The COVID-19 pandemic is a singular event. There is no analogous historical precedent to the stay-at-home orders that swept the globe in March 2020. The economic impact was immediate and sharp. Unlike past recessions, this halt in economic activity was precipitous and driven not by a financial crisis, commodities shortages, or inflation, but by public-health measures. This makes projections on the impact to litigation from the pandemic risky, as precedents are few and inexact.
But we are now far enough into the pandemic and the response to it that we can see some trends developing. Our views are shaped by experience in past economic downturns and knowledge of the industries in the areas in which we practice. This article presents an overview on how multiple practice areas are being impacted as courts resume operation and litigation finds a new normal. One thing is certain: The types of lawsuits that have been filed in response to the pandemic have been as unique as the pandemic itself.
Part of the impact of COVID-19 on litigation is simply the result of the economic downturn. Litigation has always been a counter-cyclical practice area. Business disputes increase and individuals’ willingness to file suit to obtain compensation is more determined when money is scarce. Layoffs and furloughs lead to employment lawsuits. If business interruptions are arguably covered losses (and even when they are not), insurance claims are made. This increased litigiousness may be tempered by a willingness on the part of plaintiffs to settle more quickly because of a need for funds. The plaintiffs’ bar itself may suffer from the same lack of liquidity, limiting their willingness to finance more questionable claims and encouraging early settlements. This is compounded by trial continuances due to closed courthouses and a shortage of willing jurors.
But the impact of the pandemic has not been limited to the expected effects of an economic downturn. Nothing has been expected about COVID-19. In the immediate aftermath of the lockdowns and rising death toll, priorities were public safety and health, but a search for blame has quickly followed. Missouri’s attorney general filed a lawsuit in federal court seeking to hold Beijing and the Chinese Communist Party responsible for the spread of the coronavirus. We expect many similar lawsuits, big and small, to follow, all seeking to assess blame and impose liability for the impact of COVID-19. Some are clearly motivated by politics, while others are focused on compensation.
Open questions regarding the impact of COVID-19 on litigation include the role of science and scientific evidence. Will the endless news cycle focused on testing methodologies and the interpretation of data regarding infection and mortality rates cause jurors to rely more heavily on numbers and the results of scientific research? Or will they be more likely to accept risk as inherent in all facets of life and reject certain claims for compensation as a result? Will this second group be equally scornful of the testimony of expert witnesses and scientific evidence at trial?
While we don’t have all the answers to these questions, we do have insights. And we know these questions will be asked as the first post-pandemic juries in civil trials get picked.
First Wave of Litigation
The initial salvo of lawsuits filed as a result of COVID-19 were predictable. The targets were in the headlines: cruise lines, managed-care facilities, big-box retailers deemed essential businesses, and, of course, the insurance industry. Princess Cruise Lines was sued in federal court in San Francisco while it was still disembarking passengers from the COVID-19-impacted Grand Princess cruise ship. The daughter of a woman who died of coronavirus at the Life Care Center nursing home in Kirkland, Washington filed a wrongful-death lawsuit against the parent company claiming that the facility covered up the outbreak. Both cruise ships and nursing homes were hotspots during the first stage of the pandemic, and these two incidents are often considered starting points for COVID-19 in California and Washington. Lawsuits for wrongful death and bodily injuries based upon failure to warn and negligence theories are expected to multiply rapidly.
Another area with increased activity is first-party claims against insurers for denial of business-interruption claims. There is no question regarding the losses to U.S. businesses caused by shut-down orders and social-distancing requirements. Most insurance carriers have denied claims based upon these losses. The courts will have to determine whether insurance contracts properly exclude losses due to a pandemic.
General Liability Third-Party Lawsuits
Cruise ships and nursing homes were obvious targets of coronavirus litigation. Of immediate concern to American businesses and their underwriters was the lawsuit against Walmart filed in early April that involved a Walmart employee in Illinois who died from COVID-19 complications. A relative filed a wrongful-death lawsuit against the retail giant, alleging the store did not do enough to protect employees. As of mid-November 2020, there were currently over 250,000 deaths in the U.S. attributed to COVID-19 and over 11 million infections. Every large business, not just Walmart, has numerous employees, customers, or vendors who may have been exposed to the virus at their locations. This is particularly true for those that directly serve the public.
How many lawsuits will be filed by those who attribute their illness or the death of a loved one to a specific business? As restaurants, hotels, and stores have reopened; as others continue to operate as essential businesses, how much risk do they face? The problems faced by businesses in this environment are compounded by conflicting guidance from public-health officials, dueling regulations, and the politicization of issues such as masking.
We expect many businesses to be named in third-party lawsuits. Legal theories will include premises liability, negligence, and failure to warn. But individuals or groups asserting personal injury claims as a result of COVID-19 face a basic problem: Coronavirus is a biological pathogen, not man-made. People can carry the virus and transmit it, but is that alone a basis for liability? A suspicion that an infection occurred at a place of business, absent more, may be insufficient to support a claim. This is true both because of the nature of transmission—person-to-person—and the unfortunate prevalence of the disease in the U.S.
Known facts about the disease also contribute to the difficulty of proving causation. COVID-19 can be transmitted by asymptomatic carriers, and symptoms may develop anywhere from two-to-14 days after exposure. All of these factors make a forensic investigation almost impossible. The overwhelming number of cases has also caused the contact tracing system to break down.
We expect what will be significant are large numbers of confirmed cases associated with one location. A hotel or restaurant that is linked to numerous cases may be held liable. Statistical evidence and epidemiology may be key to third-party bodily injury and exposure lawsuits.
For instance, a handful of customers who visited the same store and developed COVID-19 may not be epidemiologically significant. A lawsuit may fail due to a lack of evidence of a single source of infection, particularly as the infection rate in the population as a whole continues to grow. But when large numbers of individuals on an airplane, or in a nursing home, hotel, or other facility become infected with COVID-19, litigation becomes more likely. Cruise passengers and nursing-home patients are confined for long periods of time, limiting other possible sources of infection. As social-distancing measures increase, that may become true for more of the general population as well. To avoid litigation, businesses must avoid becoming hotspots. The more time customers, employees, or vendors spend at one location, the greater the risk. COVID-19 mitigation and risk management must become part of overall good business practice to limit these potential liabilities.
General liability lawsuits over COVID-19 have taken many forms. Recent lawsuits have been based on the following alleged facts:
• A rehabilitation facility in Colorado failed to respond to plaintiff’s concerns about her husband contracting COVID-19 at their facility and then failed to create a discharge plan before he tested positive for the disease.
• A well-known cruise ship loaded passengers, sailed, and conducted activities in a manner that spread COVID-19. Plaintiff contracted the virus on board and now has permanent injuries and may never walk again.
• A popular restaurant in Florida is facing a suit alleging that it did not require patrons to wear a mask during the COVID-19 pandemic despite a county ordinance requiring it.
• Las Vegas Raiders fans sued The Republic of China over the spread of COVID-19 within its borders and the revocation of press credentials from journalists who covered the outbreak in Wuhan. As a result, the virus allegedly spread to the U.S. and prevented fans from attending Las Vegas Raiders games as season ticket holders.
• A class-action suit has been filed against a passenger cruise ship that departed from Buenos Aires. Defendants are alleged to have failed to address COVID-19 exposure on the ship, allowing the illness to spread.
COVID-19 forces employers to make difficult and oftentimes unprecedented decisions as businesses in nearly all industries face falling revenue and inconsistent governmental restrictions. The resulting decisions regarding human-resources practices and policies expose thousands of employers to existing and emerging liabilities, adding to the impact of the pandemic.
Workplace Safety. Employers have an overriding duty to maintain a hazard-free workplace. This duty is based in part on statutes, including the Occupational Safety and Health Act and associated state and local laws. Data published by the Occupational Safety and Health Administration (OSHA) shows that workplace safety inspectors have already conducted thousands of COVID-19-related investigations to determine whether employers failed to adequately protect their workers from the virus. These investigations have targeted hospitals, nursing homes, school systems, and meatpacking plants, and can be expected to expand to more industries as the pandemic continues to rage.
State agencies are also investigating reports of inadequate protections. Early in the pandemic, the Office of the Attorney General for the State of New York sent a letter to Amazon regarding the attorney general’s “concerns” that Amazon’s health and safety measures for warehouse workers were so inadequate that they may be in violation of federal and state laws. Amazon has been the focus of media attention and worker protests regarding these issues since the onset of the pandemic.
As non-essential businesses re-open and join essential businesses in operating during the pandemic, questions and concerns regarding what safety measures in a given industry are adequate will grow. As no standard protocol exists to fit every industry, a consensus is emerging among employment-law practitioners and employers to proceed with extreme caution, while tailoring new practices and procedures to the unique challenges and risks associated with each business’s operations. As risks of re-opening are weighed, employers must be aware of directives from the Centers for Disease Control and Prevention, the Equal Employment Opportunity Commission (EEOC), and OSHA, as well as the statutory and regulatory frameworks governing testing in the workplace and employee privacy rights.
The importance of practical and thorough workplace-safety programs is not just a matter of legal compliance. Employees and union groups argue that the rush to re-open, favored by some governments and industry sectors, is deprioritizing worker safety. In the months and years ahead, we will see a growing wave of agency investigations, lawsuits, workers’ compensation claims, and whistleblower complaints by employees challenging the adequacy of new measures and a heightened focus on workplace safety.
Recent lawsuits in this area have been based upon the following alleged facts:
• A well-known community hospital in Southern California instructed workers with COVID-19 symptoms to continue working even when obviously symptomatic and highly contagious. The resulting lawsuit is based on allegations that the hospital failed to provide employees and environmental-services workers with sufficient and adequate personal protective equipment; pressured employees to ignore safety precautions; and failed to conduct basic contact tracing. As a result, defendants facilitated the spread of the virus and put employees and the surrounding community at an unnecessarily heightened risk of infection.
• In Oregon, a former employee of a senior living facility filed a whistleblower, discrimination, and retaliation lawsuit. The suit alleges that the defendant fired the plaintiff for reporting that it allowed a symptomatic worker to return to work without testing negative for COVID-19, because it was short-staffed.
• A plaintiff was fired from his job as head of maintenance at a private charter school in Florida after he complained about violations of the building code, “unsafe furniture,” and issues with the school’s response to the COVID-19 outbreak. He is seeking damages under Florida’s whistleblower-protection statute.
• In Minnesota, a non-profit hospital is facing suit after a plaintiff expressed concerns and filed an OSHA complaint about the adequacy of protective equipment used at defendant’s hospital to prevent the spread of COVID-19. Defendant threatened to terminate him for using hospital scrubs instead of personal scrubs.
• A family sued after a man contracted COVID-19 while working for the Port Authority of New York and New Jersey and was exposed to a co-worker who was not wearing a mask. The man later died.
Disability and Leave Discrimination. Since the pandemic began, employers have adopted—often at unprecedented speed—new policies and procedures in response to shelter-in-place orders, growing demands for medical leave, and public-health directives. In practice, however, implementing these policies, and ensuring clear lines of communications with employees, has presented significant challenges. Courts have seen lawsuits arising from perceived unlawful practices and policies by employers in response to COVID-19:
• A well-known property-management firm in New York fired a 69-year-old in-house attorney. The plaintiff employee informed the defendant that his underlying health conditions made returning to the office during the COVID-19 pandemic potentially life-threatening.
• In New Jersey, an employer was alleged to have failed to institute social distancing or other safety protocols regarding COVID-19, after which plaintiff tested positive for the virus. Defendants later fired the plaintiff when she continued working from home due to migraines from the disease.
• A plaintiff, an addiction counselor who was immunocompromised, was denied an accommodation to work from home in order to avoid a COVID-19 infection.
• In Northern California, an assisted-living facility required a 72-year-old plaintiff to work on site, despite his doctor’s orders and state guidance that he continue his psychiatry practice remotely because of COVID-19. He was fired despite satisfactorily performing his duties remotely using telemedicine. To apply for privileges to practice elsewhere, he must re-publish false statements that his conduct was grounds for termination “for cause.”
• A former employee of a grocery store filed a lawsuit claiming the grocer violated its own adopted policy to provide employees affected by the coronavirus up to 14 days of paid leave when her next paycheck failed to credit her, despite providing a doctor’s note directing her to self-isolate.
• A former general counsel for a real estate firm filed a lawsuit against her company for refusing to change its policy to permit her to work from home, which she claims was necessary to avoid violating shelter-in-place orders and facing possible criminal prosecution.
• In two separate class-action matters filed days apart against two ride-hailing companies, drivers alleged the company failed to provide paid sick leave, compelling the drivers to continue working during the pandemic even if they felt ill.
• An infectious-disease nurse filed a lawsuit claiming she was terminated when she raised complaints that her department was only given regular surgical masks instead of N95 masks.
Historical data on filings following an economic downturn offer additional reasons for concern. As reported by the EEOC, in the period since 1997, annual charges peaked in 2011 at 99,947 following the recession in 2008, after a historic low in 2005 of 75,428 charges. The data indicates that, between 2007 and 2008, total annual EEOC filings increased by nearly 13,000. The speed and depth of the current economic downturn far outpaces the recession of 2008, raising the question of what truly should be expected going forward. Millions of laid off, terminated, and furloughed workers will question the policies and practices of their former employers over the past year. Employers need to be prepared.
Directors and Officers and Securities
The pandemic has impacted every corporation in every sector of the economy, too. Hard decisions must be made with regard to workplace safety, layoffs and furloughs, investments, financing, and business planning.
Challenges to corporate governance will follow. These suits may be retrospective, focusing on alleged failures with regard to disaster preparedness, insurance coverage, and contingency planning; or they will be prospective, challenging ongoing management, financial, and operational decisions. As the economic crisis caused by new shelter-in-place and social distancing orders grows, corporations will be faced with selling assets and entering into mergers or financing agreements that would have been unthinkable prior to the pandemic. Shareholder suits are sure to follow. Here are some examples of early COVID-19-related securities and D&O claims:
• A California-based vaccine-development company has been hit with a COVID-19 outbreak-related securities class-action lawsuit alleging that the company attempted to artificially inflate company stock prices by issuing misleading information regarding its COVID-19 vaccine candidate and misrepresented its involvement in the federal “Operation Warp Speed” program.
• A well-known cruise ship company made false representations about the safety precautions that it was establishing on its ships, and its preparedness to deal with the COVID-19 pandemic to keep its crew and passengers safe, in an attempt to keep the ships at sea and continue a steady level of revenue. As a result, when the truth was disclosed, the cruise ship’s share price drastically dropped, affecting plaintiffs and all the stockholders. It is alleged that the defendant made false representations and employed schemes to maintain artificial prices for option contracts for their shares.
• Share prices of a health care information software-services company in New York soared after defendants announced that the company had received a committed purchase order of two million COVID-19 rapid-testing kits. A week later, a research firm issued a report doubting the validity of the deal, calling it “completely bogus,” alleging that the supplier the defendant was buying from fraudulently misrepresented itself as a seller of its COVID-19 tests, and that the purported buyer does not appear to be capable of handling hundreds of millions of dollars in orders.
• A pharmaceutical company was sued in a securities class action for representing that it was able to develop a COVID-19 vaccine within three hours and that it planned to start trials in April 2020. The lawsuit alleged that the statements were inaccurate; that the company had not developed a vaccine; and that its statement that it designed a vaccine in three hours was “ludicrous and dangerous.” A shareholder derivative lawsuit was later filed based on similar facts.
• A plaintiff shareholder filed a U.S. securities class-action lawsuit against a holding company that leases and manages apartments in Wuhan and other Chinese cities, alleging that the company’s January 2020 IPO offering failed to disclose the impact of the outbreak on the company’s residential real-estate operations in China. It is alleged that the company’s offering misrepresented the nature and level of renter complaints that the company received before, and as of, its IPO date relating to COVID-19, impacting its risk exposure and the value of the company.
As more companies are forced to take extreme measures to avoid insolvency as a result of the COVID-19 pandemic and the resulting global recession, we foresee an increase in claims related to alleged corporate mismanagement, inadequacies in financial or operational disclosures, breach of fiduciary duties, and violation of securities laws. Will corporate decisions be judged based upon long-standing statutory and common law standards, or in relation to the “new normal”?
A corporation that has residential real-estate interests in Wuhan is an obvious target. But when Zoom, the videoconferencing company that has become synonymous with communication during lockdowns, faces a shareholder’s derivative action, it’s clear that all corporations are potential targets.
• On April 7, 2020, a plaintiff shareholder filed a securities class-action lawsuit in the Northern District of California against Zoom as well as Eric Yuan, the company’s CEO, and Kelly Steckelberg, the company’s CFO. The complaint purports to be filed on behalf of a class of persons who purchased the company’s securities between April 18, 2019 (the date of Zoom’s IPO) and April 6, 2020. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and seeks damages on behalf of the plaintiff class. Plaintiff alleges that the defendants made false and misleading statements regarding the company’s “business, operational, and compliance policies.” The complaint further alleges that the defendants misrepresented or failed to disclose that “(i) Zoom had inadequate data privacy and security measures; (ii) contrary to Zoom’s assertions, the [c]ompany’s video communications services was not end-to-end- encrypted; (iii) as a result of all the foregoing, users of Zoom’s communications services were at increased risk of having their personal information access by unauthorized parties, including Facebook; (iv) usage of the company’s video communications services was foreseeably likely to decline when the forgoing facts came to light; and (v) as a result, the [c]ompany’s public statements were materially false and misleading at all relevant times.”
It should be noted that although many existing D&O policies are not written with cyber and technology-related risks in mind, a failure to protect against and insure for privacy or cyber liabilities could potentially lead to D&O claims. This risk has increased during the current “work from home” era and is highlighted by the suit against Zoom.
The varied allegations in the lawsuits we have reviewed demonstrate that all industries have been potential targets this year. In the new normal, good public-health practices are also good risk-management practices. All businesses must plan on potential litigation as one of the many problems resulting from the pandemic.