On The Case

The race is on to lead business interruption insurance litigation

(Reuters) - If you needed proof that litigation over business interruption insurance stemming from COVID-19 shutdowns is going to be a very big deal, it arrived Monday at the Judicial Panel on Multidistrict Litigation, in the form of two motions for the panel to consolidate federal suits accusing insurers of ducking claims by businesses that were shut down by government orders.

In the first-filed request for consolidation, Levin Sedran & Berman and Golomb & Honik argued that the question of whether business interruption insurance policies will cover losses incurred by these businesses is of such overriding national importance that it cannot be answered in piecemeal fashion by different courts around the country. The second bid to the JPML -- filed by DiCello Levitt Gutzler, the Lanier Law Firm, Burns Bowen Bair and Daniels & Tredennickemphasized the efficiency of centralized expert epidemiology discovery and legal analysis. All of the complaints filed so far against insurers, as well as the many, many more to come, raise two common questions, the brief argued: Does COVID-19 cause physical damage or property loss as those phrases are used in insurance policies; and is insurance coverage triggered when the virus is present on or near a policyholder’s property?

Want more On the Case? Listen to the On the Case podcast.

The Levin motion asked the JPML to send the cases to U.S. District Judge Timothy Savage of Philadelphia, where the Levin firm just happens to be based. The DiCello Levitt brief suggested U.S. District Judge Matthew Kennelly of Chicago, hometown of the DiCello firm.

Motions for JPML consolidation are often a way for plaintiffs’ firms to position themselves as leaders of burgeoning litigation. And, as I’ll explain, the DiCello group’s Adam Levitt told me that his group certainly believes it has the depth and expertise to head up a case that could affect millions of businesses.

But I want to throw up a cautionary note: It’s not at all a sure thing that these cases will be consolidated. Law professors Alexandra Lahav of the University of Connecticut and Elizabeth Burch of the University of Georgia told me in emails that the JPML has become increasingly reluctant to create new MDLS. The likeliest candidates for consolidation, Burch said, are product liability and disaster suits stemming from a single event. By contrast, she said, suits involving contract disputes, such as insurance policies, historically have only a 40% chance of MDL consolidation.

University of Minnesota law professor Daniel Schwarcz, who specializes in insurance law and regulation, said in an email that the plaintiffs’ firms are right that some “important legal and factual issues” - like whether businesses were ordered shut because of the physical presence of the virus, which could be covered by business interruption insurance, or because of the risk of the virus spreading, which would likely not be covered – span policyholders’ claims. But insurance law questions, Schwarcz said, are matters of state law, and every state has unique precedent on, for instance, how to define the phrase “physical loss or damages.” Policy language on business interruption insurance varies, he said, as does the language of the shutdown orders issued by state governors.

“It is difficult to see how a consolidated action would deal with these variations,” Schwarcz said. “There are immense complications … that may ultimately prove insurmountable.”

Even other plaintiffs’ lawyers are poised to resist consolidation. John Houghtaling of Gauthier Murphy & Houghtaling filed the first business interruption suit stemming from a coronavirus shutdown and has since teamed up with celebrity chefs to advocate for restaurants demanding coverage from their insurers. Houghtaling’s suits are declaratory judgment actions in state court, and he told me those cases are not removable to federal court and would therefore not be part of an MDL in federal court. But he also said he’s opposed to consolidation, which he called “inefficient and inappropriate.” A better tack, he said, would be to work with state attorneys general and the U.S. Justice Department to obtain advisory opinions on the broad question of whether businesses ordered to close because of COVID-19 experienced property damage or loss.

For the insurance industry, said insurance defense lawyer James Martin of Zelle, a business interruption coverage MDL might someday make sense. But Monday’s requests, he said, seem premature. Both the Levin and DiCello briefs, Martin said in an email, acknowledged that fewer than two dozen business interruption suits have been filed in federal court. “With that limited subset, how can the JPML identify the common questions of fact to fashion an order that will identify which of the hundreds or thousands of later-filed cases will get transferred for coordinated or consolidated pretrial proceedings?” he said, adding that the MDL would be complicated by variations in policy language and state law. “Should the MDL include class actions (which we think are particularly ill-suited for business interruption claims)? Should the MDL be limited to certain types of policies or particular questions?”

Plaintiffs’ lawyer Levin said consolidation would assure consistency across what is sure to be massive litigation. “It’s a managerial tool,” he said. “The courts are going to have to look at it and say, ‘What do we want? Do we want this litigated in every jurisdiction? In every division of every jurisdiction?”

The DiCello Levitt group’s brief made a strong pitch that a business interruption insurance MDL could resolve fundamental questions about property insurance, COVID-19 and government-ordered shutdowns, arguing that “the same type of evidence will be needed in every case to consider and ultimately to determine whether COVID-19 caused or constituted ‘physical damage or loss to property.’” The four law firms that signed the MDL consolidation brief filed six class actions last Friday on behalf of businesses whose business interruption claims were denied. Those complaints similarly assert that coverage for COVID-19 shutdowns is a common issue for policyholders. (Law professor Rick Swedloff of Rutgers, who specializes in insurance law, said in an email that it will be tough for plaintiffs to get a class certified given that, among other things, policy language isn’t always consistent and it’s unclear whether every policyholder suffered losses in the same way.)

Levitt, whose firm is also handling prospective class actions accusing the University of Arizona and Liberty University of failing to refund room and board payments to students who are not using campus facilities, told me that he believes the MDL can encompass both class action claims and individual suits by businesses with tens or even hundreds of millions of dollars in insurance coverage at stake. He also said his group - which came together because both his firm and the Lanier Firm were talking to Timothy Burns of Burns Bowen, who defended insurance companies before founding a boutique specializing in policyholder litigation - is braced for whatever the insurance industry has to say.

“It’s going to be interesting to see how this plays out,” he said.

That’s an understatement.