Cumberland Advisors Market Commentary – COVID Legal liability & Markets

Author: David R. Kotok, Post Date: January 26, 2021
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The political debate over COVID-related liabilities of businesses is intense. Companies want a federal shield, which McConnell-McCarthy haven’t been able to get for them. Trial lawyers want an open target, which Pelosi-Schumer haven’t been able to get for them. A bipartisan Senate group was trying to broker a compromise. (“No Agreement on Covid-Aid Liability Reached,” https://www.wsj.com/articles/bipartisan-group-to-unveil-covid-aid-legislation-11607975152)

Market Commentary - Cumberland Advisors - COVID Legal liability & Markets

McConnell wanted to swap federal municipal aid in return for liability relief, but that deal didn’t happen. All sides seem “dug in.”

Meanwhile, at least ten states have created their own legal shields to limit business and individual liability. Those states include Georgia, North Carolina, Utah, and Wyoming. Over 1300 COVID-related lawsuits had been filed as of Dec. 28. That number grows daily. (“Why Congress Ducked This Covid Legal Fight (for Now),” https://www.bloomberg.com/news/articles/2021-01-03/why-congress-ducked-this-covid-legal-fight-for-now-quicktake?sref=q88SDHkB)

At Cumberland, we’re watching this issue closely. We are uncertain about liability estimates and their impact on companies and on state and local governments. Pandemic liability claims are a newly developing economic event. COVID disclosures are new territory for bond lawyers.

As of this writing, credit spreads show negligible signs of market-based expectations for a large cost coming. This may be the case for a while. It also may change abruptly, based on legislation or based on news of a larger and broader COVID-liability lawsuit.

We are not altering our portfolio management strategy today because of this potential liability issue, but that position could change at any time. We are watching closely as we review credit analyses on publicly traded companies and we perform credit analysis on states and local governments.

COVID liability insurance costs, legal status, financial impact, and overall policy – these are the components of an evolving scenario. Outcomes are presently unknown.

Here’s a list of resources from the Bloomberg article for readers who wish to dive more deeply:

• The Fisher Phillips tracker for coronavirus-related employment litigation
• OSHA’s resource guide on COVID-19
Articles collected by the Institute for Legal Reform, an arm of the US Chamber of Commerce
• The “Towards Justice” blog follows cases brought on behalf of workers, including many related to the coronavirus
Legal analysis of a Republican bill on liability protection during the pandemic
(Source: “Why Congress Ducked This Covid Legal Fight [for Now],” https://www.bloomberg.com/news/articles/2021-01-03/why-congress-ducked-this-covid-legal-fight-for-now-quicktake?sref=q88SDHkB)

David R. Kotok
Chairman of the Board & Chief Investment Officer
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