Businesses’ Push to Combine Virus Coverage Cases Probed by Panel

Small businesses looking to combine their lawsuits against insurers for denial of pandemic-related loss coverage faced federal judges’ skeptical questions on the logistical challenges in such consolidation.

If consolidated, the judge would handle numerous “policy categories,” 50-plus different precedents, choice-of-law issues, and analyses of varying facts, noted Judge R. David Proctor, a member of the U.S. Judicial Panel on Multidistrict Litigation, during a virtual hearing Thursday.

“How in the world is a judge going to get through all this with any type of efficiency?” asked Proctor, hailing from the U.S. District Court for the Northern District of Alabama. “I’m listening carefully to this proposal that we ought to centralize these cases in smaller pods.”

The panel’s determination will likely play a role in insurance companies’ strategies for avoiding payouts to business policyholders—ranging from restaurants and retail shops to casinos and universities—that have suffered losses during government-mandated closures.

Consolidation could lead to more streamlined proceedings, but could also slow them down for businesses seeking payouts, some policyholders say.

More than a dozen attorneys argued before the panel, which is considering two motions to transfer business interruption insurance cases. One seeks consolidation in a federal court in Pennsylvania, while the other asks for Illinois.

Policyholders Divided

Some policyholder plaintiffs argued for consolidating all cases into nationwide multidistrict litigation before a Pennsylvania or Illinois district judge.

Attorneys for other policyholders pushed for combining only the cases against their clients’ insurers in certain venues—such as a Florida, Washington, or California federal court—or to create multiple groups of cases against the most-sued insurers and place those separate groups before the same judge.

Others still asked for their clients’ cases not to be consolidated, or for coordination to happen only on a district-by-district or state-by state basis.

Proponents of nationwide consolidation suggested that there are enough common facts in the numerous business interruption lawsuits and class actions to justify multidistrict litigation.

“The common issues of fact are whether or not there’s property damage— does the virus get into the property?,” said Arnold Levin, who’s representing two Philadelphia restaurants that first filed the motion for transfer to the U.S. District Court for the Eastern District of Pennsylvania.

“The exclusions are the same” in the insurance policies at issue, he said.

Judge Matthew Kennelly expressed skepticism at the assumption, wondering whether there’s a common issue of fact among the cases that would support consolidation.

Interpretation of policy isn’t exactly a question of fact, Kennelly said.

“It’s a mixed question of fact and law, I would think,” said Levin. The policies, though, have “all been formulated for the most part” by underwriting service provider Insurance Services Office Inc., making them similar enough to combine.

Levin was asked whether he’d be willing to accept anything other than countrywide consolidation. It’s “always better to have one judge in charge of everything so you don’t have different opinions,” he said, but it would be possible for a single judge to have multiple cases that are put on separate tracks if needed.

Insurers’ Arguments

Only two attorneys representing insurance companies argued before the panel. They said differences in case facts and each insurer’s policies made consolidation unrealistic.

These differences also make insurer-specific multidistrict litigation difficult, they said.

The panel should “leave the cases where they are,” O’Melveny & Myers partner Richard Goetz, an attorney representing Westchester Surplus Lines Insurance Co. and other defendants, said.

Nearly 20 motions to dismiss some of these lawsuits are already fully briefed, he told the panel.

“If it’s true that the plaintiffs wish a fast-track resolution, letting those motions get decided and letting the courts in those jurisdictions, where the policyholders have claims besides these motions, is the most efficient way to get a resolution,” Goetz said.

Multidistrict litigation might actually make things worse for the parties in these cases, Sarah Gordon, a partner at Steptoe and Johnson who’s representing Hartford Insurance and its affiliates, said. “We would argue that efficiencies will be lost, not gained,” if Hartford’s cases are consolidated.

The case is IN RE: Covid-19 Business Interruption Protection Insurance Litigation, J.P.M.L., No. 2942, oral arguments heard 7/30/20.