Litigation over business interruption insurance heats up

Litigation over business interruption insurance heats up | Insurance Business

Litigation over business interruption insurance heats up

The business interruption litigation landscape continues to heat up in the midst of COVID-19, with big names like Chef Thomas Keller jumping in to sue his insurer over coronavirus business interruption claims and other businesses following suit.

In a recent development, two motions were filed on April 20 with the Judicial Panel on Multidistrict Litigation (JPML) that asked the panel to consolidate federal suits accusing insurers of dodging claims by businesses that were shut down by government orders, according to Reuters. Motions for JPML consolidation are typically a way for plaintiffs’ firms to name themselves as the leaders of developing litigation, added Reuters’ Alison Frankel.

The first of these motions involves Levin Sedran & Berman and Golomb & Honik, and argues that the question of whether business interruption insurance policies will cover losses incurred by these businesses can’t be answered in piecemeal by different courts around the US because of its significant national importance. The second bid, which was filed by DiCello Levitt Gutzler, the Lanier Law Firm, Burns Bowen Bair and Daniels & Tredennick, underscored the efficiency of centralized expert epidemiology discovery and legal analysis.

The key issues across the complaints filed against insurers so far are whether COVID-19 causes physical damage or property loss, and whether insurance coverage is triggered when the virus is present on or near a policyholder’s property, as argued in the brief.

However, Frankel noted in the Reuters report that it’s not definitive that the cases will be consolidated. Law professors Alexandra Lahav of the University of Connecticut and Elizabeth Burch of the University of Georgia told the reporter that the JPML has become reluctant to create new multidistrict litigation (MDL). Lawsuits involving contract disputes, which includes insurance policies, only have a 40% chance of consolidation, said Burch.

Read more: Travelers fires back against law firm suing for business interruption cover

Meanwhile, Daniel Schwarcz, a University of Minnesota law professor who specializes in insurance law and regulation, said that the plaintiffs’ firms are correct that some “important legal and factual issues” span policyholders’ claims. For example, if businesses were ordered shut because of the physical presence of the virus, this could be covered by business interruption insurance, but if they were ordered shut because of the risk of the virus spreading, this would likely not be covered.

However, insurance law questions are matters of state law, according to Schwarcz, and each state has their own precedent on how they define physical loss or damages. Similarly, language on business interruption insurance is varied across policies and so is the language around shutdown orders issued by state governors.

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

At the same time, some plaintiffs’ lawyers are resisting consolidation. John Houghtaling of Gauthier Murphy & Houghtaling filed the first business interruption suit around the coronavirus shutdown and is working with Thomas Keller and other celebrity chefs to advocate for restaurants demanding cover from insurers. These cases are not removable to federal court and would thus not be part of an MDL in federal court. The lawyer is also opposed to consolidation, calling it “inefficient and inappropriate.”

Read more: Six insurers face federal class action lawsuits for denying business interruption claims

Insurance defense lawyer James Martin of Zelle added that a business interruption coverage MDL might make sense down the road, but the recent requests seem premature since less 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?” said Martin. “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?”

But plaintiffs’ lawyer Levin said consolidation in an MDL would ensure consistency across what he expects to be significant litigation.

“It’s a managerial tool,” he said to Reuters. “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 argued that a business interruption insurance MDL could address important questions about property insurance, COVID-19, and government-ordered shutdowns, stating 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.’”