MDL panel won’t join 300 business interruption lawsuits

A panel of federal judges in Washington D.C. decided against consolidating hundreds of lawsuits seeking coronavirus-related business interruption insurance claims against four major insurance companies.

However, they did allow consolidated of more limited actions against insurance companies in California, Missouri and Illinois.

After an effort to consolidate close to 300 COVID-19-related insurance cases failed in August, the judges on the U.S. Judicial Panel on Multidistrict Litigation remained open to the idea, floated by some policyholders, to consolidate litigation by insurance company-defendant.

"As counsel repeatedly emphasized in their papers and during oral argument, time is of the essence in this litigation," the panel wrote in its order Friday. "Many plaintiffs are on the brink of bankruptcy as a result of business lost due to the COVID-19 pandemic and the government closure orders. The most pressing question before us, then, is whether centralization presents the most efficient means of advancing these actions towards resolution."

After receiving briefs in late September, the panel considered bundling four insurance company defendants with a high number of actions filed against them into one multidistrict litigation. Certain Underwriters at Lloyd's of London; Cincinnati Insurance Co.; The Hartford Insurers; and Society Insurance were among the insurers considered for consolidation. In re: Travelers COVID-19 Business Interruption Protection Insurance Litigation MDL No. 2965 (U.S. MDL, filed 8/16/2020).

Despite finding that the actions presented common legal and factual questions and involved interpretation of common policy language, the panel ultimately chose not to consolidate, stating, "Efficiency here is best obtained outside of a multidistrict litigation."

"These actions present common legal and factual questions that could, in other circumstances, support centralization," the panel wrote. "Common factual questions, however, are not the sole prerequisite for centralization ..."

If these actions were centralized, the court they were transferred to would have to establish a pretrial structure to manage numerous plaintiffs, all pursuing distinct theories of liability, the panel said. The court would also have to spend "a not insignificant amount of time" to organize the litigation and resolve the central policy interpretation questions under applicable state laws, the panel added.

The insurer-defendants and many policyholder-plaintiffs have opposed consolidation of any kind, thus far, arguing it would be a less efficient way to proceed.

The panel, chaired by U.S. District Judge Karen K. Caldwell of Kentucky, did grant a transfer order, consolidating two cases alleging insurers refused to cover COVID-19 related closures of ski resorts; one in Missouri for cases against Arch Insurance Co. and one in Northern California for cases against United Specialty Insurance Co.

"We do find merit however in the parties' request for the creation of defendant-specific MDLs, against Arch and USIC because the respective actions against these defendants involve common questions of fact," the panel wrote. "Centralization of actions ... will serve the convenience of the parties and witnesses and promote the just and efficient conduct of the litigation."

The panel similarly approved the consolidation of more than 30 actions accusing Society Insurance Co. of wrongfully denying coverage for businesses' losses during the pandemic.

When local and state governments forced restaurants and retailers to close or severely reduce operations in March due to the pandemic, owners who took an economic hit turned to insurance providers claiming a civil authority shut down due to a virus was covered under their business interruption policies.

While insurers have almost unanimously denied every claim across the country, arguing that COVID-19 does not constitute "direct physical loss or damage" because the virus does not, like a fire or flood, physically alter or tangibly destroy the property, plaintiffs' arguments have differed in some key places. The line seemingly being drawn is between policyholders who have virus and pandemic exclusions baked into their policy and those who do not.

Those with an exclusion seem to focus their argument on government-imposed shutdown orders, not the actual coronavirus itself. However some -- perhaps the minority of policyholders -- whose policies do not have virus exclusions, often argue the virus was indeed present on the property and thus the property was physically altered

The majority of the lawsuits have been thrown out at the dismissal stage. Some policyholders have filed second amended complaints; others have walked away from the litigation entirely.