Consolidation of COVID Business Loss Suits Denied; But Grouping by Insurer Eyed

By | August 13, 2020

The legal panel on multidistrict litigation (MDL) has denied a proposal to consolidate cases brought by multiple businesses against various insurers for coronavirus-related business losses.

The U.S. Judicial Panel on Multidistrict Litigation rejected the proposals brought by plaintiffs in 15 lawsuits from Pennsylvania and Illinois to either consolidate all cases into one proceeding or create regional and state-based MDLs. The panel decides if multiple legal cases on a topic can or should be transferred to be heard by one court and has been used in certain opioid and medical device cases.

“Put simply, the MDL that movants request entails very few common questions of fact, which are outweighed by the substantial convenience and efficiency challenges posed by managing a litigation involving the entire insurance industry. The proponents’ arguments that these problems can be overcome are not persuasive. We therefore deny the motions for centralization,” the panel said in its ruling.

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It concluded that the requested centralization “will not serve the convenience of the parties and witnesses or further the just and efficient conduct of this litigation.”

However, the panel did leave open the possibility of consolidation of cases by insurer and instructed further pursuit of this idea, which came up later in the deliberations without insurers being given an opportunity to respond. Of the insurer-specific proposal, the panel said:

“The actions are more likely to involve insurance policies utilizing the same language, endorsements, and exclusions. Thus, there is a significant possibility that the actions will share common discovery and pretrial motion practice. Moreover, centralization of these actions could eliminate inconsistent pretrial rulings with respect to the overlapping nationwide class claims that most of the insurers face.”

Instead of approving an insurer-specific consolidation, the MDL panel directed that four insurer groups —Certain Underwriters at Lloyd’s, London; Cincinnati Insurance Co.; multiple Hartford insurers (including Hartford Fire, Sentinel and Twin City); and Society Insurance— be given an opportunity to show cause why those actions should not be centralized.

Plaintiff attorney Richard Golomb, of the firm Golomb & Honik, Philadelphia, who filed the Pennsylvania petition, welcomed the insurer-specific consolidation and said there are other efforts at consolidation underway.

“We have reviewed the order from the JPML panel and are optimistic that with further briefing they will centralize the cases against the four major carriers listed,” Golomb told Insurance Journal in an email. “As for the cases against the balance of the carriers, we have been coordinating with many firms along the way in the event of such a ruling and are satisfied that whether through 1404 coordination, or by other less formal means, these cases will be litigated and resolved in the best interest of our clients.”

Plaintiff attorney Adam Levitt, of DiCello Levitt in Chicago, offered a similar assessment. He said that while his clients are disappointed the MDL panel did not see the efficiencies of consolidation, his firm’s efforts in to achieve efficiency will continue and they will eventually “hold the insurance industry accountable for shirking its responsibilities to its customers.”

The MDL panel has given insurers until Aug. 26 and plaintiffs until Sept. 3 to weigh-in on the insurer-specific proposal. The panel will hear arguments on its next scheduled date for hearings, Sept. 24.

The plaintiffs in the cases allege that their policies provide coverage for business interruption losses caused by the COVID-19 pandemic and the related government orders suspending, or severely curtailing, operations of non-essential businesses. Insurers have mostly denied such claims largely on the basis that there is no physical damages as required under policies and that many policies specifically exclude viruses.

In addition to the actions on the original motions, the panel said it has received notice of 263 related actions. Collectively, these actions are pending in 48 districts and name more than a hundred insurers.

In addition to the four major defendant insurers, others being sued in various districts include Admiral, Aspen, Auto-Owners, Oregon Mutual and Topa.

In rejecting the motions for industry-wide or regional consolidation, the panel found several reasons to object.

The proponents of centralization identified three core common questions: (1) do the various government closure orders trigger coverage under the policies; (2) what constitutes “physical loss or damage” to the property; and (3) do any exclusions (particularly those related to viruses) apply.

The panel countered that the plaintiffs’ questions “share only a superficial commonality.” For one, there is no common defendant in these actions and thus there is little potential for common discovery across the litigation. Furthermore, the cases involve different insurance policies with different coverages, conditions, exclusions, and policy language, purchased by different businesses in different industries located in different states. “These differences will overwhelm any common factual questions,” the panel said.

The panel also found the argument that the insurers use standardized forms unpersuasive because there are many such “standardized” forms and they will have been modified by insurers. “While the policy language for business income and civil authority coverages may be very similar among the policies, seemingly minor differences in policy language could have significant impact on the scope of coverage,” the opinion stated.

Finally, the panel said the proposed MDL raises “significant managerial and efficiency concerns” because a court would have to establish a pretrial structure to manage the hundreds of plaintiffs and more than one hundred insurers, a process that would take considerable time. While recognizing that “time is of the essence” because many plaintiffs are on the brink of bankruptcy, it concluded that an industry-wide MDL in this instance “will not promote a quick resolution of these matters.”

The panel found that proposals for regional and state-based MDLs raised suffer from many of the same problems as the industry-wide motions.

According to the panel, plaintiffs in more than 175 actions responded to the motions, with many supporting centralization in one of the two proposed districts — Eastern Pennsylvania or Northern Illinois– proposed by movants. Other plaintiffs suggested the Northern District of California, Southern District of Florida, the Western District of Missouri, the District of New Jersey, and the Western District of Washington as potential transferee districts for this litigation. Still other plaintiffs oppose centralization or ask to be excluded from any MDL.

The ruling was submitted by Ellen Segal Huvelle, acting chair, and members David Proctor, Catherine D. Perry, Nathaniel M. Gorton and Matthew F. Kennelly. They held a July 30 conference on the matter.

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