Every so often there is a new killer virus on the horizon. In the past decade, it was MERS. In the 2000s, it was SARS, the bird flu, and H1N1. In the 1990s, it was Ebola. In the 1970s, it was swine flu. In 1918, it was the “Spanish flu.” There have been others.
Although the symptoms of each new virus vary, each one generates pressing legal matters in the moment, and leaves a wave of litigation in its wake. But with the Coronavirus, we’re truly in “novel” territory. There have been serious outbreaks in the past; however, none rivals COVID-19 in modern legal history. That said, the kinds of claims that resulted from past viruses are likely to reoccur. Given the Coronavirus’s heightened lethality, though, one can safely predict the litigation to follow the current crisis will be greater in number and exposure.
What We’ve Seen in the Past
In the aftermath of past outbreaks, there have been a large variety of lawsuits, primarily against employers and businesses. Some of the legal theories we expect to see as the basis of such claims include:
- Discrimination (e.g., unlawful termination from work for inability to receive a vaccine due to precautions and contraindications, race/ethnicity discrimination or hostile work environment claims due to perceived geographic origins of a virus).
- Product liability (e.g., for long-term side effects from taking a vaccine). Note, however, that for manufacturers and distributors of FDA-approved vaccines and “countermeasures”, liability is now limited to cases of “willful misconduct” under the Public Readiness and Emergency Preparedness Act (PREP Act). A PREP Act declaration was made in mid-March, retroactive to the beginning of February.
- False Advertising (e.g., related to allegedly false claims of the effectiveness or side-effects of a vaccine or other health product).
- Wrongful death (e.g., due to incorrect and inadequate quarantine procedures at healthcare facilities). In fact, as explained below, a negligence/wrongful death action was just recently filed this week in Illinois against Wal-Mart.
- Malpractice (e.g., failure to inform at-risk individuals of the presence of infection in a healthcare facility).
- Securities fraud (e.g., falsely downplaying the impact of a spreading infection on the supply of raw materials, failure to disclose inadequacies in food safety program).
- Coverage (e.g., litigation related to coverage for bodily injury, property damage (particularly as to affected/unsold livestock), and business interruption).
- Bad Faith Breach of Contract (e.g., alleged bad faith denials of an influx of claims drawing on life insurance policies).
- OSHA (e.g., failure to provide a workplace free of recognized hazards by failing to comply with CDC guidance and precautions).
- Negligence (e.g., failure to take recommended or known-to-be-necessary precautions to reduce risk of infection and injury to customers and patrons).
- Breach of fiduciary duties (e.g., against directors of a company that took a wait-and-see approach and failed to create and implement a pandemic contingency plan, mismanagement of assets in the circumstances (corporate, as well as employee assets)).
- Ponzi schemes (recall that both the Petters and Madoff schemes unraveled in the wake of the 2008 recession).
Put simply, the claims we have seen in the past in similar situations share a common theme: companies and their officers and directors should have acted more responsibly and proactively.
What We Can Anticipate in the Future
Given what we’ve seen in the past, one can anticipate a large swath of analogous lawsuits this go-around. Recent legal trends suggest an increased focus on at least three general categories of claims: (1) claims against corporate officers and directors, (2) negligence, and (3) breach of contract/coverage.
Claims Against Corporate Officers and Directors
First, there is a greater likelihood of claims against officers and directors, most likely securities fraud and breach of fiduciary duties claims. These suits could allege that officers and directors are liable for failing to plan for crises such as pandemics, or failing to act quickly in response to the looming crisis. For example, plaintiffs may argue that the officers and directors “failed” to put in place a crisis management plan—or an adequate plan, by comparison to the industry. Claims alleging “should have” known/acted claims have been increasingly common in the past five years, and the current pandemic may exponentially exacerbate the current trend.
There may also be claims for failure to timely disclose the impact of the Coronavirus pandemic on all aspects of a business (and update those projected impacts as more information came to light), given investors are focused on day-to-day, and sometimes hour-to-hour, developments. These lawsuits are also more likely in response to the Coronavirus pandemic due to the increasing prevalence and recent investor interest in “environmental, social, and corporate governance” (ESG) disclosures. Companies must accurately disclose all material facts that affect a public company’s business, and investors are increasingly looking to ESG factors in measuring both the societal impact of a business, but also its going-concern. Pandemic preparedness and response implicates all three aspects of ESG.
Second, there is a greater likelihood of negligence suits against businesses that fail to follow stay-at-home orders, fail to adhere to CDC and other health authorities’ guidance, and otherwise endanger the health and safety of employees or customers. Plaintiffs may point to such deficiencies as “negligence per se,” akin to violation of a statute or regulation, which can demonstrate negligence independent of establishing foreseeability or a reasonable standard of care. Sweeping stay-at-home orders may provide plaintiffs the legal hook needed to condemn as negligent a business’s conduct that is not in compliance.
In fact, just this week a claim was filed against Wal-Mart by an employee who died, alleging both negligence and wrongful death. Among other things, the complaint alleges management at the store in question allegedly knew that several employees were exhibiting symptoms of the Coronavirus, but failed to properly sterilize the store, promote and enforce social distancing guidelines, provide employees protective equipment (masks, gloves, etc.), warn the employees that certain persons were experiencing symptoms, develop an infectious disease preparedness and response plan as recommended by the CDC, and more. We can likely expect to see similar claims in the future, perhaps brought by customers as well.
Failure to disclose these issues and adequately address them could also open up businesses to securities fraud and breach of fiduciary duties claims like those addressed above.
Contract and Insurance Claims
Finally, we have already seen increased activity related to business interruption insurance coverage and force majeure clauses. For commentary on those issues, visit these linked articles and additional resources at our online COVID-19 Resource Center.
The Best Defense Is Always a Proactive Offense
Ignorance is certainly not bliss when it comes to crises, especially as to matters of public health. Companies and their leaders who proactively consider and implement informed and objective efforts will be better positioned to meet these legal challenges. Such efforts might include engaging experts and following government guidance, standards, and advice. While public relations campaigns can be effective, they should be backed by action. As with all emergent issues, companies should be up-front, keep information current, and act quickly to address any risks to business operations, recognizing that the potential claims and solutions will affect every organization and individual differently.
Published April 10, 2020