was proper.
In one of the first decisions in the country with respect to insurers’ obligations to their insureds for COVID-19 claims in the context of commercial liability coverage, one court has found a duty to defend under a commercial general liability (CGL) policy. In McDonald’s Corp., et al. v. Austin Mutual Insurance Company, 1:20-cv-05057, the federal district court held that a claim for injunctive relief requiring McDonald’s to enact more stringent safety protocols and provide additional training to franchisees and their employees on preventative measures to avoid the spread of COVID-19, constituted a claim for “‘damages’ because of ‘bodily injury’” triggering a defense obligation.
Background
On May 19, 2020, five employees of two Chicago McDonald’s franchises, along with four of their live-in family members, filed a lawsuit against several McDonald’s entities and the two local franchisees (collectively “McDonald’s” or “Insureds”) styled as Massey, et al. v. McDonald’s Corp, et al., Case No. 2020CH04247 in Cook County, Illinois (the Massey suit).
The Massey suit alleges that the Insureds are liable for remaining open during the pandemic without additional protections. Three of the underlying plaintiffs contracted COVID-19 or were sick with symptoms consistent with COVID-19. The Massey lawsuit alleges the plaintiffs and other employees are vulnerable to bodily injury because they risk exposure to the disease because of their unsafe work environment. The Massey suit further alleges that the lack of protections harms the public because an infected employee or customer is likely to spread COVID-19 to others since it is highly contagious. The Massey suit seeks an injunction requiring McDonald’s to supply workers with additional protective equipment, enforce policies for mask wearing by employees and customers, monitor infections and alert workers to possible exposure, and provide additional training on preventative measures to stop the spread of COVID-19.
Importantly, the Massey suit did not seek any monetary or compensatory damages, and none of the Massey plaintiffs specifically allege that they contracted COVID-19 at the Insureds’ premises. In June 2020, the underlying state court agreed and granted the preliminary injunction in part, requiring McDonald’s and the franchisees to provide workers at multiple locations with additional social distancing training and mask enforcement procedures.
The Insureds sought coverage under two Business Owner policies issued by Austin Mutual Insurance Company, but Austin Mutual denied coverage. The Insureds filed their coverage action seeking declaratory judgement that Austin Mutual owed a duty to defend the Massey suit and alleging breach of contract, seeking more than $1.5 million in defense costs as of the time of filing. The Insureds also alleged bad faith under section 155 of the Illinois Insurance Code seeking their costs and attorneys’ fees in the coverage action. Austin Mutual moved to dismiss the entire complaint for failure to state a claim on the basis that the underlying claim for injunctive relief did not state a claim for “damages because of ‘bodily injury,’” as those terms are used in the policy.
Holding of the Court
In denying Austin Mutual’s motion to dismiss, the Court held that the underlying Massey suit at least potentially alleged “damages because of ‘bodily injury’” sufficient to trigger a defense obligation. The Court held that the costs to comply with the mandatory injunction are “damages” for purposes of a liability policy. The Court reasoned that the Massey suit was seeking damages because it required the Insureds to spend money to comply with the mandatory injunction to remediate the “continuous and ongoing exposure” to the virus.
Illinois courts generally interpret the phrase “because of bodily injury” much more broadly than policies that provide coverage “for bodily injury.” Consequently, the Court held that “but for” causation is sufficient to trigger coverage, and that “but for” the Massey plaintiffs’ contraction of COVID-19, the insureds would not have incurred “damages” to comply with the injunction. Of note, in adopting this expansive “but for” reading, the Court relied on Cincinnati Ins. Co. v. H.D. Smith, L.L.C., 829 F.3d 771 (7th Cir. 2016), wherein the Seventh Circuit reasoned that the state of West Virginia’s suit to recover costs to address its opioid epidemic triggered coverage, as some of those costs were “because of bodily injury” to its citizens, even though West Virginia did not incur “bodily injury.”
The Court further held that the Massey suit alleged “bodily injury” since three of the Massey plaintiffs alleged that they contracted COVID-19 and/or became sick. While the Court held that this alone was sufficient, the Court further found a second “bodily injury” claim based on exposure to the virus relying on certain cases under Illinois law, “exposure to potentially harmful contaminants [can] constitute bodily injury even without the manifestation of sickness or disease.”
The Court acknowledged it was a “close call” and the Insureds’ “weakest” point is how the mandatory injunction would remediate the “bodily injury” from the employees that had already been sick. However, the Court found that the injunctive relief sought, i.e., the protective measures, would decrease the risk of “bodily injury” from exposure to the virus. While noting that Austin Mutual may have the better interpretation, the Court found there was at least the potential for coverage to trigger a defense under the broad duty to defend standard. Finally, the Court noted approvingly of the Insureds’ argument that had Austin Mutual intended to exclude “bodily injury” due to a virus, it could have included a specific virus exclusion but failed to do so.
Although Austin Mutual also moved to dismiss the section 155 claim for bad faith, this was not addressed in the Court’s opinion. In Illinois, no bad faith claim can be asserted where there is a bona fide dispute concerning coverage; a mere incorrect denial is insufficient. Given the Court’s comments that it was a “close” call, it is surprising the Court did not dismiss or at least address the bad faith claim.
Analysis
The Court’s holding is not without issues and the decision is not necessarily outcome determinative on future claims. The Court is embracing an extremely broad interpretation of the phrase “because of ‘bodily injury,’” and one that is far from universally accepted across other jurisdictions. The opinion is unclear as to whether actual exposure must be part of the allegations in order to trigger coverage. Further, although the Court stated that the claim for injunctive relief triggered the duty to defend, the ruling is only in the context of denying a motion to dismiss for failure to state a claim, not summary judgment. Perhaps most importantly, the Court declined to address potentially relevant exclusions, finding that such arguments, having not been raised by Austin Mutual in its initial briefing, were waived. The Court’s decision, as such, does not forestall arguments that exclusions may apply to bar coverage, and the Court suggests that a virus exclusion in a liability policy could support a denial of coverage.
Given the circumstances, and the potentially broad impact this decision could have on COVID-19 coverage, it will not be surprising if Austin Mutual seeks to appeal the decision. The question, however, is when an appeal may rise. As noted above, this is not a final order, though Austin Mutual may have an option for an interlocutory appeal. Although not yet decided in the Seventh Circuit, several other circuits have found trial court orders requiring an insurer to defend an insured are immediately appealable injunctions under 28 U.S.C §1292(a)(1). This will continue to be a case to watch closely.
Since this is one of the first decisions concerning the duty to defend insureds for COVID-19 claims under a CGL policy, insurers should be aware of the Court’s holding. Insurers should anticipate policyholders attempting to expand the scope of “‘damages’ because of ‘bodily injury’” in Illinois and other jurisdictions going forward. The opinion also has implications far beyond COVID-19 claims under commercial general liability policies, and this broad interpretation may apply with respect to other claims seeking injunctive relief and the opioid litigation in the Seventh Circuit as anticipated by Cincinnati Ins. Co.
Like the opening bell on the trading floor of the Stock Exchange, the reintroduction in Congress last week of the long-awaited Secure and Fair Enforcement (SAFE) Banking Act and related Clarifying Law Around Insurance of Marijuana (CLAIM) Act was a call to action for carriers and insurance brokers across the country. Together, the bills create a legal safe harbor for providing financial and insurance services to cannabis-related businesses. If passed, these bills will be a game-changer for banks and insurance companies that wish to engage with plant-touching cannabis businesses and the multitudes of ancillary service providers that support the cannabis industry. Below, we describe how this pending legislation may impact the existing and future cannabis insurance industry and certain types of cannabis-related risks.
The Current U.S. Cannabis Insurance Market
There are upwards of 30 surplus lines carriers and several managing general underwriters that currently service the cannabis industry across many lines of coverage. There also is a small handful of admitted carriers that operate in California, and most recently in Arizona. The market capacity for property, commercial general liability, product liability and workers’ compensation coverage has expanded to the extent that it is now relatively easy for most licensed cannabis operators to find multiple coverage options. Those policies nevertheless remain more expensive than policies purchased by similarly situated companies in other markets. Other cannabis coverages have shown steady improvement, such as auto, pollution, indoor crop, crime and fidelity. Locating adequate excess insurance limits remains a problem for the larger cannabis verticals, though this, too, is steadily improving. Available and affordable options remain limited for the specialty coverages of directors and officers (D&O), errors and omissions (E&O) and cyber – those markets remain fragmented and unduly expensive.
Most large commercial insurance carriers – and particularly those that are publicly traded – remain hesitant to offer cannabis-related coverage due to ongoing fear of federal illegality. Concerns over reputational risk, meanwhile, have largely evaporated with increasing social acceptance of cannabis across age groups and political affiliations. We point out, however, that it is becoming increasingly difficult for carriers to verify that they have no “cannabis risks” on the books due to the thousands of ancillary companies that provide products and services to the cannabis industry.
The Forces that Have Paved the Way for Cannabis Insurers
Several developments have helped to speed the growth of the cannabis insurance industry over the past few years. Legalization in Canada paved the way for international insurance markets – most notably the London market – to enter (or re-enter) the space, and provided a means for developing the underwriting skills and metrics needed for eventually entering the riskier U.S. market. The 2018 Farm Bill likewise provided a pathway for carriers to enter the space by insuring what they have perceived as less-risky hemp and hemp-derived products, including CBD (cannabidiol). [Incidentally, we disagree that unregulated hemp-derived CBD is less risky to insure than regulated THC marijuana, but that’s a subject for another time…]
The cannabis insurance industry also has benefited from market forces and hindsight with the passage of time. Under the current and past two administrations (and despite early fears that federal enforcement would increase under the Trump Administration), the federal government has exhibited no interest in prosecuting plant-touching or ancillary companies engaged in state-compliant commercial marijuana activity. Relative to the insurance industry in particular, there has been no reported federal action taken to date against any insurance company or broker that works with state-compliant marijuana businesses.
The 2020 election created a significant shift that furthered the momentum toward cannabis reform at the federal and state levels. In addition to Democrats winning the presidency and controlling both chambers of Congress, five states passed ballot initiatives to legalize adult-use marijuana and medical marijuana. This included voter initiatives in Arizona, Mississippi, Montana, New Jersey and South Dakota, bringing the total number of medical marijuana states to 35 and adult use states to 15. One in three Americans now lives in a state where recreational marijuana use is legal. One should expect a further “domino effect” as 2021 progresses, with new adult-use legislation moving forward in multiple states in the Northeast, Mid-Atlantic and Upper Midwest regions.
Nothing so far, however, has the potential to “juice the market” like passage of the SAFE Banking and CLAIM acts, so now we turn our attention to the details of these two bills.
SAFE Banking Act
The SAFE Banking Act, reintroduced in 2021, was first introduced in March 2019 and has been passed by the U.S. House three times, most recently in September 2019. No Senate floor vote was allowed, however, prior to the recent change in control of the Senate. With bipartisan support and recent endorsements by the American Bankers Association, the Credit Union National Association and others, prospects for passage in the Senate appear good.
Banking Protections
The bill creates a safe harbor for depository institutions, including banks and credit unions, to the extent they would not be liable or subject to federal forfeiture action for providing financial services to a cannabis-related business. Key protections of the bill include prohibiting a federal banking regulator from:
- Terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a cannabis-related business
- Prohibiting or otherwise discouraging a depository institution from offering financial services to such a business
- Recommending, incentivizing or encouraging a depository institution not to offer financial services to an account holder solely because the account holder is affiliated with such a business
- Taking any adverse or corrective supervisory action on a loan made to a person solely because the person either owns such a business or owns real estate or equipment leased to such a business.
Lending Protections
The SAFE Banking Act further prevents regulators from taking a corrective supervisory action on a loan made to a person or entity solely because the loan is affiliated with a cannabis-related business. Loans designed for leasing real estate and equipment to cannabis businesses are explicitly protected. The bill also prevents financial regulators from incentivizing banks not to offer services to accountholders solely because they are affiliated with a legitimate cannabis-related business.
New Federal Guidance Expected
If SAFE Banking passes, one should expect new federal guidelines for banks and other financial institutions about how to work lawfully with legal cannabis businesses. The bill directs the Secretary of the Treasury to ensure that new Financial Crimes Enforcement Network (FinCEN) guidance is consistent with the purpose and intent of the SAFE Banking Act.
CLAIM Act
The CLAIM Act was reintroduced in mid-March 2021 to coincide with the reintroduction of the SAFE Banking Act. It will “create a safe harbor for insurers engaging in the business of insurance in connection with a cannabis-related legitimate business, and for other purposes.” If passed, the CLAIM Act is expected to open the insurance market to more competition, provide greater capacity, assist with lower premiums and entice new markets for hard-to-place risks such as D&O coverage and other specialty policies. It also will likely reinvigorate an anemic cannabis reinsurance market. In addition, the legislation will ensure that ancillary businesses supporting the cannabis industry, such as landlords, security, technology vendors, design professionals, legal and accounting, may continue to offer products and services without fear of losing their insurance.
The CLAIM Act will:
- Prohibit penalizing or discouraging an insurer from providing coverage to a state-sanctioned and regulated cannabis business, or an associated business
- Prohibit the termination or limitation of an insurer’s policies solely because the insurer has engaged in the business of insurance in connection with a cannabis-related business
- Prohibit recommending, incentivizing or encouraging an insurer not to engage in the business of insurance in connection with a policyholder, or downgrade or cancel the insurance offered to a cannabis or cannabis-related business
- Prohibit the federal government from taking any adverse or corrective supervisory action on a policy issued to (1) an owner or operator of a cannabis-related business or (2) real estate or equipment that is leased to a cannabis-related business, solely because the owner or operator is engaged with a cannabis or cannabis-related business
- Protect employees of an insurer from any liability solely for engaging in the business of insurance with a cannabis or cannabis-related business.
New language in the legislation expands the definitions of “cannabis-related business” and “financial services.” The bill will protect any financial service relating to cannabis, including such services as retirement plans and exchange-traded funds, as well as real estate and ancillary services. Financial payments “made by any means” are protected, such as through credit cards and electronic funds transfers.
The CLAIM Act also includes a requirement that the Government Accountability Office (GAO) will study and issue a report on “barriers to marketplace entry, including in the licensing process, and the access to financial services for potential and existing minority-owned and women-owned cannabis-related legitimate businesses.”
Senator Bob Menendez (D-NJ), co-sponsor of the bill, believes the legislation is badly needed in his state: “The voters in New Jersey spoke loud and clear this November when they overwhelmingly approved of recreational marijuana use, the governor and state legislature have acted, and now it’s time for the federal government to take the shackles off of state-authorized cannabis businesses, allowing this burgeoning industry to thrive.” He added that the legislation “simply levels the playing field for legal cannabis businesses, allowing them to fully operate just as any other legal small business would by permitting insurance companies to provide coverage to these enterprises without risk of federal prosecution or other unintended consequences.”
Senator Rand Paul (R-KY), another co-sponsor, agrees: “The states are making their own decisions on these issues, and it’s time for the federal government to accept that,” he said.
Analysis
Although the multibillion-dollar legal marijuana industry has thrived despite federal illegality, banking and insurance reform is badly needed to normalize the business operations of cannabis companies and to provide protections against the theft and violence attendant with a cash-heavy industry. It is easy to see how cannabis businesses will benefit from more competition among insurers through lower premiums, higher limits and more choice in specialty coverages. Although the benefits to the insurance industry are more nuanced, the reforms should result in reducing the frequency and severity of cannabis-related insurance claims and losses in ways both predicable and less obvious.
D&O and Other Management Liability
The SAFE Banking and CLAIM acts should have a meaningful impact, for example, on the factors that have prevented carriers from underwriting cannabis D&O and other management liability policies. Because traditional financing options are unavailable to cannabis companies, most have instead obtained capital through the use of private investment, foreign exchanges, an IPO or a reverse takeover of an existing public company, primarily in Canada to date. Given the quickly evolving dynamics of the cannabis industry, however, disclosure of risks to investors through private placement memoranda or other means can be a significant challenge. Cannabis operators are confronted with a regulatory minefield, and some even have been tempted to violate state regulations as they weigh strict compliance versus growth with only limited sources of new capital available.
These perceived omissions and outright regulatory violations have given rise to substantial management liability exposure that to date has been largely uninsured or underinsured. As the losses pile up and insurers retreat from the market, cannabis companies wishing to attract badly needed talent cannot locate the insurance coverage demanded by would-be directors and officers. This dynamic has led to a predictably vicious cycle of management errors, claims, losses, insurance premium hikes, policy renewal declinations and carriers exiting the market. The pending legislation, however, may serve as a “reset” button of sorts to allow the beginnings of a new virtuous cycle for this important insurance coverage.
Theft Losses, Crime and Fidelity Coverage
Theft of cash experienced by cannabis retailers, distributors and other operators has become one of the most common cannabis-related insurance claims. Depending on whether the theft is committed by a third party or an employee, these claims have triggered property, crime and fidelity coverages.
Business Disputes and Litigation
Cannabis business disputes that are predicated on cash payments and associated accounting errors have resulted in substantial litigation that could have been avoided with access to banking and other financial services.
Product-Related Exposures
The majority of cannabis product-related claims and lawsuits have been the result of contamination and label and testing failures. Banking and insurance reforms should help pave the way for important new players such as large food safety laboratories and established manufacturing professionals to enter the space and provide improved quality assurance with a corresponding reduction in product recalls, label suits and consumer class actions.
Captives and Risk Retention Groups
Several factors make the cannabis industry attractive for insurance captives and risk retention groups. It is a highly regulated industry where companies must silo their operations in an environment of limited and expensive insurance coverage. Up to now, few cannabis captives have been formed due to fundamental problems − states have refused to domicile cannabis captives, and there has been a lack of fronting carriers and reinsurance. All of these barriers largely have been lifted, with several states and offshore jurisdictions now domiciling cannabis captives, and an increased availability of fronting paper and reinsurance. The passage of the SAFE Banking and CLAIM acts should assuage any remaining concerns by regulators who are asked to approve cannabis captives and risk retention groups, and by cannabis companies looking at a potential offshore captive domicile.
The Bell Is About to Ring
The cannabis market is not slowing down in the United States or globally. Recent forecasts have U.S. sales reaching $41.3 billion within five years at a compound annual growth rate of 15 percent. To safely accommodate public demand, this industry needs stability with access to the full suite of risk management tools available to other market sectors. In the absence of broad federal legalization, partial normalization through banking and insurance protections is good for cannabis companies, their insurers and the millions of consumers who have embraced regulated cannabis products. Insurers should be ready to move when the bell rings!
Wotton + Kearney has appointed James Clohesy, a highly regarded insurance liability specialist, as Special Counsel in its Sydney office. James is known for his excellent work in advising on property and construction third party claims, as well as intentional torts, general and product liability matters.
James, who will be joined by two more colleagues from Sparke Helmore, Jesse Pereira and Laura O’Toole, said: “I’m excited to be joining Wotton + Kearney. I’ve been really impressed by the calibre of the liability team, its collaborative approach to achieving outcomes for its clients and the firm’s People First culture.”
James is known for his work in the energy, construction, government and infrastructure sectors and his ability to clearly and quickly identify key issues. He has also achieved significant success in pursuing recovery actions for his clients.
Charles Simon, leader of W+K’s General Liability practice commented: “James is an outstanding addition to our rapidly growing team. Our growth story is driven by our ongoing desire to ensure we always have the best lawyers available to provide outstanding service to our clients. James’s expertise, combined with that of our wider national liability team, will ensure Wotton + Kearney continues to respond to the needs of the insurance market. We’ll be announcing more senior appointments joining our national liability team in the coming months.”
You can view James’s profile here.
Four insurance leaders in Australia have joined the inaugural CEO Skydive, an initiative that aims to raise funds for mental health research and programs that reduce the incidence of mental illness and suicide.
Organised by not-for-profit Black Dog Institute (BDI), the event saw 15 bosses skydive with Experience Co on April 30 in Wollongong for the benefit of mental health research – with the total funds reaching an impressive $200,000.
James Baum (Aon), Damien Coates (DUAL), Stefan Feldmann (HDI Global), and David Kearney (Wotton + Kearney) were part of the group of CEOs who skydived – with their jumps recorded or live streamed so that loved ones, co-workers, and friends could watch from home.
Kearney commented that the experience took him and the other bosses out of their comfort zone, adding: “It was worth it because it gave us the platform to raise awareness about mental health issues and raise funds for the Black Dog Institute.”
Coates, a BDI mental health ambassador, added: “This was an exhilarating experience for all of us. I’m so proud that of the 15 CEOs who skydived, four were from the insurance industry. It shows just how important we consider the issues of mental health.”
BDI is a clinical organisation that focuses on diagnosing, preventing, and treating mood disorders, such as depression and bipolar.
Despite swearing that he would never skydive, Baum still joined other leaders in the mental health initiative. He summed up the experience, saying: “It’s hard to choose another word other than ‘exhilarating’. I wasn’t quite sure when we got in that plane but once we edged out of that door it was amazing. I really want to thank everyone for supporting the Black Dog Institute to do what they do.”
Speaking about Aon’s relationship with BDI, Baum told Insurance Business: “We provide funding to the Black Dog Institute on an ongoing and annual basis as they’re our charitable partner. So, this event is in addition to what we would normally do with them.
“Also, the Black Dog Institute is a little bit different from other mental health organisations as they’re a clinical organisation and they do clinical studies. So, we do a lot of focus groups with them as well, which is really helpful for them. They come in and talk to our colleagues about their experiences, and we’re more than happy to provide time for BDI.”
Feldmann added: “It was unreal to be jumping out of a plane and falling through the clouds, which makes you realise just how fast you fall. I also want to thank everyone for their words of encouragement and support.”
Wotton + Kearney attracts highly regarded property, construction and energy team from Sparke Helmore
A team of highly regarded insurance lawyers is set to join Wotton + Kearney’s pre-eminent Property, Construction and Energy team from Sparke Helmore. The team includes partner Wes Rose, special counsel Anthony Mangafas, senior associates Marnie Hasler and James Sutherland, and associates Dena Patterson, Ryan Owens and Tshering Lama.
“Our Property, Construction and Energy team has been very busy in the specialist sectors that have been boosted by huge public and private investment in construction and infrastructure over the last decade. With the infrastructure investment commitments made by state and federal governments, we expect that demand will continue over the next 5-10 years. By growing our market-leading team we can augment our current offering and respond to our clients’ immediate and future needs,” said firm Chief Executive Partner David Kearney. “With the group led by Adam Chylek, our now six partner strong team offers the regional and local insurance market unrivalled depth and expertise across the Power Gen, Mining, Gas, Rail, Construction & Infrastructure, Renewables and Commercial and Industrial Property sectors.”
Adam Chylek, W+K’s Property, Construction and Energy Leader, added: “We are really excited about Wes joining us next week and his team following shortly afterward. We’ve worked with and against Wes and his team over many years and he has an excellent reputation with local institutional and niche insurers, the London market and self-insured engineering firms, and he is well-known to many of Wotton + Kearney’s key clients.”
Wes Rose is market-recognised for his expertise in construction, property and energy and ability to quickly identify factual and technical issues. He combines exceptional legal insight with hands-on industry experience, which he gained earlier in his career as a site manager. Wes advises on coverage, defence and recoveries across construction, engineering, power generation, manufacturing, distribution and agriculture sectors.
The decision to move to Wotton + Kearney with his team was an easy one for Wes. “Wotton + Kearney’s sole focus on insurance law means it has absolute clarity in its vision and strategy, this coupled with its progressive business structure, collaborative culture driven by genuine industry leaders means that it is the best place for me and my team to assist our clients in what are unusual and challenging times. Joining Wotton + Kearney means the Property, Construction and Energy team is now unrivalled in the region in terms of size and depth of talent and that’s great news for our clients. To be part of putting this together and building on it in the years to come is a once in a career opportunity.” he said.
You can view their full profiles at the links below.
Wes Rose – Partner
Anthony Mangafas – Special Counsel
Marnie Hasler – Senior Associate
James Sutherland – Senior Associate
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