M&A Legend Martin Lipton Warns of Coming Virus Lawsuit Wave

A push by Republicans in Congress to create stronger liability protections for businesses hammered by the Covid-19 virus won’t completely curb lawsuits over injuries and losses caused by the pandemic, famed M&A litigator Martin Lipton said.

Speaking to the Economic Club of New York Monday, Lipton warned “litigation will be with us for quite some time after the current situation is over” and said many disputes are likely to arise from insurances claims over business losses and injuries to workers.

Senate Majority Leader Mitch McConnell and House Minority Leader Kevin McCarthy, both Republicans, said last week they would demand that any new stimulus legislation include litigation protections for health-care workers and small businesses. Democrats are largely opposed to such restrictions, which they say could let companies off the hook for lax health and safety standards amid an outbreak that has killed more than 90,000 Americans.

One of the founders of powerhouse New York law firm Wachtell Lipton Rosen & Katz and widely known as the inventor of the “poison pill” defense to hostile takeovers, Lipton said in the teleconference that most reopening businesses should be able to avoid lawsuits by taking steps to protect employees and customers. That includes providing “appropriate safety equipment” to workers, he added.

Lipton said the bigger fight in the courts will likely be over so-called business-interruption insurance policies. Judges will have to parse policies to decide whether they cover losses tied to government-mandated shutdowns or specifically exclude pandemics from coverage. More than 50 such suits have been filed in U.S. courts so far, according to data compiled by Bloomberg.

“Some of these cases are being settled, some arbitrated and some are being litigated,” Lipton said. It will be a while before the first jury trial over the policies kicks off because the courts are still “substantially closed,” he added.

Companies also may have to worry about securities litigation over disclosures they make about the effect of Covid-19 on earnings, Lipton said. Disclosures are always tricky because if they turn out to be wrong, the company gets punished with a wave of lawsuits.

“It’s almost impossible to predict earnings or extent of losses tied to the pandemic, but companies can identify factors that most affect its business, outline how it’s dealing with them and what the company sees as the life of the impact,” Lipton said.