HOW WILL COVID-19 COVID-19 AND ITS IMPACT INSURANCE IMPACT ON MEDICAL AGENTS/ BROKERS PROFESSIONAL E&O; MINIMIZING LIABILITY: FIRST EXPOSURE DURING IMPRESSIONS AND AFTER THE

PANDEMIC 2020 D&O SYMPOSIUM

Vol.XXXIX | Second Quarter 2020 CONTENTS

3 Building Momentum with Robbie Thompson

4 How will COVID-19 Impact Insurance Agents/ Brokers E&O; Minimizing Exposure During and After the Pandemic

7 PLUS University

8 Bitcoin Insurance? The Emerging Market for Digital Asset Insurance

16 Disasters, Catastrophic Events and Pandemic: Identifying and Understanding the Agent/Broker E&O Risks, and Preparing to Defend the Coming Wave of E&O Claims

24 PLUS RPLU Designation: Online eLearning

26 Why Not Record It?: Legal Considerations for Recording Agency Phone Calls

28 COVID-19 and its Impact on Medical Professional Liability: First Impressions

38 PLUS Board & Awards Call for Nominations BUILDING MOMENTUM with Robbie Thompson CEO

At first it was hard writing this quarterly column under the heading of “Building Momentum”. PLUS was building overwhelming momentum and having its most successful first quarter in recent memory. The D&O Symposium had its highest attendance and sponsorship support in three years, and the evaluations were easily some of the strongest we’ve seen. The same can be said for the Cyber Symposium—it was the largest in the history of PLUS with excellent content. The content planned for a re-imaged Healthcare Symposium was fantastic and attendance was trending ahead of previous years. Chapters were heading into another successful year with great events planned, sponsorship levels up, and passionate leadership. PLUS sent renewal notices in the first quarter to the highest number of members it has ever had. The RPLU modules that have been converted to virtual were being ordered at a higher rate than ever with more accessed by members in first quarter 2020 than in 2019 in total. And the PLUS Board had just adopted an amazing visioning plan through to 2023 that we were just getting started on. That is surely momentum. Clearly, it was building. Then the COVID-19 crisis hit. And it seemed like for a moment, the momentum stopped – or at least slowed.

Staff and volunteers went from planning events to moving dates and renegotiating contracts. As they should, members were concentrating at taking care of their families, clients, and getting adjusted to new work environments, and thus membership renewal slowed (it has since picked up and PLUS extended the renewal date to May 15). We had to cancel the in-person Healthcare & Medical PL (HMPL) Symposium and all Chapter events at least through July. We are moving our in-person PLUS Universities to virtual as we did with Cyber University. And the PLUS staff, like most members, had to shift to working from home (luckily, we were already prepared for that) and meeting with volunteers virtually. So, yes, momentum surely slowed.

That could have been that. But we felt like this is the time members need PLUS most: a time to rise up and unite more than ever. The staff and volunteers at PLUS pushed through the slowed momentum to build new momentum. We moved Cyber U to virtual and ended up serving more people than the last two Cyber U’s combined. We moved HMPL to virtual and had more people view the virtual sessions then have been at an in-person HMPL Symposium in many years. We are converting PLUS University to provide for an amazing virtual experience that puts attendees well on the path to their RPLU. We are converting curriculum modules to virtual modules even faster and are putting all exams for non-virtual modules online so people can get their RPLU completely online. We have held almost a dozen COVID-19 related webinars and podcasts to quickly get relevant information to members. The EPLI COVID-19 webinar was by far our largest ever with more than 1,200 people registered. We are diverting more resources to plan webinar series on management liability, reinsurance, brokering, claims, and of course hot topic webinars on cyber, D&O, healthcare and more. And chapters are finding unique ways to deliver content and networking from a distance.

Now that I reflect on it, PLUS is still building momentum. It is still serving its members, meeting expectations, and uniting the industry. It is adapting to build that momentum differently, but it is still building, and we promise to continue to do so. Thank you for being a part of this continued momentum building, and on behalf of all the PLUS staff and the PLUS Board, please be safe and stay healthy.

Q1 2020 PLUS Journal | 3 HOW WILL COVID-19 IMPACT INSURANCE AGENTS/ BROKERS E&O; MINIMIZING EXPOSURE DURING AND AFTER THE PANDEMIC 01 BY: MICHELLE M. ARBITRIO

4 | Q1 2020 PLUS Journal Although health care workers have been the primary focus and could result in economic devastation for insurance of anticipated litigation that will result from COVID-19, companies. Specifically, a broad mandate is unviable the tentacles of pandemic litigation are now starting to in cases where COVID losses clearly are not covered permeate tangential players and coverages. Presently, the pursuant to the plain language of the policy, and where insurance industry is seeing an onslaught of business the carrier has not underwritten for the potential losses. interruption claims, as businesses slow down or shut down In such situations, the legislative action fails to account as a result of various permutations of “shelter-in-place” for the business model that underlies the insurance orders throughout the country and the world. There are process, i.e. that the insureds have not paid the premium early indications that, if and when carriers deny coverage to fund the risk that the carrier never intended to cover. for COVID-related claims, insurance agents and brokers will emerge as another “deep pocket” that businesses can Assuming that business interruption and related target to attempt to recover COVID-19 losses. Industry COVID-19 losses will not be entirely covered by insiders are speculating that insurance agents and brokers insurance carriers, either pursuant to policy language or errors and omissions claims will be a part of the next legal mandate of coverage, the next wave of litigation wave of COVID-19 lawsuits to rock the industry. It is will likely target insurance agents and brokers for anticipated that claimants will generally allege that the failure to procure necessary coverage. It is anticipated agent or broker failed to procure appropriate coverage for that there will be a brief delay in the filing of insurance a panoply of COVID-related losses. agents errors and omissions lawsuits, because the tail on insurance agent and broker errors and omissions is Insurance carriers who underwrite high volumes of longer than the underlying coverages (i.e. there is usually errors and omissions policies are watching closely as an initial denial of coverage before parties pursue their this situation unfolds, because legislative action may insurance agent or broker for errors and omissions). change the potential liability risks for insurance agents It is anticipated that plaintiffs will base claims against and brokers. As of the date of publication of this article, insurance agents and brokers on alleged failure to government officials have discussed the possibility of procure business interruption coverage for losses related implementing drastic measures to remedy the massive to viral outbreaks and government ordered shutdowns nation-wide business losses, including mandating that related to viral outbreaks. Insurance agents and brokers carriers provide insurance coverage for COVID-related will likely posit an array of defenses including but not losses that would not otherwise warrant coverage limited to arguing that the insureds did not request pursuant to the policy language. this type of coverage; that this type of loss was neither anticipated nor foreseeable; that it was not the industry A broad, sweeping mandate for coverage has the standard for insurance agents and brokers to recommend unprecedented potential to disrupt the delicate fiscal and/or procure business interruption insurance for viral balance of the insurance carrier’s business model, but outbreaks and government shutdowns related to same; could serve to absolve insurance agents and brokers and that, in any event, this type of coverage was not of liability risk related to these claims. The business of readily available. insurance is predicated upon an underwriting process that includes assessing risk, ascribing cost to the risk With claims against insurance agents and brokers at issue, drafting fine-tuned policy language outlining are likely imminent, insurance agents and brokers the parameters of the specific risk, estimating the are receiving a voluminous influx of questions from premium necessary to fund the risk class, and dividing insureds regarding various losses incurred in connection the estimated premium among the class of insureds for with the COVID-19 crisis. The current insurance the particular risk. Insurance companies are taking the environment is unpredictable, especially as it relates to position that a governmental mandate of coverage for legislative changes in different states regarding mandated COVID-19 losses is not a viable solution for this issue, coverage. If carriers deny coverage for some COVID-19

Q1 2020 PLUS Journal | 5 claims, insureds may turn to insurance agents to recoup In sum, insurance agents and brokers should stay uncovered losses. For this reason, insurance agents and connected to their insureds and industry partners, brokers need to diligently follow industry best practices and continue to carefully execute risk management during this busy and stressful time, to best serve their behaviors such as documenting communications and clients and to protect themselves against potential errors reporting claims to the carrier, to avoid errors and and omissions claims. omissions lawsuits arising from the COVID-19 crisis. During this time, it is important for insurance agents and brokers to submit all claims to the carrier ABOUT THE AUTHOR (even if they suspect the claim is not covered), and they should always defer to the carrier for coverage determinations. In addition, insurance agents and MICHELLE M. ARBITRIO is the Managing Partner of WSHB’s White Plains, brokers should maintain detailed notes, and document New York office and an accomplished trial and all communications with insureds, carriers and others appellate attorney with more than 18 years of experience as a litigator in the state and federal courts in connection with COVID-19 issues. Documentation of New York and Connecticut. As a leader of the is always a necessary risk management practice, and it is firm’s Management, Professional and Employment Liability Practices, Michelle counsels and defends especially important in the current uncertain and ever- directors and officers against claims alleging fraud, negligence, and breach of fiduciary duties, and a variety changing environment. of professionals against claims based on alleged errors and omissions (E&O) in the performance of their professional services. Michelle’s Additionally, during the COVID-19 crisis, D&O work involves the defense of both for-profit and not-for-profit companies and their executives, and E&O work includes defending insurance agents and insurance agents and brokers should approach client brokers, securities brokers, lawyers, and a wide range of other miscellaneous communications with empathy. It is important to keep professionals. Michelle is regularly called upon to handle complex, high-stakes commercial litigation and claims involving allegations of gross negligence, in mind that these are unprecedented times, and many fraud and malfeasance, harassment and discrimination, as well as litigation of insureds are facing extraordinary and often fiscally non-solicitation/non-compete disputes. devastating circumstances that they could not have foreseen or prevented. Insurance agents should approach each interaction with this backdrop in mind, and take the time to listen to insureds; ask questions that will facilitate an understanding of the complexities of each insured’s unique issues; and consider an array of solutions that may be available to address the insured’s concerns. Further, it is important for insurance agents and brokers to maintain close communications with their industry partners in order to learn information as it becomes available, to help better serve their clients. In other words, during these uncertain times, it is increasingly critical for the insurance industry to maintain connections with one another that will provide mutual support to enable all to effectively execute client service. Insurance industry partners need to stay connected to learn about different innovative developments and enhancements, including training and improved technological capabilities, that are designed to provide digital options for intermediaries to better serve their clients despite social distancing requirements.

6 | Q1 2020 PLUS Journal University '20 PLUS UNIVERSITY

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Coming August 2020 PLUS University is going virtual! Experience the top-notch content and learn from industry professionals, right from your desk.

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More information about the virtual PLUS University will be coming soon. Go to www.plusweb.org/events for full information to be posted.

• Professional Liability Evolution & Concepts - Fundamentals Key concepts • Understanding the Commercial General Liability Policy and disciplines • Professional Liability Reinsurance taught include: • The Importance of Financial Statements • All About Professional Liability Claims • Understanding Directors & Officers Coverage • Employment Practices Liability Insurance • Healthcare & Medical Professional Liability • The Brave New World of Cyber Insurance Q1 2020 PLUS Journal | 7 02 Bitcoin Insurance? The Emerging Market for Digital Asset Insurance By: Adam Zuckerman ver the past several years, cryptocurrencies, digital assets, and blockchain have exploded onto the mainstream. Investors and technologists alike touted blockchain as a technological revolution the likes of Owhich we had not seen since the invention of the internet itself. Blockchain was supposed to democratize finance, revolutionize global supply chain management, and redistribute power from big tech back into the hands of the users. Despite such enthusiasm, cryptocurrencies and blockchain have largely failed to delivery on this promise. One reason, among others, that wholesale adoption of blockchain has been slower than many predicted is the poor security of digital assets.1 The pseudonymity and immutability of public blockchains makes the underlying digital assets particularly susceptible to theft. Institutional digital asset storage providers have emerged that have dramatically improved security, but as we know from years of attempting to safeguard valuable assets such as gold, cash, and particularly online data: no solution can be 100% safe. For this lingering risk, there is insurance.

8 | Q1 2020 PLUS Journal Q1 2020 PLUS Journal | 9 Digital asset insurance (sometimes called crypto but the fundamental technological breakthrough is that insurance) is a commercial liability insurance product they allow code to run autonomously without a single designed to protect companies that hold digital assets party having the authority to control or modify it.4 This in the event of a hack or theft. With comprehensive permits users to trust the code without trusting any insurance, owning digital assets can be as safe as individual or organization. owning cash, stocks, or gold thus allowing consumers to feel more comfortable holding digital assets.2 Over For example, blockchain solved what is referred to as the the previous two years, demand for this new form of “double spend problem” in finance. Previously, if I held insurance has skyrocketed as blockchain companies are $10 in my bank account, the only way to verify that I increasingly viewing insurance as crucial to spurring could not send the $10 to more than one different person wider adoption.3 was to rely on a trusted intermediary such as a bank. The distributed ledger and validation system of a blockchain This article is intended to be a primer on the emerging autonomously ensures that the same assets cannot be sent market of digital asset insurance. We are far too early in to two different people. It eliminates the need to trust the lifecycle of the product for comprehensive analysis. or even use the bank for this purpose. The invention of Rather, in this article, I hope to provide the foundational the Bitcoin Network, the genesis of blockchain, allowed technical knowledge required to understand the parties to send one another a new digital currency industry, the basic structure of digital asset insurance called Bitcoin without relying on any central party to products, an overview of the major parties in the verify the transaction. Instead, the distributed network industry today, and a discussion of why digital asset of computers uses complex cryptography and aligned insurance has a potentially massive significance to the incentives to ensure that the same assets cannot be double broader blockchain ecosystem as a whole. spent. While Bitcoin itself has gained prominence, the blockchain technology it was built on is seen as far more What are digital assets? But revolutionary and has potential applications far beyond first, what is a blockchain? the transmission of digital money. A digital asset (as used in the blockchain/crypto Now, what are digital assets? community) is a digitally native store of value that relies on the verification properties of a Bitcoin is an example of a digital asset. Before blockchain, blockchain. Begging the question for those who the term “digital asset” was used to describe any asset in may not know: what is a blockchain? a digital form. This could mean money, securities, data, music, or any other digital representation with value. But A blockchain, also referred to as distributed more recently, the term digital asset has been adopted ledger technology (DLT), is a database that and largely reappropriated by the blockchain community is stored and shared across a number of to reference what would be more appropriately described computers. Each computer maintains its as a crypto asset. own copy of the ledger, and many or all of the computers independently verify A crypto asset is a digitally native form of stored value that relies on the verification properties of a blockchain or each transaction. Unlike a traditional 5 database, no one computer has the DLT. A crypto asset can have many different purposes. capability to change the ledger without Some, such as Bitcoin and Ether (the two most popular the approval of other computers. crypto assets) act as digital currencies. These are stores I will not dive into the nuances of of value that are in essence purely digital alternatives blockchain technology (particularly to fiat currency. Because of the cryptography required, as different blockchains can have crypto assets that are used as a currency have been different structures and purposes), dubbed “cryptocurrencies.”

10 | Q1 2020 PLUS Journal Other crypto assets may function more like a stock, takes possession of the assets and secures them for the giving the holder voting rights in the digital ecosystem client. This has the benefit of centralizing asset security or a share of any profits. There is an essentially infinite in the hands of an expert (in theory), but it also creates number of possible functions of a crypto asset. As long a potential honeypot of assets. The assets should be safer as the asset is digitally native and relies on a blockchain, with a custodian, but if the security is breached, the size it is a crypto asset. Because the insurance industry of the theft can also be quite large. Digital asset insurance has adopted the terminology “digital asset insurance” could be purchased at the consumer level by individuals to refer to insuring crypto assets, I will use the terms who hold their own crypto assets, but the sophistication “digital asset” and “crypto asset” interchangeably. I think of the policies and amount of customization today makes it important to reiterate that “digital asset,” as used here, it primarily viable at a commercial scale. does not refer to traditional assets such as dollars or stocks represented digitally – it must be digitally native Creating and underwriting this new insurance product and rely on a blockchain. has posed novel and fascinating challenges for the insurance industry, the most fundamental of which is that A crypto asset has no inherent physical characteristic the amount of risk transferred to the insurer substantially or counterpart. The owner of the asset is whatever depends on how the digital assets (ie. the private keys) are pseudonymous account the distributed ledger (the stored. There is no one standard technique for securing blockchain) publicly says owns it. Each pseudonymous digital assets, so there can be no uniform method of account on a blockchain has a public key (the account assessing the risk. Methods of securing digital assets can visible on the blockchain) and a private key (the password be broadly divided into two categories: cold storage and to access that account). This private key is needed in order hot storage. to access the account and its associated digital assets. If the private key is lost, the assets remain locked up forever. Cold storage refers to systems in which private keys are And if the private key is stolen, the assets may be stolen.6 kept in an offline environment, not connected to the internet. Cold storage can be as low tech as writing the Storing digital assets, therefore, is the practice of managing alphanumeric private key on a piece of paper and hiding and securing private keys. The nature of a blockchain it under a pillow. Or, for entities that prefer a more secure is that transactions are typically irreversible and public solution, cold storage usually entails a physical device ownership pseudonymous. So, if an unwanted party gets similar to a sophisticated flash drive that holds the private access to a private key and steals the digital assets in that keys and then is itself kept in a safe environment such as account, it is usually impossible to determine the culprit a vault. or recover the assets. These characteristics can be part of the attraction of blockchain and digital assets, but they The device that “holds” the crypto assets is kept in a also make them particularly susceptible to costly hacks physically secure location much the same way one would or other losses. protect gold or cash. Insurers, therefore, view the risks underwritten in digital asset insurance for cold storage as very similar to those covered by crime or specie policies for What is digital asset insurance? these traditional assets. But there are relevant differences Digital asset insurance is a quickly growing form of between digital assets in cold storage and gold or cash. commercial liability insurance in which holders of digital Billions of dollars of digital assets, for example, can be assets obtain coverage for a theft or loss of their assets. This kept on a device the size of a thumb drive, whereas gold product is typically purchased by companies that offer and cash are heavy and bulky. There is also a hardware services that hold digital assets on behalf of individuals or component to keeping digital assets in cold storage that other companies, which primarily been crypto custodians could be a point of vulnerability. These distinctions, and crypto exchanges that offer custodial services. A however, are largely controllable with exclusions and policy crypto custodian, like a traditional financial custodian, limits. The very close parallels to legacy insurance products

Q1 2020 PLUS Journal | 11 have allowed insurers to quickly become comfortable make informed assumptions as to what modifications underwriting digital asset cold storage policies with limits should be made and then customize the digital asset as high as several hundred million dollars.7 policies accordingly. This process, however, is replete with assumptions and qualitative assessments that Hot storage, alternatively, refers to solutions that remain introduce significant subjectivity and uncertainty into connected to the internet. This leaves the digital assets pricing digital asset insurance. more susceptible to hackers who can attempt to access the private key(s) through an online vulnerability. The benefit of hot storage, however, is that the assets are more The emerging digital asset liquid and thus can be transferred more quickly than insurance market those in cold storage, which may require one or more Despite the challenges of underwriting digital asset people to physically access a vault before the digital assets policies, the market has grown tremendously in the can be moved. previous two years.10 While still miniscule in comparison Insurers are also using commercial crime as the to legacy industries, the digital asset storage insurance foundation of hot storage policies,8 but the application is industry now has a total available coverage that likely 11 not as straightforward. Like with crime insurance, when exceeds $6 billion with a projected $200-500 million 12 there is a hack of digital assets, the primary cost is the in annual premiums. Some experts project that the loss of the assets themselves. In this respect, digital asset industry’s growth may continue to outpace the larger insurance for hot storage also resembles crime insurance cybersecurity insurance market, which has become a 13 for gold or cash. The method of theft, however, is far mainstay product for most large insurers. Despite this more similar to the domain of cyber insurance, which rapid expansion, there is still a common belief among covers cybersecurity breaches. The names, credit card insured prospects that demand for digital asset insurance 14 numbers, addresses, or other data types typically covered still far outstrips the supply. by cyber policies, however, do not have inherent value. A The reality is more nuanced – as is often the case. Those cyber policy typically compensates the insured for costs in the business of storing digital assets understandably such as notifying customers of a breach, identity issues want coverage. And when companies attempt to obtain with effected customers, recovery of lost or compromised coverage but cannot do so, they perceive this as a supply data, repairing damaged computer systems, and 9 shortage. Digital asset insurers, however, are weary of sometimes losses from business interruption. Notably, diving into this new, untested market headfirst, and cyber insurance does not include indemnification for therefore are taking standard precautions. Most are the value of the assets because the data itself does not only inking policies with companies that they feel have an ascertainable value. Digital asset insurance for are highly security-oriented and have a track record hot storage, therefore, combines the theft of a valuable of legal compliance. Meaning, they are only open to asset aspect of crime insurance with the cybersecurity underwriting the least risky companies in the space… foundations of cyber insurance. right now. In addition, premiums are relatively high for After selecting the appropriate legacy insurance product digital asset insurance because insurers must price in the off which to base the digital asset policy, insurers will uncertainty of underwriting a novel insurance product then use industry experts understand the risks that in a high-risk industry. may be particular to this new industry. For example, Insurance for cold storage, which is generally considered insurers must consider that the relevant technologies more secure than hot storage, reportedly costs about for digital assets tend to be new and relatively untested, 0.8% to 1.2% of assets covered annually, whereas transactions on blockchains are usually pseudonymous a traditional commercial crime insurance policy is and irreversible, the regulatory landscape is very typically below .5% of assets covered.15 16 Hot storage uncertain, as well as countless other factors. The policies are significantly more expensive at 3% to 5% underwriters will then use the information available to

12 | Q1 2020 PLUS Journal of assets covered and demand a comparatively larger avoid the market altogether.21 Those insurers that have premium because the risk is believed to be greater.17 been willing to supply digital asset insurance have kept policy limits low and largely operated through the Lloyds The problem many companies in the digital asset space marketplace, which is well-suited to dispersing the risk are facing, therefore, is not a lack of insurance supply, among a syndicate of insurers.22 but rather a mismatch between buyers’ and sellers’ expectations. Many companies are either deemed too risky to insure or cannot afford the premiums.18 The Insurance is the missing link in result has been that the most notable, well-funded, the crypto economy and security-oriented companies have obtained the 19 In May 2019, Binance, the largest crypto exchange in vast majority of the digital asset insurance to date. the world with a reputation for strong security, had Meanwhile, most smaller companies have been unable 7,000 Bitcoin worth nearly $40 million stolen from its to tap into traditional third-party insurance. hot storage. Incidents like this have been rampant in the The brokerage industry for digital asset insurance is even crypto community over the last several years. In the first more concentrated. Large brokers such as Aon and Marsh half of 2019 alone, over $4 billion worth of digital assets 23 have dominated the digital asset insurance brokerage were stolen or forfeited due to scams. market. Both have formed cross-functional teams that Fortunately for the users of Binance, the exchange was are focused specifically on digital asset insurance, and at able to repay the stolen Bitcoin out of its own corporate least one of them has been involved in nearly every major 20 coffers and the account holders did not lose their funds. digital asset insurance policy to date. This level of focus, This, however, is not the norm. Frequently, the users have sophistication, and maturity in the digital asset insurance no available recourse and are forced to absorb the loss industry is unparalleled among insurers themselves and of their assets themselves. Dedicated custody solutions has allowed the brokers to play a valuable role in helping have done much to improve the security of digital assets, bridge the knowledge gap between the digital asset but even these options are not infallible. Eliminating the companies and the underwriters. possibility of hacks or other digital asset losses altogether There is also not wide competition among insurers is unlikely for the foreseeable future. But allowing users for digital asset business. Digital asset storage is a to easily insure their assets is on the horizon. difficult industry to insure. As mentioned above, the Projects such as Facebook-led Libra, which promises policy generation is complex because of the technical to use a proprietary cryptocurrency to create “a simple sophistication and nuance of the storage. The crypto global payment system and financial infrastructure industry has also developed a mixed reputation. For that empowers billions of people,” are positioned to some casual observers, the perception of digital assets push crypto assets into the forefront of our everyday and cryptocurrencies may be that they are a favorite life.24 Central banks around the world have also begun tool of the internet underworld, tormented by hacks, exploring developing their own central bank digital and subject to massive price volatility – qualities that do currencies (CBDCs).25 These lofty projects, and others, not make for an attractive insured. Though compliance however, cannot succeed until the problem of digital and security-oriented business practices that would be asset security is solved. Or until digital asset insurance is standard in legacy industries can largely control and widely adopted. If the trends hold, it looks like this is just mitigate these negative characteristics, the perceptions the beginning for digital asset insurance. of cryptocurrencies facilitated by the many remaining irresponsible actors has continued to taint the entire industry. Many insurers do not have sufficient depth of expertise to recognize the massive variation in risk in the industry and confidently identify those that are relatively low risk. Many insurers have preferred to

Q1 2020 PLUS Journal | 13 End Notes End Notes

1 Alun John, Cryptocurrency Industry Says Inadequate Insurance Deters 18 Morris, supra note 18. Investors, INS. J. (Dec. 20, 2018), https://www.insurancejournal.com/news/ national/2018/12/20/512598.htm; (It should be noted that many use-cases 19 Companies such as Gemini, Coinbase, Trustology, BitGo, and Bittrex, of blockchain (particularly permissioned blockchains) do not in fact require which are all high-profile names have all inked policies with multi-hundred a digital asset, so the lack of asset security is clearly not the only inhibitor million dollar coverage limits. of adoption). 20 Olga Kharif et. al, Interest in Crypto Insurance Grows, Despite High 2 Id. Premiums, Broad Exclusions, INS. J. (Jul. 23, 2018), https://www. insurancejournal.com/news/national/2018/07/23/495680.htm. 3 Id. (“Insufficient insurance coverage, particularly in a volatile industry such as crypto, will be a significant impediment to greater ‘institutionalisation’ 21 BitGo, supra note 15. of crypto investments.”); Bittrex Team, Bittrex, Inc. Secures $300 Million in Digital Asset Insurance to Enhance Protection, MEDIUM (Jan. 29, 2020), 22 Kauflin, supra note 10. https://medium.com/bittrex/bittrex-inc-secures-300-million-in-digital-asset- insurance-to-enhance-protection-16fff23a98d1; Ian Allison, Winklevoss-Led 23 Jeb Su, Hackers Stole Over $4 Billion From Crypto Crimes in 2019 So Gemini Exchange Now Has Its Own Insurance Company, COINDESK (Jan. Far, up From $1.7 Billion in All of 2018, FORBES (Aug. 15, 2019, 1:49 PM), 16, 2020, 12:00 PM), https://www.coindesk.com/winklevoss-led-gemini- https://www.forbes.com/sites/jeanbaptiste/2019/08/15/hackers-stole- exchange-now-has-its-own-insurance-company (there have been a flurry over-4-billion-from-crypto-crimes-in-2019-so-far-up-from-1-7-billion-in-all- of recent announcements about large insurance policies secured including of-2018/#7762eacc55f5. Bittrex’s $300 million policy announcement and Gemini’s establishment of a captive with reinsurance coverage up to $200 million.). 24 Libra Website, https://libra.org/en-US/ (last visited Apr. 23, 2020).

4 For a good guide of how blockchains work, I suggest: https://blockgeeks. 25 com/guides/what-is-blockchain-technology/ Investigating the Impact of Global Stablecoins, https://www.bis.org/ cpmi/publ/d187.pdf (Oct. 2019). 5 What Exactly Is a Digital Asset & How to Get the Most Value From Them?, MERLINONE, https://merlinone.com/what-is-a-digital-asset/ (last accessed Apr. 4, 2020).

6 This is barring extreme measures such as a fork of the entire blockchain. For an explanation of forks, see Nate Maddrey, Blockchain Forks Explained, MEDIUM: DIGITAL ASSET RES. (Sep. 18, 2018), https://medium.com/ digitalassetresearch/blockchain-forks-explained-8ccf304b97c8. ABOUT THE AUTHOR

7 Blue Vault: An Innovative Cold Storage Solution for Digital Assets, MARSH, https://www.marsh.com/us/services/financial-professional-liability/cold- storage-for-digital-assets-blue-vault.html, (last visited Apr. 4, 2020).

8 Philip Martin, A Unique Look Under the Hood of One of the World’s ADAM ZUCKERMAN Most Comprehensive Crypto Insurance Programs, COINBASE (Apr. 2, is a third year law student at the University of 2019), https://blog.coinbase.com/on-insurance-and-cryptocurrency- Pennsylvania, a native of the Bay Area, and a d6db86ba40bd. blockchain and crypto enthusiast. After graduating, 9 What is Cyber Insurance?, NATIONWIDE, https://www.nationwide.com/lc/ Adam will be joining a multinational law firm resources/small-business/articles/what-is-cyber-insurance, (last visited Apr. primarily in their emerging companies and venture 4, 2020). capital practice, with a particular focus on blockchain 10 See Jeff Kauflin, Lloyd’s of London, Aon and Others Poised to Profit related companies. From Cryptocurrency Hacker Insurance, FORBES (Sep. 5, 2019, 11:18 AM),https://www.forbes.com/sites/jeffkauflin/2019/09/05/lloyds-of- london-aon-and-others-poised-to-profit-from-cryptocurrency-hacker- insurance/#72a3761932aa (“two years ago, the market for crypto insurance was nonexistent”).

11 Justin Grensing, Cryptocurrency Insurance Market Shows Promise Despite Cautious Approach by Major Insurers, AM. EXPRESS, https:// www.americanexpress.com/us/foreign-exchange/articles/cryptocurrency- insurance-market-shows-promise-with-caution/ (last visited Apr. 4, 2020) ($6 billion was the upper end of the estimate in late 2018).

12 Kauflin,supra note 10 (“Today he [Motta-a crypto insurance expert] thinks it’s worth between $200 million and $500 million in premium revenue”).

13 Kauflin, supra note 10 (“Motta expects the market for crypto insurance to grow faster than the 20% to 25% pace at which the larger cybersecurity insurance sector is currently expanding”).

14 BITGO, WHITE PAPER V1.2: INSURANCE FOR DIGITAL CURRENCIES, 2 (2020); (the whitepaper sites a “general education gap around the technical features and necessary security measures of smart contracts and blockchain technology” as a primary reason that quality insurance is limited); see also Kauflin, supra note 10; see also Grensing, supra note 11.

15 Virginia Hamill, Crime Insurance: Cost, Coverage & Providers, FIT SMALL BUS. (Dec. 12, 2019), https://fitsmallbusiness.com/crime-insurance/.

16 Lester Coleman, Insurance Giants See ‘Big Opportunity’ in Cryptocurrency Storage Coverage, CCN (July 21, 2018, 5:33 PM), https://www.ccn.com/ insurance-giants-see-big-opportunity-in-cryptocurrency-storage-coverage/.

17 Nicky Morris, AON Says Supply Exceeds Demand for Cryptocurrency Insurance, LEDGER INSIGHTS (July 2019), https://www.ledgerinsights.com/ cryptocurrency-insurance-digital-assets-aon-supply/.

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travelers.com Travelers Casualty and Surety Company of America and its property casualty affiliates. One Tower Square, Hartford, CT 06183 This material does not amend, or otherwise affect, the provisions or coverages of any insurance policy or bond. It is not a representation that coverage does or does not exist for any particular claim or loss under any such policy or bond. Coverage depends on the facts and circumstances involved in the claim or loss, all applicable policy or bond provisions, and any applicable law. Availability of coverage referenced in this document can depend on underwriting qualifications and state regulations. Q1 2020 PLUS Journal | 15 © 2020 The Travelers Indemnity Company. All rights reserved. Travelers and the Travelers Umbrella logo are registered trademarks of The Travelers Indemnity Company in the U.S. and other countries. CP-9496 Rev. 4-20 Disasters, Catastrophic Events and Pandemic: Identifying and Understanding the Agent/Broker E&O Risks, and Preparing to Defend the Coming Wave of E&O Claims By: Peter J. Biging and Christopher Lyon 03

16 | Q1 2020 PLUS Journal presented to insurance agents and brokers by this new I. The Risk reality, take time to understand them, and look closely We truly live in extraordinary times. Terrorist attacks at what can and must be done to both prepare for and destroying what were thought to be practically defend against the claims that will be brought against indestructible towers that were built to withstand them in the aftermath. hurricane gale force winds even at a height of over 100 stories. Hurricanes (Katrina) and super storms (Sandy) II. The Scope and Breadth of the Problem that end up flooding huge swaths of the southern and Natural Disasters eastern coastlines, and causing hundreds of billions of dollars in damages. Wildfires that consume hundreds According to data compiled by Munich Re, there were of thousands of acres of land, including an entire $150 billion in losses from natural disasters in 2019, community in northern California, including homes, with only slightly more than one third of the losses businesses, schools, etc. Computer hacks that in ($52 billion) insured. While the lowly percentage of one instance resulted in the loss of the data of over a the insured losses may seem surprising, Munich Re has billion customers. A worldwide pandemic that shutters reported that this matches the average of the past ten businesses across the entire country and throughout the years. And while $150 billion seems a fairly astounding world, leading to literally trillions of dollars of damage total, this total actually failed to match the $160 billion to the world’s economy, and a crushing blow to business total of 2018, highlighted at the end of the year by the operations of all sizes. Camp and Woolsey fires in northern California. Those fires were estimated in one report to ultimately result in After each such catastrophic event, there may be state a total of over $21.5 billion in losses by themselves, with or federal assistance offered, and insurance will provide only approximately $16.5 billion covered by insurance. coverage for significant percentages of the injured parties’ losses. But there are always individuals and businesses The year prior, in 2017, there were just $12.5 billion in without sufficient insurance, or who believe they have catastrophe losses through the first 6 months, and then, insurance only to find that they have no coverage at all, in rapid succession, we were hit by hurricanes Irma, or whose claims have been disputed or denied. Like Harvey and Maria, which added a total of $76 billion waves rolling in towards the shore, following the initial in losses, much of which were also uncovered. losses resulting from these disasters and catastrophic Cybercrime events and the making of claims, the next wave invariably involves lawsuits brought against the insurers who have In 2017 there were an estimated 826 million data denied the claims. This is inevitably followed by a wave breaches, and per Symantec nearly 700 million people of claims against insurance agents and brokers. in 21 countries experienced some form of cybercrime. The end result is that as surely as night follows day, By the following year, 2018, this had increased to 2.3 the aftermath of disasters and catastrophic events is billion data breaches. According to an Accenture report going to be a wave of insurance agent and broker on the cost of cybercrime in 2018, 85% of organizations E&O claims. While this might have seemed less of a experienced phishing and social engineering attacks, concern when 100 year storms were still actually 100 and 76% suffered web based attacks. Accenture’s year storms, catastrophic wildfires out west didn’t occur Security 2019 report also indicated that malware cost every fall, and there was no such thing as the internet, organizations an average of $2.6 million in 2018, an the increasing rapidity with which society is facing truly increase of 11% over the prior yr. The next most costly disastrous losses, and the expansion of the type, scope type of attacks were web-based attacks, which cost an and breadth of the disasters we face in our modern average of $2.275 million per yr. in 2018. On average, world, make it imperative that we consider the risks an IBM study estimated the average cost of a data

Q1 2020 PLUS Journal | 17 breach to a company in 2019 at $3.92 million. On billion, meaning 86% of the losses would be uninsured. average, according to SafeAtLast, the average cost of a And even assuming such an event never occurs, with the ransomware attack on businesses is $133,000. estimates increasing every year, Cybersecurity Ventures predicts cybercrime will cost the world in excess of $6 In 2016, 3 billion Yahoo accounts were hacked, and trillion annually by 2021, up from $3 trillion in 2015. that same year Uber reported that hackers stole the information of over 57 million riders and drivers. In Unfortunately for insurance brokers, in a study 2017, 412 million user accounts were stolen from undertaken in 2019 of more than 100 CFO’s and other Friendfinder’s sites. That same year, 147.9 million senior executives commissioned by FM Global, more consumers were affected by the Equifax breach, with than 7 in 10 believed their company’s cyber coverage the breach costing the company over $4 billion. Also would cover all or most losses from a cyber security in 2017, 100,000 groups in at least 150 countries and event, even though the following negative effects of a more than 400,000 machines were infected by the cyber loss are typically not covered: Wannacry virus, also at a total cost of approximately $4 billion. • Degradation of the company’s brand/reputation Earlier this year, on January 23, 2020, Microsoft • Increased scrutiny from the investment community disclosed that 250 million Microsoft customer records, • Decline in revenue/earnings spanning 14 years, have been exposed online without password protection. It was first discovered on • Decline in market share December 28, 2019 – a 25 day lead time to disclose • Decline in share price the breach. Comparitech, a security research team, uncovered no less than five servers containing the same Pandemic set of 250 million records that were accessible to anyone with a web browser – no authentication, no login As of the time of this writing, 26 million people had required. The exposed data included email addresses, been recently laid off in the U.S., with the country IP addresses, geographical locations, descriptions of the facing job losses at about 5 times the rate they were lost customer service and support claims, case numbers, and during the Great Recession. According to an assessment resolutions, and internal notes that had been marked as by the Asian Development Bank, it was estimated that, “confidential.” Security experts note that while this may depending on the COVID-19 virus’ spread through not seem as troublesome as disclosure of a social security Europe, the U.S. and other major economies, the cost number, for example, it is the type of information of the coronavirus pandemic could be as high as $4.1 that may be used to gain access to a treasure trove of trillion. According to a report in the Dallas Morning financial and personal data. Costs associated with this News, the cost to the U.S. alone could be a loss of breach have yet to be estimated. 972.6 billion in real gross product, and the loss of 11.4 million jobs on an annual basis, even after the virus was In a Lloyd’s of London Cyber Risk Management contained and many of those laid off were returned to report issued in January 2019, it was noted that a their jobs. hypothetical coordinated global cyber-attack spread through malicious email could cause economic Because of this, companies are facing massive, damages from $85-$193 billion and affect more than unrelenting, and utterly devastating business 600,000 businesses worldwide. Insurance claims under interruption losses, with many filing claims for same this scenario would range from business interruption under their property insurance policies. According to and cyber extortion to incident response costs. Total the American Property Casualty Insurance Association, claims paid by the insurance sector in this scenario small businesses have been losing between $255 and were estimated to be between only $10 billion and $27 $431 billion of income monthly as a result of the

Q1 2020 PLUS Journal | 18 pandemic. In response, insurers were largely contesting more has been to impose additional extra-contractual the viability of the claims on the grounds that the duties on agents and brokers, and give rise to claims losses were either made the subject of a specific virus against them for failing to properly advise as to types exclusion, or the losses were not tied to physical loss or or amounts of coverage to purchase, failure to advise damage to property. as to the limitations inherent in the coverage they have purchased and make sure the insureds fully III. What This Means for Insurance Agents understand and appreciate the risks presented and how and Brokers their insurance will respond to same in the event of a loss, and failure to properly investigate the insured’s Traditional Agent/Broker E&O Exposures needs, circumstances, special susceptibility to risks, and potential for uninsured loss prior to recommending or Traditional agent/broker E&O exposures include failure purchasing coverage on the insured’s behalf. to purchase the coverage requested, failure to name an additional insured, negligence in the issuance of The circumstances giving rise to these duties and certificates of insurance, and negligence in the processing obligations are typically referred to as “special of a claim. In regards to placement of coverage, the circumstances” or the result of a “special relationship” generally recognized duty of care is limited to exercising between the agent/broker and the insured.4 Common good faith and reasonable skill, care and diligence in features of such special circumstances/special procuring the insurance requested in accordance with relationships giving rise to this heightened duty of care the client’s instructions, obtain coverage which is not are: the receipt of compensation over and above and in void, obtain coverage which is not materially deficient, addition to commissions on the sale of insurance, such obtain the coverage undertaken to be supplied at the as for a “service fee”5 ; counseling of the insured with requested limits, and obtain coverage for the client respect to specialized coverage or a specific coverage within a reasonable time or inform the client of the issue, or other “interaction with regard to a question inability to do so.1 There is typically no inherent duty to of coverage” with the insured relying on the agent’s/ advise or guide the insured with respect to the amount broker’s expertise6 ; the agent’s/broker’s exercise of of coverage to purchase or the limits.2 The reason for broad discretion in servicing the insured’s account7 ; an this is that the customer is generally believed to be extended course of dealing that would reasonably lead in the best position to know its insurance needs, the an objective broker to understand that his advice is being level of premium he/she can afford, and the amount of sought and specifically relied upon8 ; and an ambiguous uninsured risk he/she is willing to absorb. Conversely, request for coverage that requires clarification.9 requiring the agent/broker to recommend types or Complicating Factors amounts of coverage and be placed at risk for failing to do so would effectively make agents/brokers financial While one might think it should not be all that guarantors, and permit insureds to treat agent/broker complicated for agents and brokers, made aware of the E&O as excess coverage. And doing so would create the legal landscape, to draw lines and avoid being routinely perverse disincentive for insureds to seek appropriate saddled with increased levels of responsibility for their levels of coverage, so they could take advantage of this clients’ insurance needs and risk management efforts, the 3 situation to the fullest. fact of the matter is that there are a number of factors at Expanded Exposures Based on Application of play that make this much easier said than done. First, is Fiduciary Standards of Care the fact that with clients literally able to access multiple competing insurance coverages directly from a vast These traditional guiding principles notwithstanding, array of insurers simply by running searches on their the trend in the case law over the past decade or laptops, tablets or smartphones, agents/brokers have no choice but to offer and agree to do more to justify

19 | Q1 2020 PLUS Journal their existence. This leads to broker websites routinely by the available insurance, it is not uncommon for the promising to do things like the following, taken from customer/defendant to assign his rights as against the actual broker websites (which are NOT recommended): agent/broker in satisfaction of the liability exposure provide a “range of experience in specific industries presented. Whereas such assignments had in the past to offer you exactly the coverage you need”; provide been looked upon with disfavor by the courts, the “tailor-made risk management solutions based on expert clear trend is for such assignments to be upheld.13 This advice”; provide “strategic decisions analysis”; “review has resulted in greater exposure threats to agents and insurer solvency”; “design comprehensive and complete brokers, who now may face liability exposures that programs for both insurance and risk management”; in the past would simply have melted away with the provide “performance beyond the required . . . in all customer’s inability to satisfy a judgment against them. we do”; “create the best products and services for your needs”; and negotiate with insurers to “secure the most Additionally, courts have expressed greater willingness favorable terms for you.” to consider the existence of a duty of care owed to third parties who can be seen at the outset to have been Second, there has been a long brewing and ever specific, intended beneficiaries of the insurance, rather growing perception of insurance policies as being dense, than unknown, unforeseen, and random members complicated, and complex documents, which insurance of a universe of potential beneficiaries of the liability customers need help translating into English.10 coverage made available to the insured. An example of where a broker was deemed to have liability beyond its Third, there has been a long brewing and consistently customer, and to the ultimate beneficiary of the liability evolving perception of insurance agents/brokers both coverage being purchased for the customer, is Cleveland by the insurance buying public and the courts as Indians Baseball Co., L.P. v. N.H. Ins. Co., 727 F.3d 633 more than just order takers, but rather highly trained (6th Cir. 2014). professionals with special expertise, whose implicit promise in taking you on as a client is to help guide you Putting it All Together through the insurance buying process.11 Putting this all together, what this adds up to is that in Increased Risk to Third Parties a world in which truly catastrophic losses are becoming more frequent, and the risk exposure to potentially Added to this increasingly dangerous landscape for catastrophic loss is exceedingly varied and wide spread, insurance agents and brokers is the fact that there is agents/brokers face ever greater risk themselves. And also an increasing risk of exposure beyond the risk to when catastrophe strikes, and with it the inevitable their customers, stretching out to the individuals and raft of uninsured or underinsured victims of these entities who would benefit from the insurance. It is not catastrophes, insurance agents and brokers are going to uncommon that, when a party is liable to a third party be at ever greater risk. it has injured in some way, the bulk of any recovery that might be available to the third party will be This is particularly the case when it is noted that a found in the insurance available to cover such liability substantial proportion of the losses incurred by disasters exposures. Typically, the courts have found that, except will not be insured, and customer perceptions regarding in very narrowly circumscribed situations, agents and what is or will be covered don’t match up with the brokers owe a duty of care to their customers/insureds, coverages actually in place. And in the post-COVID-19 not to the public generally. This justification turns on pandemic world we will hopefully someday soon be definitive foreseeability – the public generally is not living in, where there will undoubtedly be multitudinous definite enough to be foreseeable.12 However, where insureds with either no coverage, or insufficient coverage the agent’s/broker’s customer has caused harm to a for what are going to be truly catastrophic business third party which will not be adequately compensated interruption losses, uninsured D&O claims, etc.

Q1 2020 PLUS Journal | 20 IV. Strategies for Defending Against These efforts can often be complicated by the fact that over time document management systems may have Inevitable Wave of Agent/Broker E&O Claims changed, there will often be agents/brokers who have Developing Themes failed to adhere to protocol with regard to making notations of significant communications, there can In anticipating these types of claims, and understanding sometimes be agents/brokers with critical knowledge the heightened risks presented, it is important to of the insured’s insurance buying practices and history make sure at the outset of litigation that appropriate who have moved to competing firms and thus may themes are developed in the course of investigation not be readily accessible to defense counsel, and courts and discovery to allow for an opportunity to get past can often be skeptical that such broad based discovery the inherent difficulties presented in defending against is truly necessary to what they may perceive as the these types of claims, and build a counter-narrative. limited question at issue: i.e., what was discussed This means making sure not only that documents regarding the specific coverage in issue. related to the purchase of the specific insurance coverages and claims in issue are identified and gathered Understanding the Stakes and Meeting the Challenge and reviewed, but that documents relevant to the Because catastrophic losses can often lead to enormous brokers’/insureds’ history of doing business together uninsured exposures, these types of agent/broker E&O are identified for potential relevance, gathered and claims can frequently give rise to high stakes litigation reviewed as well. To counter the insured’s contention risks. There is no doubt there will be COVID-19 that it placed complete trust and faith and reliance pandemic related claims that present such exposures. in the broker to advise and guide it with respect to When confronted with these types of risks, one of insurance to purchase, it is critical to look for evidence the first things it is imperative to understand is that that all final insurance buying decisions were left in the trial starts at the start of depositions. Mistakes the hands of the insured, that the insured would often made at this stage can be fatal, and witnesses who are reject the broker’s recommendations, that the insured unprepared not only risk coming across as lacking would make decisions based on price rather than in credibility, but lacking in the requisite ability to avoidance of risk, that the insured would periodically present their understanding of their responsibilities, bid out the insurance to competing brokers, that the acceptance of any failings on their part that will serve insured would regularly leave certain assets or risks to humanize them and immunize them from successful intentionally uninsured, etc. This requires a focused cross-examination, and firm and credible explanations effort at developing a picture not just of the narrow for why they ultimately fulfilled their duties and circumstances regarding a single policy of insurance and responsibilities to their customers, the lack of sufficient a single loss, but the entirety of the insurance buying insurance available to indemnify or hold them harmless and risk management philosophy of the insured, as for the customer’s losses notwithstanding. evidenced by its history, as well as a comprehensive picture of the relationship with the broker. It is also imperative to understand the need to meticulously build out the case you are planning to make, document This can often require subpoenaing other brokers the by document, communication by communication, insured did business with, looking at various types witness by witness; to lock the plaintiffs in to their stories of risks insured against, interviewing and deposing and leave no wiggle room; and to make sure you have numerous individuals, and piecing together a mosaic identified early and fully addressed potential evidentiary from thousands of separate tiles that, together, issues so there are no surprises at trial. tell the story of whether or not there were truly “special circumstances” or there was in fact a “special Additionally, it is important as early in the litigation relationship” between the broker and the insured. as possible to game the case out through how you plan

21 | Q1 2020 PLUS Journal to present your defense at trial, including preparing asked to offer an opinion on, and not as advocates for your jury verdict questionnaire early on, as well as or against a particular party. your anticipated requests to charge, so you are building out your case to fit within the framework you have Lastly, it is imperative that you put together an aurally constructed, and you have checked off every box, and and visually tight, concise, compelling, stimulating and you have played out and gamed out how the testimony engaging trial presentation, which moves quickly, makes and evidence will and must be presented in order to full use of the strongest witnesses and as limited as achieve success at trial. possible use of the weakest witnesses for your case, and leaves the jury believing that you are fully in command Further, because of the anticipated high stakes, it is of the case you are presenting, and the means by which critical to take advantage early on of jury science, you are presenting it. In doing so, it is imperative to including testing themes to see how they will play with remember that modern jurors have the ability to access an anticipated representative sampling of your jury the most high level, engaging, sophisticated content pool, and holding mock trials to see how jurors will at any time, day or night, in the palm of their hands. likely react to the witnesses and evidence and thematic They will not suffer rambling, repetitive, sleep inducing case presentation you are planning to make. Not every presentations happily. case will justify the investment, but these cases do. And because of the potentially substantial value of these V. Conclusion cases, this can be an extremely useful tool in terms of valuing the cases for settlement purposes. The statistics bear out that following disasters, the natural arc of historical precedent involves an initial period of It is also critical as early as possible to sort through quiet on the agent/broker E&O front, while the battles what can often be a shockingly thin pool of credible over coverage are first being fought. But these coverage standard of care experts, to make sure you get the litigations will immediately thereafter be followed by strongest expert working for your side before he has a wave of claims against insurance agents and brokers, been snatched up by your adversary. The sad truth holding potential to involve both extensive numbers of, is that there are not all that many truly outstanding and extremely high severity claims. For the insurance agent/broker standard of care experts available. If it is broker, the time is now, right now, to do everything clear one will be needed, it is important to grab hold possible to document the claims discussions, to make of one who can be trusted to prepare a strong report, records of admissions and acknowledgements that the and with the spine, the experience and the savvy to see insurance in place was the result of conscious and where traps are being set, and to control the framing informed decisions, and to make sure account files are of the issue. It is also imperative that you make preserved as fully as possible. For the defense attorney, sure you have found and put in place any necessary it is critical to understand that the battle in front of you damages experts, and to make sure you oversee with cannot consume you, leave you with blinders on, and great care the development of the expert opinions to lacking capacity to view the larger picture. The battle be presented. In doing so, it is critical that you have must be waged on many fronts. And it starts now. taken the time to reverse engineer the opinions being offered to ensure that all the necessary Daubert factors have been met, your experts are not offering ultimate fact conclusions in the guise of opinions, they are not drawing conclusions unsupported by the record, they are not making credibility determinations, they are not drawing legal conclusions, and they are coming across as neutral arbiters of the specific issue they have been

Q1 2020 PLUS Journal | 22 End Notes ABOUT THE AUTHORS

1 Sullivan Co. v. New Swirl, Inc., 437 S.E.2d 30 (S.C. 1993); accord Bainum v. Lincoln Nat’l Life Ins. Co., 2018 WL 1505495 *2 (W.D. Ark. Mar. 27, 2018). PETER J. BIGING 2 Baker v. Kentucky Farm Bureau, 2018 WL 3814763 *3 (Ky. App. Aug. 10, 2018); Murphy v. Kuhn, 682 N.E.2d 972 (N.Y. 1997); Peter v. Schumacher is an accomplished trial and appellate attorney with Enterprises, Inc., 22 P.3d 481, 486 (Alaska 2001); Sadler v. Loomis Co., 776 more than 30 years of experience as a litigator in the A.2d 25 (Md. Ct. Spec. App. 2001). state and federal courts of New York. His practice focuses on litigation involving directors and officers, 3 Farmers Ins. Co. v. McCarthy, 871 S.W.2d 82, 85 (Mo. Ct. App. 1994); Suter v. Virgil R. Lee & Son, Inc., 754 P.2d 155, cert. denied, 111 Wash.2d 1005 financial institutions and defense of management (1988); M & E Mfg. Co., Inc. v. Frank H. Reis, Inc., 692 N.Y.S.2d 191 (App. Div. and professional liability claims, including the 1999); CIGNA Property & Casualty Companies v. Zeitler, 730 A.2d 248, 261 defense of a variety of professionals against errors (Md. Ct. Spec. App. 1999). and omissions claims, labor and employment practices 4 Szelenyi v. Morse, Payson & Noyes Ins., 594 A.2d 1092, 1094 (Me. 1991); litigation, commercial litigation, municipal liability Sadler, 776 A.2d at 46; Robinson v. Charles A. Flynn Ins. Agency, 653 N.E.2d litigation, and professional liability coverage work. A partner 207 (Mass. App. Ct. 1995); Harts v. Farmers Ins. Exchange, 597 N.W.2d 47 in the firm's Manhattan offices, he heads up the Goldberg Segalla metro area (Mich. 1999); Murphy, 682 N.E.2d 972; Nelson v. Davidson, 456 N.W.2d 343 (Wis. 1990). Management and Professional Liability practice, and is vice chair of the M&PL practice group nationally. 5 Sandbulte v. Farm Bureau Mut. Ins. Co., 343 N.W.2d 457, 464 (Iowa 1984), overruled by Langwith v. Am. Nat. Gen. Ins. Co., 793 N.W.2d 215 (Iowa 2010) but reinstated and adopted by legislation at Iowa Code section 522B.11(7) (a), abrogating Langwith. CHRISTOPHER LYON 6 Voss v. Netherlands Ins. Co., 8 N.E.3d 823 (N.Y. 2014). is a young but experienced litigator with a practice focusing on counseling and defending accountants, 7 Meridian Title Corp. v. Gainer Grp., LLC, 946 N.E.2d 634, 637 (Ind. Ct. App. architects, engineers, insurance agents and brokers, 2011); DeHayes Grp. v. Pretzels, Inc., 786 N.E.2d 779, 783 (Ind. Ct. App. 2003) (holding that obtaining insurance quotes did not constitute exercise lawyers, and a variety of professionals with respect to of “broad discretion.”). professional errors and omissions claims. He practices in the state and federal courts, and has substantial 8 Citta v. Camden Fire Ins. Assoc., Inc., 377 A.2d 779, 780 (N.J. Super. Ct. experience handling all aspects of litigation, including App. Div. 1977); Bicknell, Inc. v. Havlin, 402 N.E.2d 116, 119 (Mass. App. Ct. 1980); Somnus Mattress Corp. v. Hilson, 280 So.3d 373, 384 (Ala. 2018) trials and appeals. He has been a proactive member in the professional liability defense community, and most 9 Stoll Grp. LLC v. Cottrill, No. 320763, 2015 WL 2437127, at *2 (Mich. Ct. recently published in the PLUS Journal with the co-authored App. May 19, 2015); but see Prod. Credit Ass'n of Se. Wisconsin v. Gorton piece entitled “Which Lawyer Was Responsible?” and further co-authored “The Farms, 573 N.W.2d 549, 554 (Wis. Ct. App. 1997) (holding that broker was not responsible for clarifying ambiguity)10 Matray, Michael. Beazley Hospital Growing Landscape of Cyber Insurance” in support of the presentation at the Claims Data: Steep Increase in Largest Malpractice Claims Behind a Firming ABA Tort Trial and Insurance Practice conference in 2020. Hospital Professional Liability Market. Medical Liability Monitor, Vol. 45. No.1, January 2020 at 1.

10 Nav-Its, Inc. v. Selective Ins. Co. of Am., 869 A.2d 929, 933-34 (N.J. 2005) (“Because of the complex terminology used in the policy and because the policy is in most cases prepared by the insurance company experts, we recognize that an insurance policy is a contract of adhesion between parties who are not equally situated.”); AAS-DMP Management L.P. Liquidating Trust v. Acordia Northwest, Inc., 63 P.3d 860 (Wash. Ct. App. 2003), review denied, 79 P.3d 445 (Wash. 2004) (where insurance policy was so long and complex that the broker prepared an 80-page summary); New Amsterdam Cas. Co. v. Addison, 169 So. 2d 877, 881 (Fla. Dist. Ct. App. 1964) (“The accepted rationale … is that insurance policies are prepared by experts in this complex area, and the intricate interplay of their various provisions is difficult for a layman to understand.”).

11 This can be traced to a pair of decisions in the 1970s: McAlvain v. Central Ins. Co., 554 P.2d 955 (Idaho 1976); Rempel v. Nationwide Life Ins. Co., Inc., 370 A.2d 366 (Pa. 1977). It has continued with greater emphasis to this day: National Fire & Marine Ins. Co. v. Infini PLC, 2019 WL 95894, *8 (D. Ariz. Jan. 3, 2019).

12 Johnson v. Doodson Ins. Brokerage, LLC, 793 F.3d 674, 679 (6th Cir. 2015) (“If there is a third-party beneficiary class to the contract, it is the public at large, which the Michigan Supreme Court has held is ‘too broad to qualify for third-party status.’”); but this is of course not without exception in states that adopt a “general foreseeability” standard, e.g. New Jersey (Eschle v. E. Freight Ways, Inc., 319 A.2d 786, 787-88 (N.J. Super. Ct. Law Div. 1974)) (holding that where the state’s policy is that auto insurance policies are for the protection of the public at large, an agent may be liable to injured third parties for their negligence) and California (Westrick v. State Farm Ins., 187 Cal.Rptr. 214, 218 (Ct. App. 1982) (“while an insurance agent who promises to procure insurance will indeed be liable for his negligent failure to do so, it does not follow that he can avoid liability for foreseeable harm caused by his silence or inaction merely because he has not expressly promised to assume responsibility.”).

13 DC-10 Entm't, LLC v. Manor Ins. Agency, Inc., 308 P.3d 1223, 1229 (Colo. App. 2013) (holding the Court saw no reason to prevent assignment where the claim arose “from a commercial transaction and the insured ha[d] the same expectations of the insurance broker that he or she would have of the insurer.”); Wachovia Ins. Servs., Inc. v. Toomey, 994 So.2d 980, 990 (Fla. 2008) (“negligence claims against an insurance broker are assignable”); Stateline Steel Erectors, Inc. v. Shields, 837 A.2d 285, 289 (N.H. 2003); AMCO Ins. Co. v. All Sols. Ins. Agency, LLC, 198 Cal.Rptr.3d 687, 694-95 (Ct. App. 2016).

23 | Q1 2020 PLUS Journal Module 4 PLUS RPLU DESIGNATION Financial Analysis Online eLearning

Online eLearning

The PLUS RPLU has been around since 1994 – that’s 26 years of educating the Module 7 professional liability market! Not only are we consistently updating the content to match market changes, but we also update the way you access this education. Introduction to Medical Professional Liability Insurance Now, you can access much of the RPLU online! And the best part? You don’t have to go anywhere for the exam—they’re online, too!

How does it work?

• Each module includes interactive content, knowledge checks, job aids, and exam questions • Work through the modules at your own pace, right where you are • The 8 core modules and Module 17 are available in this format

CE is not available for online eLearning – but if you need CE, contact PLUS Member Services for further instructions

24 | Q1 2020 PLUS Journal These are the current modules available for Online eLearning:

Module 1 Module 2 Module 3

Fundamentals of Commercial General Liability Professional Liability Liability Insurance Insurance Overview Insurance Introduction

This one is available for FREE right now! Try it out!

Module 4 Module 5 Module 6

Financial Analysis Professional Liability Reinsurance Professional Liability Insurance Introduction

Module 7 Module 8 Module 17

Introduction to Medical Directors & Officers Liability Advanced Medical Professional Liability Insurance Insurance: Introduction Professional Liability

PLUS is working on making all 23 modules available into this format, so check back often for updates.

Want to get started or learn more? Check out PLUS Online eLearning at www.plusweb.org/elearning or Contact Stephanie Johnson at [email protected] Q1 2020 PLUS Journal | 25 WHY NOT RECORD IT?: LEGAL CONSIDERATIONS FOR RECORDING AGENCY PHONE CALLS

BY JESSICA C. RICHARDSON

nsurance agents may find themselves on the receiving end of an E&O claim based Ion a customer’s claim: “I asked you to add the new business location to my policy” 04 or “I told you to increase my coverage to $1,000,000.00” or “you said I am entitled to replacement cost.” Some agencies consider using a phone system that records calls as a tool to defend potential claims. Agencies should carefully evaluate applicable wiretap statutes, along with common law privacy concerns, when choosing whether – and how – to implement recording systems. Most states apply an “order taker” standard to insurance agents, finding an insurance agent’s duty is limited to the duty of reasonable care and diligence, absent special circumstances. After a loss occurs, E&O claims can materialize when an insured claims his or her agent failed to follow specific instructions. Absent clear documentation of all conversations with the unhappy customer, these claims often result in he said/she said disputes decided largely on credibility. Recording agency phone calls can reduce E&O exposure and provide powerful evidence in defending claims. However, recording calls is subject to both state and federal statutes and common law tort claims. 18 U.S. Code Chapter 119 – Wire and Electronic Communications Interception and Interception of Oral Communications, referred to as the Wiretap Act, controls when and how a person or entity can intercept oral communication at the federal level. The Wiretap Act has teeth – although it is a criminal statute, it authorizes recovery of civil damages with or without proof of actual damages. 18 U.S.C. 2520. A party proving violation can recover actual damages or statutory damages of $10,000 or $100 per day of violation, whichever is greater, plus punitive damages, attorneys' fees and costs. Forty-nine states (all except Vermont) have similar wiretap statutes, and many mirror the federal statute both in requirements and damages provided. Under federal law, a person who is a party to the conversation can record the conversation without penalty, even if the other participants are unaware the conversation is being recorded. 18 U.S.C. 2511(2)(d). This is often referred to as “one party consent.” State laws may impose stricter requirements and require “two party consent.” Wiretap statutes

26 | Q1 2020 PLUS Journal in twelve states (California, Connecticut, Florida, Illinois, to recording phone conversations. Delaware, for example, Maryland, Massachusetts, Michigan, Montana, Nevada, requires one party consent under its criminal statute, but New Hampshire, Pennsylvania, and Washington) and under its privacy law, all parties to a conversation must Puerto Rico require two party consent. All other states’ consent to recording. 11 DE Code § 1335 (2019). statutes parallel federal law requiring one party consent. Some statutes also provide a business exemption to Courts throughout the country utilize Fourth statutory violations, which may apply to conversations Amendment case law when assessing causes of action between an insurance agent and customer. However, a premised on privacy rights, and it is well settled that phone system that indiscriminately records both personal “[w]hat a person knowingly exposes to the public…is and business conversations could run afoul of business not a subject of Fourth Amendment protection.” Katz exemption requirements. If relying on one party consent v. United States, 389 U.S. 347, 351, 88 S. Ct. 507, to avoid liability under the statutes, agencies should be 511, 19 L. Ed. 2d 576 (1967). Factors to consider in sure all agents and employees are aware of and well- determining whether a reasonable person would have acquainted with any recording system. an expectation of privacy in a conversation include “the nature of the location where the interception took place Where two party consent is required, providing notice to a …; whether the conversation could be overheard with the customer at the beginning of a recorded conversation may naked ear; [and] the subject matter of the conversation 04 be sufficient to avoid violating wiretap statutes, as Courts (e.g., business versus personal) …” Aldrich v. Ruano, 952 analyzing the Wiretap Act have held that the consent F. Supp. 2d 295, 302–03 (D. Mass. 2013), aff'd, 554 F. exception is to be construed broadly and includes implied App'x 28 (1st Cir. 2014). consent. Griggs-Ryan v. Smith, 904 F.2d 112, 116–17 (1st Cir. 1990) “[I]mplied consent is ‘consent in fact’ which is While a court may find that an insurance customer inferred ‘from surrounding circumstances indicating that does not have a reasonable expectation of privacy in a the [party] knowingly agreed to the surveillance.’” Id. conversation pertaining to a commercial transaction such (quoting United States v. Amen, 831 F.2d 373, 378 (2d as purchasing insurance, many sales conversations include Cir. 1987)); see also Deal v. Spears, 980 F.2d 1153, 1157 a personal component. Because even the most defensible (8th Cir. 1992). A party who “voluntarily participates in claims can be time consuming and costly to address, a telephone conversation knowing that the call is being best practice for an insurance agency implementing intercepted, this conduct supports a finding of implied a recording system is to obtain express verbal consent consent to the interception.” United States v. Corona- recorded from all participants at the beginning of any Chavez, 328 F.3d 974, 978 (8th Cir. 2003). recorded conversation. Aside from wiretap statutes, recording conversations can also create exposure for invasion of privacy claims based ABOUT THE AUTHOR on common law, and in some states, privacy statutes. Generally, “[o]ne who intentionally intrudes, physically or otherwise, upon the solitude or seclusion of another or JESSICA C. his private affairs or concerns, is subject to liability to the RICHARDSON is a shareholder at Tomsche, Sonnesyn & Tomsche other for invasion of his privacy, if the intrusion would in Minneapolis, Minnesota. She has been defending individuals, professionals, associations, and insurers be highly offensive to a reasonable person.” Restatement for eighteen years. Her professional liability practice of the Law, Second, Torts, § 652. Comment b. to the includes representing insurance agents and brokers, design professionals, engineers, and non-profit boards Restatement specifically provides that the invasion may in both civil lawsuits and professional disciplinary be by the use of senses, with or without mechanical aides, matters. Jessica has successfully tried and arbitrated cases in venues throughout Minnesota, including claims of professional negligence, to overhear the conversations as by “tapping … telephone catastrophic orthopedic injury, brain injury, and wrongful death. wires.” Some states codify privacy laws that would apply

Q1 2020 PLUS Journal | 27 05

COVID-19 and its Impact on Medical Professional Liability: First Impressions By: Paul Greve JD RPLU, Richard Henderson and Lori Semlies

The first confirmed case of coronavirus disease 2019 (COVID-19), a global pandemic, occurred in the United States in January 2020.1 The disease has caused deaths in every state.2 By April, the United States had more active cases and deaths than any other country.3 Just as the disease has affected, and will continue to affect, American society in unimaginable ways, so has it affected, and will affect, the medical professional liability (MPL) insurance industry. It is far too early to know what changes are occurring that will have even short term, much less long term, impact on MPL as we have not even reached the height of the pandemic as of early April. We know from watching the nightly news that COVID-19 is already impacting and will continue to profoundly impact the health care industry, even though as of this writing, few areas of the country are over surges of coronavirus cases nor have many “flattened the curve”.4 Accordingly, the pandemic will potentially be a major influence on MPL claims and litigation, underwriting strategy, rates and carrier finances. We will explore, in a preliminary way of necessity, the issues raised for the MPL insurance industry by COVID-19. It will be many years until the final chapter is written about what could be profound changes for the MPL insurance industry as a result of this disease. The goal of this article is to help those in the MPL insurance industry to begin to consider the multiple changes wrought by the pandemic. Many of them are potentially favorable.

Q1 2020 PLUS Journal | 28 overview of the most difficult needs and challenges faced COVID-19: Theories of Medical by hospitals in addressing the COVID-19 pandemic. Professional Liability The report enumerated all of the circumstances that could give rise to the potential allegations listed above. The exigent circumstances created by the pandemic could The problems are so widespread that few hospitals have give rise to lawsuits. These might include allegations of not been affected.5 Their staffs have heroically responded negligence based on a healthcare organization’s: despite these daunting challenges. • Lack of preparedness for the pandemic It is difficult to imagine plaintiff’s attorneys taking cases • Lack of personal protective equipment for staff on the allegations above, particularly against hospitals thereby injuring/infecting patients and physicians, absent cases of gross negligence. In the ordinary circumstances of the last few decades, • Lack of adequate equipment such as lab tests and attorneys have been far less likely to take MPL cases of ventilators questionable liability. Malpractice cases arising out of the pandemic will be especially difficult to litigate.6 Aside • Lack of adequate staffing and appropriately trained from the exigent circumstances, there will be difficult staff issues with proving causation since transmission of the • Lack of beds (especially intensive care) and other virus is poorly understood and finding credible expert capacities for care witnesses may be problematic. • Inadequately training staff in infection control COVID-19: The Pandemic practices resulting in injury Standard of Care • Delaying care, like elective surgeries and procedures, that would have been rendered under normal The lack of foreseeability of all the specific health care circumstances, especially due to state and federal emergency circumstances in urban and regional settings directives that have been created by the pandemic creates strong arguments favoring institutional as well as individual But these same exigent circumstances may well provide provider defendants. The question about the applicable a defense in MPL litigation. An Office of the Inspector standard of care is the same as it always is: what was General (OIG) report issued April 6th provided an reasonable under the circumstances? And what is

29 | Q1 2020 PLUS Journal reasonable can vary by individual patient. resolved in 2020, including those with high valuations. The attitudes of the general public, and therefore of The highly altered circumstances of the pandemic will jurors, may be favorably influenced, at least in the near have a major influence on the standard of care. The term, by favorable media focus as to certain health care limitations of available staff and supplies, and their defendants, especially hospitals, physicians, and nurses. redirection to prepare and care for COVID-19 patients The plaintiff’s bar may need to settle cases for the benefit limits services available. Policies and procedures and of certain clients, some of whom may be unemployed protocols have had to be altered. The inability to and need the money more immediately.11 Plaintiff’s perform in-person examinations in all circumstances firms may need the income during the pandemic. and the need to retrain physicians and nurse for critical care settings are just some of the examples of influences on the standard of care.7 Claim Resolution During the COVID-19 Pandemic The standard of care also can be greatly affected by state and federal laws, staff shortages (especially doctors, One result of the COVID-19 pandemic has been the nurses, and respiratory therapists), and shortages of closure of some courts for jury trials, although claims personal protective equipment, COVID-19 lab tests, are still being filed and processed through certain and ventilators. At least one plaintiff’s lawyer has stated discovery phases via telephonic and virtual conferences. that the bar in proving negligence will of necessity be This is noteworthy because although bench trials can set at a higher level. Attorney Jeffrey R. Davis, who theoretically be held, the overwhelming majority of practices in Miami, stated: medical malpractice trials are conducted before a jury. Since the media attention paid to plaintiff verdicts, “I think the standard of care is going to be flexible. The particularly in recent years, can arguably influence the standard of care on a battlefield is different than the negotiations in future claims, the lack of jury trials standard of care in an emergency ward and is different may dampen the amount paid for both indemnity and from a routine examination.”8 ALAE, at least in the short term. In those jurisdictions particularly hard hit, including some of the largest cities, COVID-19: The Effect on the courts may not be fully operational with in-person MPL Litigation Environment in hearings for several months. The result is that claims that were on the verge of trial (or that would be in the 2020 near future) may now be further delayed, potentially For most of the past decade, there has been a shift in creating a backlog which could extend claim resolution societal attitudes toward medical professional liability for several months, if not longer. Further, medical litigation and other civil litigation. Social inflation malpractice losses are hardly the only matters on the has caused juries to give large awards to plaintiffs.9 court dockets, and other matters, including criminal This trend has been especially true with MPL verdicts trials, are likely to take precedence. exceeding $5M against hospital defendants. An article Absent the ability to try these claims, what recourse published in Medical Liability Monitor in January noted is there for claim resolution for matters that are trial- that “the average cost of a medical malpractice claim ready? One option is to engage in video mediations or has increased by 50 percent since 2009 with a sharp settlement conferences. Given that on-site mediation is rise in the number of claims of more than $5 million far costlier and more inconvenient than video due to during the last four years…” The data came from the travel costs, additional travel time/time out of office, latest annual Aon/ASHRM Hospital & Physician 10 and weather-related impediments in certain areas of the Professional Liability Benchmark Study. country, use of video mediations may increase in the The pandemic may limit the cases taken to trial and future and may be embraced as a longer-term viable

Q1 2020 PLUS Journal | 30 alternative to on-site mediation. Another option would Of course, not every claim has catastrophic damage be to return to the “old fashioned” method of picking potential, nor is every claim in the hands of large well- up the phone and directly negotiating without the use funded plaintiffs’ firms or firms that may be backed with of a mediator. Particularly amongst some of the more third-party litigation financing. Within this population senior attorneys and claims professionals, this might of claims, where the defense may have more leverage, it be a welcome return to a time when engaging a third is possible that mutually beneficial settlements can be party to facilitate settlement was not deemed necessary achieved for values below forecasted amounts, however, with anywhere near the frequency with which it has claims professionals still need to negotiate in a fair and developed over the past 20 years or so. reasonable manner. If a reasonable demand is provided, including those that are time-sensitive, it is still incumbent For claims that are trial-ready but where the gap on the claims handler to respond appropriately under cannot be bridged via mediation or other negotiation, the circumstances even though the claim handler may it was initially presumed that the defense would find feel emboldened to take a hardline stance given current themselves in a much stronger negotiation position dynamics, as there is no guarantee we will see the same because plaintiffs would be motivated to settle for less landscape once we are beyond the pandemic and no now versus waiting an indeterminate time to attempt to guarantee the plaintiff will accept the prior demand at recover more at trial or via settlement. Note it is a given a future date. In many jurisdictions, the same plaintiff that a thorough analysis of liability and damages should firms, claims professionals, and defense attorneys have always be undertaken. Furthermore, it was thought that been working with each other for years and can be many plaintiff attorneys might find themselves in a cash- expected to do so well into the future. While it can be sensitive position that would benefit the defense. Lastly, very tempting to go for the jugular when either side feels the heroic efforts of the front-line medical professionals they have the advantage, and while some on the defense/ have been placed the defense in an advantageous position insurer side may feel they have been at a disadvantage to stand firm with offers arguably well below forecasted more often than they would have liked in recent years levels on existing claims. Therefore, is it reasonable to and would very much desire to “return the favor, ”the assume that the defense is in an enviable position when situation is not permanent and fair dealings at this time it comes to negotiation leverage? should ideally bear fruit on into the future at a time when The answer, perhaps surprisingly, may be “no,” or at least the leverage may have shifted. not as much as anticipated. While there is little doubt that some claims have been resolved for less than anticipated, COVID-19 Claims: Coverage we have not seen frequent reports of great bargains being Challenges achieved, at least not at the time of this writing. First, a thorough analysis of liability and damages should A growing subject of discussion from the insurer always be undertaken in order to evaluate claim values. perspective has been whether COVID-19 claims are Second, many of the highest value claims reside in the individual claims, each subject to a deductible or hands of extremely capable plaintiff firms which have the retention, which could result in horizontal exposure. Or ability and financial resources to not only wait out the could these claims be aggregated so that they constitute current pandemic on the medical malpractice side, but one event, subject to one deductible or retention and also leverage alternative sources of funding. Indeed, the one policy limit resulting in vertical exposure? The result presence of third-party funding options can help plaintiff of the foregoing may be a misalignment of positions firms avoid compromising claims at less than desirable between insured, insurer, co-insurers, and reinsurers. [i] levels. In short, if the defense is expecting a windfall In light of certain Executive Orders that have been in the way of settlement discounts on the higher-value issued, and other similar efforts should significantly claims, they may be quite mistaken. limit the scope of COVID19-related litigation, there

31 | Q1 2020 PLUS Journal are provisions which allow for recovery, including in from administration or use of countermeasures to diseases, situations of alleged gross negligence or similar scenarios threats, and conditions determined in the Declaration where the care rendered was beyond “basic” negligence. to constitute a present or credible risk of a future public In many instances, we can expect such claims to health emergency. This immunity applies to entities and include allegations rising to the level of punitive, if not individuals involved in the development, manufacture, intentional, conduct. One must also recognize that claims testing, distribution, administration, and use of medical involving alleged elder abuse can be subject to both an countermeasures described in a Declaration.12 accelerated docket as well as multiplied/trebled or even punitive damages. Additionally, other “non-traditional” Covered persons includes licensed health care allegations may appear in COVID claims, including professionals and other individuals authorized to claims of alleged Consumer Protection Act violations or prescribe, administer, or dispense countermeasures negligent activity, some of which may carry the potential including volunteers, agents, and employees of any of for multiplied or trebling of damages. Allegations of this these entities or persons. Countermeasures are related to nature often fall outside of the scope of coverage and the use of: any antiviral, any other drug, any biologic, will merit, at a minimum, reservation of rights, if not any diagnostic, any other device, or any vaccine, used to disclaimer or partial disclaimer of coverage, as well as treat, diagnose, cure, prevent, or mitigate COVID-19 additional counsel in the event this causes a conflict of as well as any device used in the administration of any interest for the primary defense counsel. such product, and all components and constituent materials of any such product. In the end, one virtual certainty is that a multitude of coverage issues will present themselves as these claims are Countermeasures must either be already FDA approved filed, and that coverage counsel will be in much demand. drugs/devices or specially approved drugs or devices under an FDA emergency use authorization for COVID 19. Immunity Laws Assuming the federal agreement or public agency Equally important to protecting the health and safety requirement is met, the types of products that may be of the health care workers, is to give them peace of covered by the PREP Act could include off label use mind and to protect them from civil liability. Much of FDA approved ventilators (splitting between two like the immunity that municipalities offer to protect patients) under conditions of a ventilator shortage their law enforcement staff and first responders against for COVID-19 patients; medical errors by licensed negligence or malpractice suits, both the federal and professionals associated with a covered countermeasure state governments have extended or created legislation in the diagnosis, treatment, or mitigation or COVID-19; to protect front-line health care staff, and many claims against medical professionals relating to the ancillary staff. However, COVID-specific immunity spread of COVID-19 with the use of protective laws are unprecedented and therefore untested. While equipment authorized by the FDA through a EUA. their intent may be clear, or in some cases obvious, it As with any piece of legislation, there is an exception. remains to be seen how exactly they will operate or how In the cases where a litigant is able to prove willful or the court will interpret them. wanton misconduct, there will be no such immunity.13 PREP Act State Immunity

The Public Readiness and Preparedness Act (PREP Certainly, New York, having suffered the largest death Act) authorizes the Secretary of the Department of toll to date, and being a highly litigious state, was Health and Human Services to issue a Declaration that motivated to enact laws to protect its first responders provides immunity from liability to covered persons for and health care workers who sacrificed so much to care any loss caused, arising out of, relating to, or resulting for its residents. First, by way of an Executive Order

Q1 2020 PLUS Journal | 32 issued on March 23, 2020, Governor Andrew Cuomo Similar to the PREP Act, there are exclusions. Conduct offered the first sense of relief for the workers.14 The Order which amounts to gross negligence, willful or recklessness provides civil liability immunity to physicians, physician or intentional misconduct, is not protected. Some states assistants, specialist assistants, nurse practitioners, and also limit protection to volunteer services. licensed registered professional nurses, against claims of injury or death alleged to have resulted directly from an act COVID-19: The Impact on Key and/or omission by the healthcare provider during the course of providing medical services in furtherance of the State’s MPL Insureds response to the COVID-19 outbreak, so long as injury or Hospitals death was not caused by gross negligence.15 Claims against hospitals have been the primary driver Less than a week later, on April 2, 2020 New York State of the rise in MPL insurance industry severity over the enacted legislation expanding this immunity in Article last decade. However, the pandemic has brought daily 30-D of the Emergency or Disaster Treatment Protection media images of brave physician and nurses risking their Act. Here, the scope of liability immunity protects lives in hospitals across the country that, for the most healthcare providers so long as the services are (1) part, have responded very capably despite shortages of pursuant to a COVID-19 emergency rule or otherwise trained staff, tests, ventilators, and PPE. The hospital in accordance with the law; and (2) the treatment is industry, possibly due to mergers and acquisitions and impacted by the facility’s or professional’s decisions or loss of local control along with rising health care costs, activities during the care and treatment of COVID-19 has not been as favorably perceived over the last decade and non-COVID-19 patients, when such act or omissions and this has affected jury awards against hospitals. It is occurred in response to the COVID-19 outbreak. very possible that the perception of hospitals, physicians and nurses will improve at least for a short term of This Act includes healthcare “facilities” signaling that indefinite duration, thereby providing a stronger shield hospitals, nursing homes, doctor offices, and other against MPL litigation and large awards. “facilities” such as converted emergency trauma and care centers such as the Javitz Convention Center in The focus on COVID-19 preparation and care of New York City, may receive liability for COVID-19 patients has been all-consuming for hospitals. There related claims as afforded under the Governor’s Order still has been admissions to emergency departments and state legislation.16 and inpatient care for non-COVID-19 conditions of all kinds including births. The distraction of the pandemic Unlike the Executive Order, the Act is intended to as well as staff and equipment shortages could result in protect healthcare workers whose ability to provide care future claims. and treatment to non-COVID-19 patients has been impacted by the facility’s response to the COVID-19 But the American Society for Health Care Risk outbreak. This means to the extent a healthcare worker Management (ASHRM) maintains an exchange site is somehow limited in his or her ability to provide for members. There were postings by some hospital ordinary care or services to a non-COVID-19 patient risk managers that indicated that there were far lower because of the strain on resources as a result of the patient safety/loss event events being reported.18 This outbreak they too are immune. would seem to indicate the potential for fewer lawsuits against hospitals arising out of this time frame. Currently, several states including New York and its neighboring New Jersey and Connecticut have either Another major concern for medical professional liability issued a similar executive order or expanded their so insureds and insurers is the backlog of patients that, of called Good Samaritan statutes and granted immunity.17 necessity, has been created due to the need to conserve resources like staff and PPE in order to prepare for a

33 | Q1 2020 PLUS Journal surge of COVID-19 patients.19 Elective procedures, A Wall Street Journal article noted the vulnerability surgeries, and the resulting hospital admissions will of nursing home residents, issues with infection need to be resumed and prioritizing patients will be control even preceding the pandemic and the lack a challenge. It certainly is foreseeable that there could of available tests for staff and residents.22 Still, each be litigation resulting from delayed care arising out of facility and case must be evaluated on its own unique the pandemic. facts. An article published April 10th on nursing homes in Indiana noted that teams from the Indiana Physicians Department of Health visiting facilities determined Over the last decade or so, this segment of MPL that in most cases nursing homes are following proper insurance has fared the best for losses in comparison to infection control techniques. But the Indiana State others such as hospitals and nursing homes. It is difficult Health Commissioner noted that employees go home to imagine many lawsuits, much less successful lawsuits, daily and to necessary businesses like grocery stores against physicians arising out of the circumstances of and may unknowingly contract the virus and bring it 23 the pandemic. Many physicians are being required into the facility without symptoms. to practice outside their areas of expertise, such as in Some of the most recent regulations issued by CMS and critical care units, for coronavirus patients to get care. Governor Cuomo may make it easier to target nursing Withholding or withdrawing a scarce ventilator could homes. CMS declared on March 13, 2020 that a nursing result in a claim of negligence. But following guidelines home cannot condition admission from a hospital upon 24 suggested by medical ethicists and consulting other a negative COVID-19 test. physicians and perhaps an ethics committee before such 20 On April 17, 2020 Governor Cuomo issued an a decision is made could provide a strong defense. Executive Order requiring nursing homes to inform One concern could be the distraction factor of the family members when any resident tests positive for pandemic leading to allegations of misdiagnosis or COVID-19 or dies from a COVID related illness improper/delayed treatment of patients not affected within 24 hours. by the virus. A number of states in recent weeks and Nursing homes are an easy target and in states with months have granted immunity to physicians in various limited immunity protection they are no doubt going ways arising out of the pandemic and there could be to be hit hard with litigation. This will have a profound more states doing so in the future. impact on the nursing home industry and could put Nursing Homes/Long Term Care some facilities out of business thereby leaving a shortage of skilled nursing beds available to those who will need The long term care/nursing home MPL insurance in the not-so-distant future. segment will likely be the most affected. The tremendous amount of national attention focused on Home Health Care the nursing home community has likely incited those The pandemic has created great strain on this type of most likely to sue and plaintiff’s lawyers who specialize health care provider/firm. There were already waiting in such litigation. There are media reports of families’ lists for this type of care. Staff are not highly paid and calls for information going unanswered at the nursing usually minimally trained with home health aides stations. There have been multiple media reports 21 mandated by federal law to have 75 hours of training about clusters of deaths within senior care facilities. while personal care aides have no similar requirements. Reports of television and newspaper ads eliciting There is also high turnover within home health agencies. such coronavirus-related suits have already been seen Add in the challenges of obtaining PPE and other tools throughout the country. to do the job which are now lacking due to the pandemic and it could create potential liability.25

Q1 2020 PLUS Journal | 34 Telehealth/Telemedicine to foresee that we may have a noticeable drop in claim frequency at least in the short term. Telemedicine has proven to be a critical tool for the management of patients during the pandemic. Its At the outset, the simple fact that so many elective adoption has occurred very rapidly because it promotes procedures have been canceled should lead to a patient access to care, maximizes the safety of patients corresponding reduction in future claims. We previously and providers from the virus and enables quality of care noted comments by some hospital risk managers that at a reasonable cost. Many state and federal laws and there have been fewer patient safety events. What regulations have been rapidly enacted to accommodate remains to be seen is whether or not there will be a the explosive growth of telemedicine and will have a population of claims where, say, the deferral of allegedly significant impact on providing and expanding care non-emergent/elective procedures comes into question, safely during the pandemic. or where the treatment of non-COVID patients who sustain injury somehow fall outside of the domain of There have been relatively few lawsuits to date arising the executive orders. Further, the executive orders do out of the classic face-to-face video encounter between not provide an absolute bar on litigation for COVID physicians and patients. The numbers of patient patients; there are exceptions which are spelled out, encounters via telemedicine until the beginning of the including for gross negligence-type scenarios, which pandemic has been relatively low. Malpractice cases may well generate more litigation than anticipated, arise out of patient encounters and as the numbers of including on a multi-patient/class action-type basis. telemedicine visits grow rapidly, it is only reasonable to expect that clinical errors will occur and thus more telemedicine-related litigation, especially as clinicians Conclusion are less experienced in its use early on. The COVID-19 pandemic is affecting the medical professional liability insurance industry and will COVID-19: Claim Frequency in continue to affect it for years to come. Its impact will the Future have both favorable and unfavorable aspects. We have discussed claims that are on the verge of trial • The defense of cases arising out of the pandemic and also claims that are in the pipeline but perhaps not may be greatly aided by favorable media focus as advanced in the discovery process. The question then on the health care industry, especially hospitals, becomes, what impact will COVID-19 have on future physicians, and nurses medical malpractice frequency relative to claims yet • Immunity statutes such as the ones in states with to be brought? Much has been written quoting various a significant number of COVID-19 cases (NY/NJ/ plaintiff attorneys saying that efforts to sue medical CT/IL and others) will also be effective in reducing professionals in the near-term is a daunting task, and not the number of suits against hospitals and their staff, a path they plan to venture down any time soon. Not maybe less so as to nursing homes only do many jurisdictions require an affidavit of merit or similar statement from a physician as a condition • Nursing homes may be the primary target for MPL to filing suit. Why would a physician, in these times, litigation arising out of the pandemic agree to a plan to pursue litigation against a peer who • There should be a reduction in future malpractice has been working under catastrophic conditions? The claims overall due to the significantly decreased overwhelmingly supportive public opinion of medical frequency in other non-COVID related types of professionals has been on display for all to see. Beyond medical care being rendered that, since so many elective procedures have been canceled as a result of the pandemic, it is reasonable

35 | Q1 2020 PLUS Journal • Indemnity and ALAE costs can be expected to be significantly lower this year compared to recent End Notes years but whether those changes extend beyond this year is uncertain 12 Note that the PREP Act authorizes a fund in the United States Treasury to provide compensation to eligible individuals for serious physical injuries or deaths directly caused by administration or use of a countermeasure • Expect many coverage issues to arise out of covered by the Declaration. 13 Plaintiff will have to meet a clear and convincing standard to prove COVID-19 related litigation exclusion rather than the traditional tort standard of preponderance of the evidence which is essentially a “more likely than not” standard.

• While some MPL claims currently in litigation may 14 Executive Order No. 202.10. This also allows healthcare providers such as Physician’s Assistants, RNs, LPNs, and Nurse Practitioners, who are licensed yield defense-friendly settlements, experienced and in good standing but not registered in the State, to practice in the State without civil or criminal penalties. NPs may also provide medical services plaintiffs’ counsel may not yield much on the largest in accordance with their education and experience levels without a written practice agreement or collaborative relationship with a physician, and PAs claims may also provide care to the same extent without physician oversight

15 Executive Order No. 202.10 also relaxes healthcare provider medical • Pandemic circumstances have caused the need for recordkeeping requirements, providing liability immunity against claims relating to maintaining and preserving medical records provided the such tools as virtual mediations which may well workers acting reasonably and in good faith responding to the COVID-19 outbreak lead to an expansion of such options even after the 16 Based on current State legislation and Executive Orders, paramedics, and pandemic has cleared. emergency medical technicians (EMTs) are not expressly provided liability immunity.

17 ATRA as of 4/23/20 lists KY, MA, NJ, NY, WI providing immunity by statute. AZ, CT, GA, IL, MI, MS, NJ, NY by executive order. Note that each statute and executive order is unique as to their provisions. https://www. End Notes atra.org/covid-19-resources/

18 ASHRM Exchange. Number of Safety Event Reports is going down… 1 Holshue, Michelle L. MPH et al. First Case of 2019 Novel Coronavirus in the https://exchange.ashrm.org/communities/community-home/digestviewer/ United States. NEJM. January 31, 2020. 382:929-936. viewthread 4/16/20.

19 2 Halaschak, Zachary. ‘Sad development’: Coronavirus claims lives in all Murphy, Brendan. COVID-19 and elective surgeries: 4 Key answers for 50 states after man dies in Wyoming. Washington Examiner. April 13, your patients. AMA Online. https://www.ama-assn.org/delivering-care/ 2020.https://www.washingtonexaminer.com/news/sad-development- public-health/covid-19-and-elective-surgeries-4-key-answers-your-patients. coronavirus-claims-lives-in-all-50-states-after-man-dies-in-wyoming March 30,2020.

20 3 Maxouris, Christina and Andone, Dakin. The United States is reporting Cohen, Glenn JD et al. Potential Legal Liability for Withdrawing or 20,000 coronavirus deaths, more than any other country. CNN. April 11, Withholding Ventilators During COVID-19. 2020. https://www.cnn.com/2020/04/11/health/us-coronavirus-updates- 21 saturday/index.html Condon, Bernard. Nursing Home Deaths Linked to Coronavirus Soar. Associated Press. April 12,2020. https://www.denverpost.com/2020/04/12/ 4 Carroll, Aaron. How Will We Know When It is Time to Reopen the nationwide-nursing-home-deaths-coronavirus/ Country? NYT. April 6,2020. https://www.nytimes.com/2020/04/06/upshot/ 22 coronavirus-four-benchmarks-reopening.html Matthews, Anna Wilde and Kamp, Jon. Toll in Senior Home Wider Than Reports. WSJ. April 11-12, 2020. A1, A7. 5 Grimm, Christi. Hospital Experiences Responding to the COVID-19 23 Pandemic: Results of a National Pulse Survey March 23-27, 2020. https:// Kelly, Nikki. City Nursing home sees outbreak. Journal Gazette. April 10, oig.hhs.gov/oei/reports/oei-06-20-00300.asp?utm_source=web&utm_ 2020. A1 and A4. medium=web&utm_campaign=covid-19-hospital-survey-04-06-2020 24 https://www.cms.gov/files/document/3-13-2020-nursing-home- 6 Kang, Y. Peter. COVID-19 Med Mal Suits Uniquely Difficult for Trial Attys. guidance-covid-19.pdf Law360 April 6, 2020. https://www.law360.com/articles/1260514/covid-19- med-mal-suits-uniquely-difficult-for-trial-attys.April 6 2020. 25 Kwiatkowski, Marisa and Nadolny, Tricia. Home care industry struggles for answers. USA Today. March 27,202o. 1D-2D. 7 Gomberg, Jonathan MD and Hammaker, Donna JD. Health Workers Need Protection from Virus Malpractice Suits.Law360. https://www.law360.com/ articles/1263686/health-workers-need-protection-from-virus-malpractice- suits. April 15, 2020

8 Kang,https://www.law360.com/articles/1260514/covid-19-med-mal- suits-uniquely-difficult-for-trial-attys.April 6 2020

9 Tobenkin, David. Panic! In the Courtroom. Leader’s Edge. March 2020, 41-47.

10 Matray, Michael. Beazley Hospital Claims Data: Steep Increase in Largest Malpractice Claims Behind a Firming Hospital Professional Liability Market. Medical Liability Monitor, Vol. 45. No.1, January 2020 at 1.

11 McCormick, John, et al. Pandemic Leaves Voters Guessing. WSJ. April 4-5, 2020. A3.

[i] Farrell, Ted. Litigation Financing Can Fill the Gap During Economic Turmoil. Bloomberg Law. https://news.bloomberglaw.com/us-law-week/ insight-litigation-financing-can-fill-the-gap-during-economic-turmoil. April 3, 2020.

Q1 2020 PLUS Journal | 36 ABOUT THE AUTHORS

PAUL GREVE JD RPLU Paul has twenty years’ experience as an administrator, risk manager and attorney for major hospitals in Ohio, including Cleveland Clinic, University Hospitals of Cleveland, Columbus Children’s Hospital, and St. Luke’s Hospital. Paul also has twenty years’ experience in the health care professional liability industry as a broker and consultant. He worked as a broker and consultant for Willis for 19 years, primarily in the National Health Care Practice. He has also worked for two health care professional liability insurance companies including Medical Protective and Markel Specialty.

RICHARD HENDERSON is a Senior Vice President with TransRe. Mr. Henderson has headed TransRe’s medical malpractice claims department for the past 20 years and has more than 30 years of medical malpractice claims experience. He is actively involved with TransRe’s reinsured's, brokers and Third-Party Administrators in refining their claim handling strategies and in providing meaningful input as to industry trends and claim handling tactics. Mr. Henderson graduated magna cum laude from John Jay College in 1984 and has continued his insurance industry education through completion of the Chartered Property Casualty Underwriter (CPCU), Associate in Claims (AIC), Associate in Underwriting (AU) & Associate in Risk Management (ARM) programs.

LORI SEMLIES a co-chair of the firm’s Medical Malpractice & Health Care practice, defends medical and nursing home malpractice claims in state and federal courts, including all phases of litigation through trial. She has handled appeals in the New York Appellate Division, First and Second Departments, and before the Second Circuit Court of Appeals.

37 | Q1 2020 PLUS Journal The Nominations and Leadership Committee is seeking suggestions from PLUS BOARD PLUS members for potential candidates for the PLUS Board of Trustees and our & AWARDS distinguished annual awards. If you, as a PLUS member, feel that you or someone you know would CALL FOR be a good candidate for the PLUS Board or a deserving recipient of an award, please submit to PLUS by NOMINATIONS Friday, May 29th. Submissions require the following elements about the candidate you are submitting: • Full Name • Current Employer • List of contributions to PLUS • Addition comments about candidate's character and accomplisments • Whether submission is for the PLUS Board or an Award nomination

Submit nominations by Friday, May 29 to: • Robbie Thompson, PLUS Executive Director 38 | Q1 2020 PLUS Journal • [email protected] BOARD OF TRUSTEES Trustees are elected to the Board for a term of three years, with terms staggered so that one-third of Trustee positions shall conclude each year. A number of factors are considered when evaluating candidates, including stature in the industry, company position, years in the business, past service to PLUS, and the current balance and composition of the Board (underwriters, brokers, attorneys, company representation, diversity, geography, etc.). This year there are two Trustee positions open.

AWARDS Each year the Professional Liability Underwriting Society presents two awards at its Annual Conference... PLUS 1 Award is presented to an individual who has contributed substantially to the advancement and image of the professional liability industry. PLUS Founders Award recognizes a PLUS member who has made lasting and outstanding contributions to PLUS and represents the spirit and dedication of individuals who have contributed selflessly to create, lead and improve the Society.

Further Award criteria and lists of past recipients are available upon request.

PLUS staff will submit additional information about Trustee candidates and Award nominees to the Nominations and Leadership Committee. The Committee will consider all suggestions offered by PLUS members and hold meetings over the summer to determine Trustee candidates to be listed on the ballot submitted to membership in late September and Award recipient recommendations to the Board, respectively.

PLUS will archive all information from this process, consider suggested candidates for other leadership positions within PLUS, and present information about them to the Nominations and Leadership Committee in subsequent years. Thank you for your support and involvement in this process.

Q1 2020 PLUS Journal | 39