On The Case

Insurers oppose MDL for business interruption suits. So do prominent plaintiffs' firms

(Reuters) - The insurance industry rose up in unison in briefs last week urging the Judicial Panel on Multidistrict Litigation not to consolidate more than 100 federal-court suits by companies contending they were wrongfully denied insurance coverage for lost business related to COVID-19 closures. Insurers filed more than two dozen briefs opposing an MDL, most joining or echoing arguments in a brief by two Chubb affiliates that said consolidation would complicate and prolong the litigation.

But insurers were not alone in their opposition to an MDL for business interruption insurance suits. At least 10 briefs were filed by plaintiffs or groups of plaintiffs who don’t want their cases transferred to a nationwide, multidefendant proceeding. And some of those briefs were filed by well-known plaintiffs’ firms with MDL leadership experience: Podhurst Orseck, Whatley Kallas and McKool Smith.

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Boies Schiller Flexner, which is on the plaintiffs’ side in the business interruption insurance litigation, also opposes consolidation of the cases in a single MDL (though it’s not averse to separate MDLs against particular insurers). So does King & Spalding, which is ordinarily a defense firm but is representing more than 50 businesses suing Society Insurance for denying their COVID-19 claims. “There is no reason for a single federal court in one part of the country to interfere with the process of policy interpretation here on a state-by-state basis especially given the lack of uniformity among the policies in question and the differing circumstances surrounding each policyholder’s loss,” the K&S brief said.

The MDL panel will consider two motions to consolidate the cases when it meets at the end of July. The consolidation motions, as I’ve reported, were filed in April by two groups of plaintiffs’ lawyers, Levin Sedran & Berman and Golomb & Honik; and DiCello Levitt Gutzler, the Lanier Law Firm, Burns Bowen Bair and Daniels & Tredennick. The two groups advanced slightly different arguments for consolidating claims that policyholders are entitled to coverage under property damage or civil authority provisions, but, broadly speaking, asserted that it would be more efficient for a single court to decide threshold questions that will impact thousands of businesses, rather than have judges around the country issue piecemeal and potentially contradictory rulings on the same issues.

The briefs opposing consolidation argued, in the main, that the premise of the consolidation motions is fundamentally flawed because these cases aren’t the same. The claims for business interruption insurance involve different insurers with varying policy language; different state insurance laws; different COVID-19 shutdown orders in cities and states across the country; and different facts at every business asserting a claim for coverage. Consolidating the cases won’t simplify the litigation, argued two trade groups for insurers. “Instead, shoehorning all of these cases into a single forum for coordinated pretrial proceedings could delay their ultimate resolution by years, with no corresponding benefits in the form of efficient and effective resolution,” the brief said.

The Chubb brief, filed by O’Melveny & Myers, pointed out that the MDL panel is historically reluctant to consolidate litigation against multiple defendants. (I should note that there are prominent exceptions to that rule, including the opioids and pelvic mesh MDLs.) The business insurance suits already on file name 36 different insurance groups (and more 115 individual insurers), the Chubb brief said, and the vast majority of those defendants are named only in one or two cases.

The MDL panel is also traditionally wary of consolidating insurance coverage litigation, the Chubb brief said. There have been only two insurance coverage MDLs ever created, and both date back more than 25 years. The panel refused just in 2018 to create an MDL for insurance claims arising from hurricanes in Florida, Puerto Rico and the Virgin Islands (325 F. Supp. 3d 1367). Given those historical patterns, the Chubb brief argued, there’s not a sound rationale for consolidating the COVID-19 insurance cases.

The plaintiffs’ firms that filed briefs opposing an MDL said they’re worried about delaying a reckoning for their clients. Esbrook Law and the Duncan Law Group, for instance, represent the Billy Goat Tavern in Illinois in a suit against Society Insurance. The parties in the case, according to their brief opposing consolidation, are already briefing summary judgment and don’t want to get bogged down in an MDL. Similarly, McKool Smith’s client, the New York City real estate developer Thor Equities, said it needs a quick resolution of claims it has asserted under its $750 million property damage coverage. For Thor and other policyholders, the brief said, “delay may mean the difference between their business surviving or closing permanently.”

To be sure, lots of other plaintiffs’ firms support the creation of some kind of business interruption insurance MDL, including Lieff Cabraser Heimann & Bernstein, Keller Rohrback and Stueve Siegel Hanson, though the firms don’t agree on where the MDL should be based.

Adam Levitt of DiCello Levitt, who is leading arguments that business interruption insurance cases should be consolidated in Chicago, said his firm will have a detailed response to insurers and plaintiffs’ firms opposed to the MDL when it files a reply brief next week. He said the plaintiffs’ firms resisting consolidation “made a strategic choice,” but that his group believes it was the wrong choice for cases filed in federal court. As for industry opposition, he said, “We all know from our own personal experience with insurers that insurance companies are very good at making straightforward things seem complicated.”