Types of Legal Claims Arising from COVID-19

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Many losses suffered by businesses and individuals connected to COVID-19-related events will give rise to good, actionable claims. Many are being contemplated and some are already making their way through the courts.

Among others, we anticipate the following types of claims as a consequence of COVID-19-related events:

  • Breach of contract – counterparties have invoked “Force Majeure” (FM) and “Material Adverse Event” (MAE) clauses to avoid performing under contracts but not all such invocations are valid. Contractual counterparties might claim frustration or simply fail to perform without providing any justification. This may lead parties to suffer damages. For instance, we anticipate that acquirers in M&A deals may invoke FM or MAE clauses or otherwise repudiate share purchase agreements to try unwind deals inked prior to the onset of the pandemic. Similar events are likely in relation to financing transactions where a financier avoids performance and in relation to supply arrangements where the purchaser seeks to avoid paying or the supplier seeks to avoid supplying under the contract.

 

  • Claims against occupiers – claims brought by patrons against businesses for failing to adequately inform their patrons of the risks of contracting COVID-19 as a consequence of attending their premises. These types of claims are, perhaps unsurprisingly, already being brought against cruise ship operators.

 

  • Professional negligence – claims brought by clients against their financial planners for losses they have sustained, particularly older clients to the extent they may be or may have been invested in riskier securities.

 

  • Denial of insurance coverage – claims brought by insureds against insurers for denying coverage in relation to COVID-19-related events. These claims will arise in relation to the following types of policies: business interruption insurance, life insurance, travel insurance, D&O insurance and public liability insurance.

 

  • Insolvency claims – despite the Federal Government’s recent temporary changes to statutory demand thresholds (ie the increase in quantum of debt threshold and the increase in a recipient’s response time), insolvency matters will increase progressively over the course of the next year. Some of these matters will include claims against directors for breach of their duties, unfair preferences, uncommercial transactions, unreasonable director-related transactions and unfair loans. We also believe more fraud will be uncovered in the course of insolvencies as some may have been tempted to doctor their accounts in order to stave off insolvency, albeit unsuccessfully.

Litigation funding can help claimants reduce their litigation expenses, monetise their good claims and, consequently, improve their cash flow. Lawyers should consider advising their clients with meritorious claims that litigation funding may be available to them.