Responding to requests by plaintiffs who are pursuing lawsuits against insurers for COVID-19-related business losses, the Judicial Panel on Multidistrict Litigation (JPML Panel) recently rejected two proposals for centralization. However, the panel was willing to entertain a proposal for insurer-specific consolidation.
Many COVID-19 business interruption actions follow the same pattern. A business owner files a claim for business interruption losses with the insurer, arguing a government order to shut down nonessential businesses caused the business to lose profits. The insurance company denies the claim, arguing there was no coverage under the individual policy because the owner failed to show physical damage to the property or the policy contained a virus (or other relevant) exclusion. The owner then files a lawsuit, arguing the insurer breached its contract and asking the court for a declaratory judgment.
As we reported, a Michigan court recently issued the first ruling in a COVID-19 business interruption case, finding against a restaurant owner who had tried to circumvent the policy’s physical damage requirement by arguing the shutdown caused a loss of the use of the property.
Too many different policies: With the proliferation of cases nationwide, a number of plaintiffs asked the JPML to centralize the litigation. The initial proposal was to create an “industrywide” multidistrict litigation (MDL), but more recent proposals asked for consolidation on a state-by-state, regional, or insurer-by-insurer basis.
The plaintiffs’ argument for centralization was there were three common questions: (1) whether the government orders triggered coverage under the policies; (2) what constituted “physical loss or damage” to the property; and (3) whether exclusions (particularly virus exclusions) applied. The defendant insurers or insurer groups responding to the motions uniformly opposed centralization.
In its Aug. 12, 2020, order, the JPML rejected industrywide centralization, noting the so-called common questions “share[d] only a superficial commonality.” There was no common defendant, and there was little common discovery across the litigation, the panel said. Importantly, all cases involve different insurance policies with different language, different coverage, and different exclusions. “These differences will overwhelm any common factual questions,” the panel said. It also pointed to the difficulty for “any jurist” to manage this type of litigation. Implementing a pretrial structure that produces efficient adjudication would take time, which many businesses on the brink of bankruptcy did not have, the panel noted.
The panel said proposals for regional or state-based MDLs came with similar problems.
Insurer-specific approach may work: But the panel found arguments for insurer-specific MDLs more persuasive. It noted this litigation would be limited to a single insurer or insurance group and also would more likely involve policies with the same language. The actions likely could share discovery, the panel noted.
However, the panel said it was not ready at this time to create such an MDL because the insurer-specific proposal was made late and not fully briefed. The panel asked the clerk of the panel to issue orders regarding suits involving four insurers to show cause why these individual suits should not be centralized. A hearing on this matter is scheduled for September 24.
As for litigation involving other, nonnamed insurers, the panel said there were alternatives for litigants, including informal cooperation and coordination of the actions, to avoid duplication in pretrial proceedings.
The four insurers named in the order are: Certain Underwriters of Lloyd’s, London; Cincinnati Insurance Co.; The Hartford insurers; and Society Insurance.