MDL Decision Suggests No Knock-Out Punch for Most Policyholders and Insurers

Photo by David Veksler on Unsplash

A judicial panel declined to consolidate pretrial proceedings for more than 250 COVID-19 business interruption insurance disputes pending in 48 different federal courts across the country.

Federal law authorizes a 14-judge Multidistrict Litigation (MDL) panel to transfer similar civil cases pending in different federal courts into a single court to better manage pretrial proceedings. The panel may issue a transfer order if it finds the cases present “one or more common questions of fact.”

Several groups of policyholders petitioned the MDL panel to transfer COVID-19 business interruption insurance litigation to a single federal court in either Illinois or Pennsylvania. Insurance companies and certain other policyholders opposed any transfer.

The MDL Panel noted that at first look COVID-19 business interruption claims seemed to have three questions in common:

Do the various government closure orders trigger coverage under the policies?

What constitutes “physical loss or damage” to the property?

Do any exclusions (particularly those related to viruses) apply?

However, once it had dug into the details the MDL Panel concluded there was little in common because they “involve different insurance policies with different coverages, conditions, exclusions, and policy language, purchased by different businesses in different industries located in different states.” While nearly every lawsuit will grapple with these three questions, the Panel’s review of hundreds of claims led it to believe “seemingly minor differences in policy language could have significant impact on the scope of coverage.”

The MDL Panel is the first judicial body to look across hundreds of separate lawsuits filed throughout the country — and could not find a common thread running through them. The Panel’s ruling does not bode well for a quick or uniform resolution of COVID-19 business interruption litigation. Rather, we should expect policyholders and insurers will be battling out these three “common” questions case-by-case for the next several years.

The MDL Panel does appear inclined to order a transfer of cases against four insurance companies:

Certain Underwriters at Lloyd’s, London

Cincinnati Insurance Company

The Hartford Insurance Companies

Society Insurance (a mutual company serving the Midwest)

While it is unclear while the MDL Panel singled out these insurers and not others, pending litigation suggests Cincinnati and Society did not attach virus exclusions to their policies while Hartford and Lloyd’s used proprietary virus endorsements. The consistent absence of an exclusion or the use of nonstandard contract wording by a specific insurer may be the sort of “common question” that could lead to an accelerated resolution of those lawsuits.

The panel will decide whether to order a transfer for cases against these four insurers when it next convenes on September 24, 2020.

Centers for Better Insurance

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Founder and Managing Member of Centers for Better Insurance, LLC