COVID-19: How the Coronavirus Might Impact Professionals
New York, NY/ Much is still unknown about the novel Coronavirus and its potential impact on humanity, let alone the effects it will have on specific countries and industries. What is known is that it is significantly disrupting the global economy, especially the energy and travel sectors; it is causing entire countries to shut down movement within their borders; and causing schools and businesses to shut down, at least temporarily. Although there are no reports that courts are adjourning hearings or halting jury duty obligations, the federal judiciary's pandemic plan involves “'key mitigation tactics' such as more telework, substituting teleconferencing for face-to-face meetings, promoting three-foot separation between individuals and requiring personnel to stay at home at the first sign of symptoms." Similarly, IRS and other state treasury departments are advising that things are running as normal and do not expect any disruptions.
With that, there will be moderate to significant disruption of business and life in general, below are some possible scenarios for claims against attorneys and accounting professionals arising from this outbreak.
1) Missed Deadlines, Especially Tax
Missed deadlines are always a source of claims, often with clear liability. The pandemic is occurring right in the prime of tax return season, and a significant spread of the virus will cause many professionals to be unable to meet deadlines. Further, some sort of travel ban is likely on the horizon (12 days ago Italy had 600 confirmed cases, which the US just passed, and it closed its internal and external borders a few days ago), which will lead to the inability to complete non-electronic filings. The failure to obtain or unavailability of extensions will be a source of claims.
2) Work Below Standard of Care
If the virus does sideline many professionals, then in connection with various deadlines, the lack of available professionals who contract the virus to complete tasks may mean that some tasks are not completed with the same time and effort as in a non-outbreak world. For example, this means that things are missed during audits and document discovery reviews. If anything, a plaintiff might use the pandemic to assert that perfectly fine work was insufficient.
3) Post-Pandemic Rush
In the post Coronavirus world, there will be a rush to complete things that could not get done during the outbreak. This will likely cause a myriad of problems. First, it will cause professionals to rush work, which might not be adequate due to the time pressures. Second, the government agencies with which professionals interact (e.g. courts, IRS, SEC, FDIC, etc.) will be overwhelmed when they reopen/return to full staff; as we saw with the 35-day government shutdown in 2018-2019, many agencies are still not caught up to where they were pre-shutdown, and some acknowledge that they may never be.
4) Legal System Overwhelmed
While macabre, we are dealing with not just a catastrophic natural disaster such as a hurricane, tsunami, or tornado that hits a specific area but a worldwide event that unfortunately has a fatality rate that the WHO estimates at 3.4% as of March 3, 2020. There are more and more confirmed cases every day, and while certain countries seem to have it contained (China, South Korea), others have not. Some experts predict that as many as 70% of all Americans (230 million) will be exposed to COVID-19 at some point, and if the WHO fatality rate is correct, then we are facing close to 8 million American deaths resulting from the virus. Even if this is a high estimate, the US is almost certainly facing a significant increase in deaths. While of course overwhelming the medical system, this will also overwhelm the legal and probate systems which are not equipped to handle this type of influx.
5) Disputes over Trusts and Estates
COVID-19 is also reportedly impacting the elderly the hardest, with China reporting a fatality rate of those 60+ years of age at 9.8%. The elderly typically have larger trusts and estates that give rise to claims against professionals who set up those plans. Additionally, we can expect to see claims arising against Trustees for failure to liquidate trusts before the market significantly declines. The higher mortality rate amongst the elderly will most likely lead to a higher rate of claims against trust and estates professionals.
6) Sudden Shock to Businesses Increase Bankruptcies
With any slowdown of or shock to the economy, insurers typically see an increase in most types of professional claims, simply due to the fact that businesses or deals did not turn out as expected. Many companies will fail and the number of bankruptcies will certainly rise, like they did but perhaps not to the extent that they did in the Great Recession.
Those bankruptcy filings, especially for larger companies, often lead to claims against professionals as the only deep pocket remaining.
7) Increased Coverage Litigation over Pandemic
There has already been a spike in travel insurance claims, though many if not most of those policies contain exclusions for pandemic-type situations with which we are in. As individuals and businesses are stressed from the fallout from the virus, that stress will lead to seeking out coverage under any policy that might provide some relief, not just general liability and business interruption policies.
8) Overall Increase in Claims Due to Slowing Economy
While many economists forecast a recession to occur this year or next, no one forecast the speed at which one might occur. We are currently nearing the second quickest move from a high of the DJIA to a bear market (the first being the crash of 1929). As of late February, twice as many Fortune 500 companies were reporting negative projections for the first quarter of 2020. Some companies are already reportedly seeking bailouts from the federal government, and all investment banks are cutting their US GDP forecast for the first quarter of 2020.
8) Increased Cyber Risk
While many companies have prepared for events such as a terrorist attack where the entire firm or company works from home for a day, systems have not likely been stress tested for 100% of employees working remotely for an extended period of time. Further, with so many more people logging in and working remotely, there is more vulnerability for security breaches or lost hardware.
There are many other risks not discussed here, such as a company’s failure to issue, e.g. a pandemic warning in their securities filings that could lead to shareholder litigation, or other events or circumstances that could lead to claims. In sum, there is high uncertainty for a world dealing with a global pandemic for the first time in 101 years, a much more complex and interconnected world that has developed since the Spanish Flu. While it is hard to predict much, it is almost certain that professionals will see an uptick in the number of claims and likely severity of claims in the next 18 to 36 months.