Coronavirus Impact on Claims and Litigation

Episode Notes

Transcript

Best Insurance Law Podcast

Coronavirus Impact on Claims and Litigation

04/08/2020

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Intro: This is the Insurance Law Podcast, brought to you by Best’s Recommended Insurance Attorneys.

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John Czuba: Welcome to Best’s Insurance Law Podcast, the broadcast about timely and important legal issues affecting the insurance industry.

I am John Czuba, Managing Editor of Best’s Recommended Insurance Attorneys.

We are pleased to have with us today attorney Frank Zacherl, a partner in the Miami office of Shutts & Bowen LLP, where he is Co-Chairman of the firm’s Class Action and Mass Litigation Practice Group, and a leading member of the Insurance Practice Group.

Frank concentrates his practice in complex civil litigation and electronic commerce, with an emphasis on trial work, class action defense, and high stakes commercial matters. His practice areas include insurance litigation, electronic commerce and cybersecurity consultation and litigation and commercial litigation.

Frank has tried the issue of class certification in numerous large class action cases and has coordinated complex insurance litigation and class actions on a state and national level for insurers and telecommunications companies.

Frank has also served on the Civil Litigation Committee and Professionalism Committee of the Miami-Dade County Bar Association and is a frequent speaker on electronic commerce, class actions and insurance issues.

And Frank, we are very pleased to have you with us today.

Frank Zacherl: Good afternoon. I am pleased to be here.

John Czuba: Today’s discussion with Frank is on the coronavirus and its impact on the insurance claims industry. And Frank, can you tell us what’s happening now with COVID-19, what’s happening now and in the foreseeable future?

Frank Zacherl: I can and I am giving this podcast actually from my home office with my kids and my wife locked in the backyard so that you all do not hear them in the background and that’s a sign of the times. I mean I think we can all agree that this COVID-19 is a seismic event, certainly unprecedented in my lifetime, probably in all of our lifetimes.

I don’t think anybody knows what the lasting impact will be, but I think it’s possible that life will be very different going forward. One of the things I have been doing because we are not as busy now with all court proceedings being closed is I have been doing a lot of reading while I am stuck at home and I ran across a quote by Thomas Friedman in the New York Times which I thought was very apt.

He referred to a before corona and after corona world view, and I think that is accurate. I think this is one of those events where things are going to be different going forward, both in the culture and in the business world with regard to what we talk about, insurance claims and litigation of those claims.

I think that the primary impact is going to be a fast track of our entire industry into an even more digital landscape. What we have seen so far just in the couple of weeks that we have been enduring this is that the entire legal ecosystem has been impacted.

The courts have tried to do limited hearings, they have tried to do phone hearings, they have tried to do video hearings and now a lot of them are closed. Lawyers like me, I mean I am a trial attorney, I primarily handle trials, hearings, depositions, client meetings, those sorts of things, I am sitting here with very little to do. I have people who write briefs for me who are more busy, but I think that this is a significant impact that’s going to go on for quite some time.

John, one thing in particular that I have seen and I have heard from these people are the legal service providers; court reporters, translators, etc., they are seeing a very sharp downturn in their business.

So really I think all of us are trying to adapt. I think in the future we are going to see a lot more remote working as we are doing now, a lot more videoconferencing, a lot of workarounds that don’t require physical presences. I think you are going to see the judges take more advantage of this.

We have seen this and it’s been happening. We have all attended phone hearings, but I think this virus has really turbocharged our move towards remote work.

I also think that law firms and in-house legal departments are going to be adapting and changing using the technology as we go forward with remote work in particular being more widespread. I think we are all recognizing the inefficiencies that exist in our current process and within my firm we are seeing entirely new workplace procedures. In order to input time all of the lawyers now have phone apps which we knew existed, but we weren’t really making use of, we all now input our time on our phones. I think that’s going to be the way things are done going forward.

(00:04:58)

All of our billing at this point is being done electronically. I mean there is nobody in the office to send out a paper bill.

All of my review as a senior partner in my firm of the associates and the junior partners’ work product is happening remotely. All of our firm management meetings are happening remotely.

So I do think that what’s happening now is sort of a shock to all of us. I think that if you look at the Florida Supreme Court and the way they are trying to deal with this, there are some emergency orders that have been enacted allowing court reporters to administer oaths remotely, for example, allowing evidentiary hearings to proceed without all the parties being in the same room. We have seen the state government is now allowing local municipalities to operate without physical quorums. So if you have remote attendees you have got your quorum that you need.

And this is how I see this happening going forward. I think a lot of the legacy requirements in the law of physical presence and the perception that you need to be present, I think that’s going to change John, and I think going forward we are going to see a huge increase in the use of technology by all participants in the system.

John Czuba: Frank, how about the impact on cash flow of insurers and outside defense law firms?

Frank Zacherl: That’s a good question. I mean obviously all of us at law firms are quaking in our boots right now. There is no question that the COVID-19 outbreak is impacting the insurance industry’s economy as well as the outside law firm economy.

Unfortunately according to what we are seeing we think this impact could be very extensive and could be longer lasting. I mean what’s really happening is unimaginable in many ways, but with regard to the economic impacts, a lot of economists are saying that we are already in a recession as of today, March 26, 2020, and we think that as this goes forward the pandemic is just going to put even more stresses on the US economy.

The 2008 financial crisis was really focused on banks and the finance industry, but I think this recession will impact businesses across the board.

There is an example that I was thinking of just in terms of the idea of trickle-down economics versus trickle-up economics. Right now money isn’t flowing, it’s frozen, it’s sort of like it’s been stopped in time and it’s just not happening.

So let’s say a small business goes out of business. They can’t afford to pay their payroll but they can’t afford to use their accounting firm. Let’s say there is a professional accountant in that firm who now has nothing to do and the firm has to furlough that employee.

Okay, well, that employee has an insurance bill to pay. How is he going to get money to pay that bill if he is not working? Unless he has savings that bill may go unpaid and then that money will not be available to trickle up, as I said earlier, to the insurer and ultimately then to outside counsel.

I have seen already just in the last week increased utilization of in-house lawyers by insurance companies. I have one very large retail client and not in terms of revenues to my firm, but in terms of their presence in the marketplace, but they have told us they have a cash crunch and they have told us to put our pencils down. They are going to handle their legal work with their in-house lawyers for the foreseeable future.

So as a result of all of this, I mean I think there is no question that there is going to be lower profits per partner in 2020 and maybe in 2021, depending upon how long this goes. I don’t think it will be long before we start seeing furloughs and layoffs within the law firms, and I think you will see both staff and less productive lawyers start to get laid off John.

John Czuba: Frank, what kind of impact are you seeing on Florida’s local economy?

Frank Zacherl: Well, we are already seeing a very significant impact with regard to closures. The governor and the local governments have basically said unless you run an essential business like a hospital or something like that, you are closed. And what that means is that Florida, which is a huge tourism economy, the hotels are shut down, travel is shut down, conventions are shut down. I already know from my firm’s hospitality practice that there are layoffs in droves. I mean there are a lot of people who yesterday or two days ago had a good paying job, in a very strong industry, who are now without a job and former employers, these companies they used to work for who are facing zero cash flow for the foreseeable future.

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We are seeing the same thing with restaurants, with bars, with other kinds of entertainment in South Florida, sporting events, all of this is very dire John. I mean there is just no money coming in. As I said earlier, the flow of money is frozen, but in particular and the things that Florida is known for, we are really seeing an impact.

Just recently we have had our beaches closed. We have had, as I said before, all the restaurants, all the bars, all the hotels were closed. Boat ramps and marinas, boating and fishing are huge industries here, they are both completely shut down. Vacations to Florida canceled, weddings, parties, band performances, all these other outings are canceled. We have had shelter-in-place orders in many cities in South Florida and I expect this to be the norm going forward. Even the local parks for the most part are closed.

So I think the impact on Florida’s economy in the short-term is going to be very significant.

John Czuba: Frank, how about the future impact on the insurance industry and insurance defense law practices?

Frank Zacherl: Obviously we have given a lot of thought to this and I have been practicing in this space for roughly 28 of my 30 years as a lawyer and my conclusion right now is it’s hard to tell exactly what that impact is going to be both in terms of how the business operates and from an economic standpoint. I think that you are going to see the industry immediately start to respond on multiple fronts.

For example, I think that the folks that are paying the claims may see pressure and I am not saying that I have heard this, but this is something I think is coming. If you don’t have the premium revenues coming in, I think you are going to have pressure to lower those claims payments.

I think from the perspective of insurers as employers, we are going to have to look at more lean staffing. I promise you that everybody who runs a staff counsel office is seeing how well we can work remotely and thinking well, number one, do I need an office; and number two, do I need all these people. The technology really is changing things right now.

And then I think the insurers as investors and capital managers, with all of their reserve money, they are going to find it much harder to find safe investments and predictable investments for the foreseeable future. I mean interest rates are already almost at zero. It’s very difficult to find appropriate investments for those sorts of funds and so I think you are going to see those impacts right away on the insurance industry.

But the reason I said earlier that I am not sure exactly what the impact will be is because it’s still early and it depends on things like how long the quarantines will last, how long will there be this frozen flow of money, how long will we have to exercise social distancing, are people getting hired back? We just don’t know these things, but I can tell you in my practice I have already been consulted and I have participated in designing new emergency decision making protocols and putting together teams and trying to determine how best to run our businesses when we are dealing with an actual existential threat in some ways and certainly a health threat to our society.

What we are trying to do is make decisions faster and more efficiently, but of course we want to make the right decisions and that’s difficult.

And then the final thing that I think you are going to see in the insurance industry and in the outside law firms is a much greater emphasis on the security front, the cybersecurity front, which is one of the things I do.

We are going to be seeing hardening of computer systems, hardening of the other technology systems. They are going to be trying to expand their capability to conduct business remotely.

We are probably going to have increased security on the access, on the front end, the inability to hack into that technology. You are going to see significant investments in significantly increasing bandwidth. We are seeing that in our firm that with everybody working remotely, it’s a little slower for people.

I think you are going to see more devices being issued to people to work remotely. And I also think as between the insurance companies and the outside counsel, you are going to see even more utilization of technology in terms of transferring information back and forth.

John Czuba: Frank, how about the impact on claims and claims litigation?

Frank Zacherl: This one is another — it’s something I have given a lot of thought to and I have been consulted on already in terms of how I see this playing out. I mean let’s face it right now if you go out on the road there are hardly any cars and that is certainly going to result in a reduction over time in auto accidents, which is going to reduce claims.

I think less mobility in general tends to equal fewer claims, not just in the auto world, but on premises liability claims, in auto accidents — I mean accidents on constructions sites, homeowners liability claims, I think you are going to see less of that.

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On the other hand, you may see more claims with regard to home fires and those sorts of things, plumbing failures. It’s just really too early to tell, but I do think overall because of the reduced mobility there is going to be fewer overall claims. However, I do think those claims that are submitted will be more severe. I think there is less people on the road, you are going to see people driving faster and with everything that’s going on, people are more distracted, there is going to be higher severity on the claims, lower frequency on the claims.

Now, in terms of how that impacts what I do, which is try these cases, I think we are going to see an overall reduction in the amount of litigation John, in the short-term. I think that’s for a couple of reasons. One there is going to be fewer overall claims, but also I think the people that are making the claims are now in a much more economically precarious position than they were say six months ago or even a month ago. I think these people need money and so they are going to be getting what they can get I think because they need the money now and you might see the ability of insurers to get claims settled for lower numbers as a result. As a result of that I think there is going to be less litigation in the short-term.

Now, the other way this is playing out in my world is I monitor the suit filings in South Florida and I have noticed a significant reduction in the number of lawsuits that have been filed over the last couple of weeks. Now, I think there is a bulge in the snake and at some point when everything opens up you are going to see those claims filed again and we might even see more suits in the future, but right now there is just lower suit volume.

And so we are definitely already seeing an impact and among my colleagues in the defense bar many people are saying that their suit referrals are down. We are just not getting referred as many lawsuits as we did a month ago.

Now, the other point with regard to the impact on claims and claims litigation is I think the insurance companies on the business side, on the financial side are going to be looking at their reserves and looking at how much money they can make on the float and they are going to be starting to say, is it really worthwhile for us to be litigating using outside counsel as much as we have been.

We have seen the explosion with the use of staff counsel and how economically efficient that is. I think this is very unpredictable John, but if premium revenues are down due to the joblessness or people are buying less insurance or otherwise, I think it stands to reason that the insurers will have to look carefully at reducing outside counsel expenses. And where I see that ending up is there is going to be impacts on hourly rates. There is probably going to be even more of an emphasis than there already is on alternative, billing arrangements like flat fees and other aspects of outside counsel attorneys’ fees.

So I think to summarize this in a way that makes sense, ultimately this seismic event I think is going to have a very positive impact on our culture, in the insurance business and in the insurance claims litigation world. I think you are going to see more efficiencies in the court system, you are going to see more efficiencies in law firms, you are going to see more efficiencies in claims processing. In the long run I think all of those things are coming and I think they are very good.

I also think that this turbocharging that we are seeing on the trend towards remote working will be a net positive in the long run. I for one have enjoyed being at home and not having that one hour commute bookending my day on each end. I think I have been much more efficient working at home and I have enjoyed being around my family. Now, I don’t know if they have enjoyed being around me, that remains to be seen, being locked in the backyard right now, but I can tell you that I think that this remote working is a net positive in the long run.

Listen, change is not easy and we are going through it right now, okay. I think this is going to be a very challenging and very unpredictable work environment for the short-term John, probably through the end of this year.

John Czuba: Frank, thanks so much for joining us today.

Frank Zacherl: It was a pleasure, thank you.

John Czuba: That was Frank Zacherl from the Law Office of Shutts & Bowen with offices throughout Florida and special thanks to today’s Producer Frank Vowinkel.

Thank you all for joining us for Best’s Insurance Law Podcast. To subscribe to this audio program, go to our webpage www.ambest.com/claimsresource. If you have any suggestions for a future topic regarding an insurance law case or issue, please email us at [email protected].

I am John Czuba, and now this message.

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