Given the differences in business interruption claims filed amid the COVID-19 pandemic, a federal panel has denied combining the cases in multidistrict litigation (MDL), yet ordered several insurers to show why there should not be an MDL specific to the company.
A number of plaintiff attorneys had sought the proposed amalgamation – In Re: COVID-19 Business Interruption Protection Insurance Litigation -- which was opposed by defendant insurance companies as well as policyholder advocates.
“NAMIC supports the decision not to have a national all-insurer MDL consolidation due to the significant variation in the facts of each case,” Andrew Pauley, government affairs counsel for the National Association of Mutual Insurance Companies (NAMIC) told the Northern California Record by email. “This variation includes things like the facts of the alleged loss, the laws of the different jurisdictions, the policies and contract language at issue, and many other criteria.”
In MDL proceedings, cases with common facts are combined to avoid inconsistency and duplication in the early stages of court proceedings. But the Judicial Panel on Multidistrict Litigation (JPML) wrote that the 278 cases in the proposed MDL, which involve dozens of jurisdictions and more than 100 insurance companies, did not meet the threshold for centralization due to “very few common questions of fact.”
The panel noted a more likely case for centralization could be company-specific MDLs, and ordered responses from the defendants – “to show cause why those actions should not be centralized” – in advance of the next hearing scheduled for Sept. 24.
The insurers subject to the show cause orders are Certain Underwriters at Lloyd’s, London, Cincinnati Insurance Company, the Hartford insurers, Society Insurance, and Travelers Insurance Company.
The conflict over business interruption claims has escalated in the wake of the COVID-19 pandemic, with hundreds if not thousands of business loss claims filed, so many the insurance industry asserts it could be rendered insolvent.
“This pandemic was not contemplated in underwriting nor premium collected to pay for the losses stemming from it,” Pauley said. “It remains an existential crisis for insurers to be required to retroactively pay for losses that do not meet policy/contractual requirements. Retroactive forced coverage – which may be unconstitutional on a number of grounds – only detracts from legitimate claims insurers are obligated to pay and will pay as contracted.”
While the insurance industry backed the panel’s denial of nationwide amalgamation, it does not support the potential company-specific MDLs.
“There are too many state-by-state variables at issue for it to make sense to try and decide across the board for one insurer,” Pauley said.
“It is unclear what the parameters are for the JPML to issue insurer-specific MDLs,” he added. “Consequently, we are concerned that this was not briefed by the parties nor brought up by the litigants and the JPML acted sua sponte or on their own. We applaud the JPML for asking for more briefing on this issue, because we think once they learn the additional and similar concerns of the consolidation requests, they may rethink consolidation even for insurer-specific MDLs.”
The NAMIC also has proposed the creation of a federal business continuity protection program.
United Policyholders (UP), which advocates for claimants, agreed with the panel’s decision and maintains that no matter the court venue, claims should be favorably resolved for businesses that have paid for insurance policies that face being denied.
“There is a reason that there hasn't been an insurance coverage MDL in the 52 years since the forum was established: Like snowflakes - every insurance claim has unique facts and circumstances as to the loss that led to the claim, how the policy was sold and how the words in the policy should be interpreted,” Amy Bach, UP executive director, told the Record by email.
The consequences of the COVID-19 business interruption court conflict are “unhealthy for our economy and unfair to taxpayers,” Bach said.
Many restaurants have filed business interruption claims that have not yet been paid.
“The fact that not everybody rallied behind the MDL sends a message,” Angelo Amador, senior vice president of legal advocacy at the National Restaurant Association, told the Record. “A lot people filed claims in state court to avoid a potential MDL because in business interruption insurance cases, the specific facts are going to matter.”
With the many business interruption suits still pending, the next step is to see how they get resolved, Amador said.
“In addition to the [U.S.] District courts, we are going to have to pay close attention to state court cases,” Amador said. “If I was an insurance company, I wouldn’t be claiming victory until these claims start getting decided.”