Judges Nix Consolidating COVID Business Interruption Suits Against Big Insurers

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A panel of federal judges has decided against consolidation of hundreds of lawsuits seeking coverage for coronavirus-related business interruption claims against major national insurers Travelers, The Hartford, Cincinnati Insurance and Lloyd’s. The insurers had opposed consolidation; some plaintiffs sought the merger of claims while others opposed it.

The judges on the U.S. Judicial Panel on Multidistrict Litigation did, however, approve consolidation for cases against a regional insurer, Society Insurance, into a multidistrict litigation (MDL) case.

The ruling follows one in August in which the judges denied consolidation of all coronavirus-related business interruption claims industrywide, concluding that the differences among the many insurers would overwhelm any common factual questions and hinder efficient management of the litigation.

However, at that time the panel left open the possibility of grouping cases not industrywide but by insurer as several parties had proposed. The judges decided they needed “a better understanding of the factual commonalities and differences among these actions, as well as the efficiencies that may or may not be gained through centralization” before creating insurer-specific MDLs.

The MDL panel directed that four insurer groups —Certain Underwriters at Lloyd’s of London; Cincinnati Insurance Co.; multiple Hartford insurers (including Hartford Fire, Sentinel and Twin City); and Society Insurance— be given an opportunity to show cause why the actions against them should not be centralized.

The judges heard arguments last month and in this final ruling have now sided with insurers in rejecting the insurer-specific MDLs idea, except in the case of one insurer.

The MDL panel, chaired by Justice Karen K. Caldwell, concluded that centralization would “not serve the convenience of the parties and witnesses or further the just and efficient conduct of this litigation.”

While centralization of these actions “presents a close question” ultimately the judges decided that “[e]fficiency here is best obtained outside the MDL context.”

Rather than have one judge attempt to organize and resolve the policy interpretation issues, the judges decided that allowing the various courts where the lawsuits have been filed to decide these questions will result in “quicker and more efficient resolution of this litigation.”

A number of judges have ruled that tangible alteration of a property is required to trigger coverage.

Also how an MDL differs from a class action.

There is no appeal of an MDL transfer ruling.

The insurance industry welcomed the ruling. “This is the correct result. There are no efficiencies to be gained by combining different insurers who write different policies for different policyholders who are in different industries and made claims under different factual scenarios,” said Michael Menapace, a Connecticut insurance attorney who is a non-resident scholar at the insurer-backed Insurance Information Institute, in an emailed comment.

The lawsuits involve insurance claims for coverage for business interruption losses caused by the COVID-19 pandemic and the related government orders suspending, or severely curtailing, operations of non-essential businesses.

The plaintiffs in the cases allege that their policies provide coverage for business interruption losses caused by the COVID-19 pandemic and the related government orders suspending, or severely curtailing, operations of non-essential businesses. Insurers have mostly denied such claims largely on the basis that there is no physical damages as required under policies and that many policies specifically exclude viruses.

Insurers have succeeded in having the COVID-19 lawsuits dismissed in a majority of cases thus far.

In acting on the original motions in August, the panel noted it had received notice of 263 related actions. Collectively, those actions were pending in 48 districts and name more than a hundred insurers. In addition to the four major defendant insurers, others being sued in various districts include Admiral, Aspen, Auto-Owners, Oregon Mutual and Topa.

The judges considered that hundreds of lawsuits were at issue in its final ruling: 143 against The Hartford; 66 against Cincinnati; 44 against Travelers, 24 against Certain Underwriters at Lloyd’s, and 34 against Society Insurance.

Regarding Society Insurance, the judges were persuaded that because it is a regional carrier and the laws of only six states (Illinois, Indiana, Iowa, Minnesota, Tennessee and Wisconsin) are involved, this set of lawsuits makes a good candidate for an MDL. The MDL will be handled out of the Northern District of Illinois by Judge Edmond E. Chang.