Protecting Against COVID-19 Litigation Risks – Part 3: Pandemic Public Disclosure Obligations and Insurance Coverage
March 31, 2020
This is the third post in a series looking at some of the litigation risks facing businesses responding to the COVID-19 pandemic, and how to manage that risk. Part 1 of the series addresses Commercial Contract Non-Performance. Part 2 deals with Potential Disputes between Employers and Employees. This article looks at Pandemic Public Disclosure Obligations and Insurance Coverage.
Pandemic Public Disclosure Obligations
Notwithstanding the general upheaval from the response to COVID-19, public issuers must still comply with their periodic and timely disclosure obligations. Companies, as well as their directors and officers in certain circumstances, may be liable for their failure to make appropriate disclosure.
Periodic Disclosure: Many securities regulators in Canada and the U.S. have issued orders extending the deadlines for periodic filings. In Ontario, the Ontario Securities Commission (OSC) has ordered a 45-day extension for periodic filings of investment firms and other registrants, subject to the terms of the orders. The extension orders were effective as of March 23, 2020 for a period of 120 days. Issuers should take care to make necessary adjustments to the language in their disclosures to reflect the new COVID-19 reality, particularly with respect to risk factors, forward looking statements, and management discussion.
Of note, the 45-day extension does not excuse issuers from their continuing obligation to make immediately disclosure of material changes.
Timely Disclosure: Public issuers have an ongoing obligation to make immediate disclosure of material changes. Material changes are generally defined as (a) changes in the business, operations or capital of a company that would reasonably be expected to have a significant effect on the market price or value of any of its securities, or (b) changes to a company’s board of directors or senior management.
With respect to the former, the uncertainty surrounding the COVID-19 pandemic and constant developments may make it hard to pinpoint when exactly a material change occurs (and, therefore, must be disclosed). To help protect against lawsuits or regulatory prosecutions for failure to make timely disclosure, issuers should give particular consideration to disclosure of significant changes to liquidity, inability to meet contractual requirements whether by the issuer or the issuer’s counter-parties to material contracts, and any company-specific effects of the COVID-19 response that set it apart from other businesses in its region and industry.
Pandemic Insurance Coverage
Another type of business litigation that will likely come out of the COVID-19 pandemic are suits against insurers for uncovered COVID-19 losses. It is critical that businesses review the terms and conditions governing their specific insurance policies as soon as possible to determine whether and to what extent their losses may be covered by your policies. Care must also be taken to comply with notice requirements for coverage claims to protect any possible cause of action against an insurer for failing to provide coverage.
Many businesses may look to their business interruption insurance policies to help cover the cost of COVID-19. COVID-19 related losses are more likely to be covered by business interruption policies with specific “disease outbreak” or “pandemic wording”, but depending on the wording of the policy, a similar analysis may be applied as that described with respect to broadly worded force majeure provisions (discussed in Part 1 of this series). That said, business interruption coverage can be limited to business closures due to physical damage. Further, following the 2003 SARS outbreak, some insurers excluded viral or bacterial outbreaks from standard business interruption and contingent business interruption policies.
Other types of insurance that may be available, depending on the circumstances, are:
· Impact Due to Civil Authority coverage for losses sustained by businesses forced to close as a result of Ontario’s declaration of a state of emergency and related orders;
· Business-Owned Critical Illness coverage for situations where key employees fall ill, and
· Event Cancellation coverage for expenses and lost income from events that were cancelled as a result of COVID-19.