COVID-19 Business Interruption Litigation: Takeaways from the Judicial Panel on Multidistrict Litigation
The MDL panel’s refusal to centralize nationwide COVID-19 business interruption litigation highlight difference in insurer policy wordings and policyholder coverage theories.
The Judicial Panel on Multidistrict Litigation (MDL) may order the transfer of similar cases pending in different federal districts for pre-trial proceedings such as preliminary motions and discovery. On August 12, the MDL panel generally refused to order the centralization of COVID-19 business interruption cases but requested further briefing with respect to cases pending against five insurers. The panel issued orders as to those insurers on October 2.
Travelers, Hartford, and Cincinnati Insurance
The MDL panel declined to centralize cases against Travelers, Hartford, and Cincinnati Insurance. The panel noted similar policy wording as to policies issued by each insurer, but a comparison of the orders suggests differences in policy wordings among the insurers:
· The Travelers policies use the phrase “direct physical loss or physical damage to property” as well as a standard virus exclusion.
· The Hartford policies also use the phrase “direct physical loss or physical damage to property.”
· The Cincinnati policies use the phrase “direct loss to property.”
The panel also noted policyholders are advancing divergent theories including that loss or damage sufficient to trigger coverage resulted from:
· The physical presence of the COVID-19 virus on the property;
· State and local governments’ orders restricting or closing businesses; and
· Guidance from the Centers for Disease Control and the American Dental Association.
While the panel saw some benefit in coordinating discovery into the drafting and interpretation of the subject policies would be common across all actions, achieving that coordination would come at the cost of further delay of the proceedings — an unacceptable outcome for those policyholders on the brink of bankruptcy.
Lloyd’s
The MDL panel also declined to centralize cases against Lloyd’s for additional reasons particular to the Lloyd’s business model. The panel observed that, as a surplus lines insurer, Lloyd’s policies use various wordings such as “direct physical loss of,” “direct physical loss to,” and “damage to” property as well as four exclusionary wordings. The panel also considered the nature of Lloyd’s as an insurance market, rather than an insurance company, in which syndicates agree to assume percentages of a risk and insurance programs may involve non-Lloyd’s insurers. The panel voiced concerns centralization of cases against Lloyd’s could entangle many different insurers creating an expanded and more complex litigation environment.
Society Insurance
The MDL panel did agree to consolidate cases against Society Insurance. Society is a regional carrier operating in six Midwestern states. The panel observed that Society used standard policy language including the phrase “direct physical loss of or to property.” Interestingly, each of the complaints include an allegation Society had “preemptively decided to deny their claims” as evidenced by a memo allegedly authored by the insurer’s CEO. Further, the panel seemed comfortable with the limited geographic span of pending cases which suggested speed of the proceedings could be maintained despite centralization.
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The MDL panel’s conclusion to allow the vast majority of COVID-19 business interruption cases to proceed independently is consistent with range of outcomes in individual trial court rulings on insurance company motions to dismiss. It is going to take a long time for trial and appellate courts to work through different policy wordings, different coverage theories, and different state judicial precedents.
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