The U.S. Judicial Panel on Multidistrict Litigation initially ruled centralization was not appropriate for businesses seeking business interruption insurance coverage because of varying policy language. See our post here. At that time, more than 450 cases were pending in Federal Courts—now there are over 700.
While the JPML rejected total centralization, in the same ruling the Panel suggested that the creation of smaller “single-insurer” MDLs could be efficient to centralize those actions. Cases argued against one insurer or insurance group were “more likely to involve insurance policies utilizing the same language, endorsements, and exclusions” that would make sharing common discovery and pretrial motion proceedings more efficient.
Policyholders followed the JPML’s suggestion, as there were 300 lawsuits against The Hartford, Cincinnati Insurance Co., Society Insurance Co., Travelers and various underwriters at Lloyd’s of London that sought centralization into single carrier MDLs. The JPML had to decide whether to create five separate “single-insurer” MDLS to centralize all of the COVID-19 coverage actions against these specific carriers. On October 2, the JPML ruled that centralization was appropriate for cases against Society Insurance Co., but declined to centralize actions against The Hartford, Cincinnati Insurance Co., Travelers, and Lloyd’s of London.
Opponents of Centralization Argued Varying Policy Language and State Law Made MDL Inappropriate.
The insurers argued to the JPML, as they had previously ruled, that the varying policy language would be inappropriate for centralization. More specifically, the insurers argued that business interruption policy language can vary even among the policies issued by the same insurance company.
Additionally, Lloyd’s underwriters argued that the phrase “single-insurer MDL” was a misnomer as they are not the same insurer, but rather forty separate insurance carriers selling various policies to business through the Lloyd’s marketplace.
Policyholders opposing centralization echoed the insurer’s arguments about the policy language and focused their arguments on the differences among states’ laws interpreting the prerequisites for business interruption coverage. For example, the requirement that a business interruption loss stem from a “direct physical loss of or damage to” its property. A group of Chicago-area businesses argued that decisions in Illinois (and some other states) do not require a tangible alteration or damage to a property to be considered direct physical loss.
Proponents of Centralization Argued COVID-19 Pandemic Itself Triggering their Losses Gave Rise to Common Factual Issues.
The policyholders supporting centralization argued that the cases filed against the same or related insurers would give rise to numerous common and overlapping factual questions because they all related to the COVID-19 pandemic. Furthermore, the language of the policy was a standard form used by the respective insurer.
For example, a Florida restaurant argued that Lloyd’s underwriters commonly provided business interruption coverage on standard forms that are approved by the Insurance Services Office; therefore, they shared many common terms and a single court could determine “in one stroke” if the COVID-19 pandemic triggered standard terms in the policies, including the direct physical loss or damage requirement.
The Florida restaurant also addressed the issue of any uncommon questions, e.g., whether or not state and/or municipal civil authority orders prohibited access to covered property. They argued the questions “may turn to some extent on common issues, and the resolution of all common and uncommon questions by one judge will allow the just and expeditious resolution of all actions to the overall benefit of the parties.”
Another group of policyholders added that “the sheer volume of similar cases across the country implicating common issues” made centralization appropriate. They argued that an insurer “consistently utilizes a small subset of template policy forms” and has “uniformly denied” business interruption claims. Furthermore, “[w]hether an insurance policy provides coverage cannot be separated from the factual predicate that gives rise to coverage in the first place. Here, the related actions all share the same or similar triggering events: the losses of business income occasioned by COVID19 and/or related stay-at-home orders.”
The JPML’s Most Important Factor for Centralization was the Geographic Scope of Action
What set Society’s policies apart from the other insurers, were the “defined geographical scope of these actions” implicating the insurance laws of only six states. Judge Chang stated that any potential differences among the cases could be resolved with a number of pretrial techniques including state-specific tracks or a bellwether process.
The JPML emphasized that centralization involving Hartford, Cincinnati, and Travelers would not promote efficient resolution because of the sheer number and geographic scope of the cases. Especially when many of the policyholder plaintiffs “are on the brink of bankruptcy as a result of business lost due to the COVID-19 pandemic and the government closure orders.”
For Lloyd’s underwriters, the JPML said that centralization was not appropriate because it was not a single insurance company but rather a group of several dozen distinct insurers with varying policies. “The inclusion of non-standard and non-common forms and policy language would hinder the ability of the transferee court to organize the litigation and quickly reach the common factual and legal questions,” the JPML wrote.
Nevertheless, the JPML encouraged the insurers to engage in “informal cooperation and coordination” to be efficient and avoid duplication.
Once again, we see creative arguments utilized successfully to support centralization. Regardless of whether or not an insurer uses standard forms, each claim is unique, and insurers must continue to approach all COVID-19 interruption claims, in addition to all claims, thoroughly and cautiously.