On The Case

JPML judges struggle with 'nightmare' prospect of COVID-19 insurance coverage MDL

(Reuters) - No fewer than three different people used the word “nightmare” at a Judicial Panel on Multidistrict Litigation hearing Thursday morning about whether to consolidate hundreds of federal-court suits by insurance policyholders whose claims for business interruption coverage was denied. And one of them was a judge.

That apt depiction of the challenge that these cases pose for the JPML came from U.S. District Judge Matthew Kennelly of Chicago – a JPML panel member whom many plaintiffs’ firms have proposed to oversee a nationwide consolidation of the business interruption litigation. Judge Kennelly was asking questions of the insurance industry’s lead counsel, Richard Goetz of O’Melveny & Myers, who had told the panel that insurers oppose any MDL consolidation, whether it’s a single nationwide proceeding or multiple insurer-by-insurer or state-by-state MDLs. But 200 of the more than 400 suits already filed in federal court are class actions, Kennelly said.

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“Isn’t that going to be nightmare to reconcile and resolve if there isn’t some form of consolidation?” Kennelly asked Goetz.

The insurers’ lawyer fired back that consolidation would be the nightmare – and that the panel should not allow plaintiffs’ lawyers to use the specter of prospective class actions to justify an MDL that would be crippled by variation among state insurance laws, state public emergency declarations, insurance policy language and contracts and plaintiffs’ individual circumstances. Even the theories plaintiffs have asserted in the class actions on file differ widely, Goetz said.

“That would be the tail wagging the dog,” he advised the panel. (For the record, the third person who described management of the business interruption coverage litigation as a “nightmare” was David Boies of Boies Schiller Flexner, who represents plaintiffs opposed to a nationwide MDL.)

The JPML did not clearly indicate which way they’re leaning at Thursday’s hearing, which was conducted by Zoom with more than 440 people listening in on an audio-only phone line. Plaintiffs’ lawyers presented the panel with a variety of options, as I’ll explain. The judges had tough questions about all of the proposals – including the insurance industry’s suggestion that the panel simply allow individual judges to decide the cases before them.

U.S. District Judge Ellen Huvelle of Washington, D.C., who presided over the hearing, was clearly concerned about lumping insurers that have been named as defendants in only a handful of cases into a vast MDL. U.S. District Judges Catherine Perry of St. Louis and David Proctor of Birmingham pressed plaintiffs to specify the common factual issues in the cases, a prerequisite for MDL consolidation. Judge Kennelly was particularly interested in whether there are common epidemiological questions about the nature of COVID-19 and how it’s spread that cut across the entire litigation.

Judge Proctor said he agreed with arguments by plaintiffs’ lawyers that small businesses need a quick resolution because they’re counting on insurance coverage to survive the pandemic. But a single MDL judge would have to deal with policy language from hundreds of insurers and the laws of all 50 states, he said. “How in the world is a judge going to get through all this with any type of efficiency?” Judge Proctor asked.

But at other moments in the hearing, Judge Proctor seemed interested in the prospect of multiple MDLs, or multiple tracks within an MDL, for different insurers. He homed in on plaintiffs’ arguments that although policy language varies from insurer to insurer, each carrier uses consistent language across its policies. Judge Proctor also suggested that MDL judges could effectively coordinate with state judges overseeing insurance coverage suits filed in state court.

Leading the charge for a single, nationwide proceeding was Mark Lanier of the Lanier Law Firm, who told the JPML (in a phrase repeated by other plaintiffs’ lawyers who presented arguments) that all of these cases are governed by five words: “direct physical loss or damage.” (Lanier’s firm, which is working on these cases with DiCello Levitt Gutzler, Burns Bowen Bair and Daniels & Tredennick, is pushing for Judge Kennelly to preside over a single proceeding.) Lanier contended that variations in state insurance law are overwhelmed by every state’s basic contract law principles.

Other plaintiffs’ lawyers, however, suggested alternatives to a nationwide MDL. Patrick Stueve of Stueve Siegel Hanson proposed MDLs against three carriers – Cincinnati, Lloyds and the Hartford – that have each been named in multiple suits instead of a single proceeding that, he said, would be “not manageable.” Shelby Guilbert of King & Spalding, who represents about 50 bars and restaurants in Chicago that are all suing Society Insurance, opposed any formal consolidation by the JPML, even when Judge Huvelle asked if it would be better for Society policyholders to be litigating before one judge instead of five or six.

Arguing on behalf of dozens of insurers, Goetz directly confronted the judges’ concern with efficiency. Individual cases, he said, are already moving fast. Insurers have filed motions to dismiss in 18 suits. Rather than stop these cases in their tracks to wait for an MDL to gear up, Goetz said, the panel should allow the suits to move ahead on their own to deliver the quickest resolution. (Sarah Gordon of Steptoe & Johnson, who argued against consolidation on behalf of The Hartford, reiterated the point that the fastest way to find out if individual policyholders were wrongly denied coverage is to allow their individual suits to go forward outside of an MDL.)

Perhaps looking for a reason to justify consolidation, Judge Huvelle asked Goetz if there were similarities among those 18 dismissal motions. Goetz said they addressed varying claims and were very different.

Plaintiffs’ lawyer Adam Levitt of DiCello Levitt predicted to me that if an insurer wins one of those dismissal motions, the industry will argue that the ruling should be binding nationwide, despite emphasizing dissimilarities at Thursday’s hearing. “This nationwide economic collapse calls for a unified response, and, yet, at today’s JPML hearing, the insurance industry argued for a fragmented, chaotic, judicial response,” Levitt said.

I emailed Goetz after the hearing to ask but he didn’t get back to me. Hartford counsel Gordon referred me to a company spokesman who didn’t immediately respond.

Lanier said in an email that the business interruption insurance litigation is a “tough situation” for the JPML. “The choice is between a very difficult MDL or chaos,” Lanier said, noting that this will be a rare MDL ruling that could affect the stock market. “I hope they opt for MDL. It will speak with one voice to the economy. The economy will listen.”