On October 6, 2020, U.S. District Judge Thomas Thrash Jr. issued Georgia’s first COVID-19 business interruption insurance decision, finding Governor Brian Kemp’s State of Emergency Executive Order did not cause “physical loss of” the policyholders’ closed dining rooms. Henry’s Louisiana Grill, Inc. et al. v. Allied Ins. Co. of Am., No. 1:20-cv-2939-TWT (N.D. Ga. Oct. 6, 2020). The decision takes an unusually narrow view of the phrase “loss of,” as it is used in the policy and, consequently, reaches a conclusion that is inconsistent with how other courts have analyzed the phrase.
In another win for policyholders, the United States District Court for the Middle District of Florida on September 24, 2020 denied Sentinel Insurance Company’s motion to dismiss the policyholder doctor office’s claim for COVID-19 related business interruption coverage. Urogynecology Specialist of Florida LLC v. Sentinel Insurance Company Ltd., Case No.: 6:20-cv-1174-Orl-22EJK (M.D. Fla. Sept. 25, 2020). The court engaged in a true analysis of the policy’s virus exclusion language, finding that the insurer had not met its burden of showing that its proposed reading of the exclusionary language is the only reasonable interpretation.
As we reported in a prior blog, on August 14, the Judicial Panel on Multidistrict Litigation rejected plaintiffs’ request for a consolidation of all COVID-19 insurance coverage federal litigation, agreeing to consider mini-MDLs as respects five specific insurers, which accounted for roughly one-third of the federal cases. On October 2, the Panel rejected the concept of mini-MDLs as respects four of these five insurers and accepted an MDL for the fifth insurer.
At the outset, the Panel agreed with plaintiffs that each of the proposed mini-MDLs presented common legal and factual questions about the drafting and interpretation of the respective insurer’s insurance policy forms. However, the Panel ultimately concluded that consolidation would not be the most efficient course of action for federal suits against The Hartford, Travelers, Cincinnati Insurance Co., and Lloyd’s of London. As it explained, because COVID-19 and the resulting government closures have placed many policyholders on the brink of bankruptcy, efficiency needed to be the litigation’s primary goal. The time it would take a transferee court to organize a centralized action accommodating laws of a multitude of states would undermine that goal, especially where dispositive motions addressing policy interpretation questions are already briefed and pending. The Lloyd’s suits faced the additional efficiency hurdle of multiple syndicates with multiple policy forms, putting a single, discrete question of policy interpretation out-of-reach.
However, the Panel did see fit to centralize over 30 lawsuits against Society Insurance Co. The Panel based its deviation on the limited geographical scope of the lawsuits against Society, which only implicated insurance law of six states, making the action more manageable than the nationwide cases facing the other insurers. The Panel left the door open for further streamlining measures in the Society case, like establishing “state-specific tracks” or choosing already-briefed motions as “bellwether motions” upon which to decide threshold policy interpretation issues. The Panel transferred the Society suits to Judge Edmond E. Chang in the Northern District of Illinois, who was already handling a number of these cases.
The Panel’s ruling brings to a close the COVID-19 MDL saga for at least five insurers and their policyholders, as the actions will proceed separately in courts nationwide. To the extent other federal courts were delaying proceedings pending the Panel’s decision, those actions should also resume.
A Pennsylvania trial court denied an insurer’s early attempt to lunge out of coverage for COVID-19 business interruption losses suffered by a fitness center, stating it would be premature for the court to resolve factual determinations the insurer raised in its demurrer. Ridley Park Fitness, LLC v. Philadelphia Indemnity Insurance Co., No. 200501093 (Pa. Ct. Com. Pl. Aug. 13, 2020).
In a decision that will influence how policyholders and insurers around the world address business-interruption coverage for COVID-19 losses, the English High Court recently handed down its much-anticipated judgment in the “Test Case,” The Financial Conduct Authority (FCA) v. Arch et al. The High Court’s comprehensive analysis will likely serve as an additional tool in policyholders’ arsenal in the ongoing battles over COVID-19 coverage.
On September 29, 2020, The National Law Review published an article by Scott DeVries, Lorie Masters, and Michael Huggins concerning setting the correct prism for construing policy language, which can be outcome-determinative in COVID-19 business interruption cases. A key takeaway from the article is that a court’s adherence to traditional principles of insurance policy interpretation may result in more cases finding in favor of business interruption coverage for COVID-19 related claims. For example, relevant principles of interpretation include, among others, that policy terms are ambiguous if they are subject to more than one reasonable interpretation, and that ambiguity is construed in favor of coverage. In COVID-19 coverage cases decided to date, these principles seem to have been lost in the binary discussion of “who is right.” Thus, by re-centering on the need to conduct a traditional insurance policy analysis, courts will engage in a proper analysis of the issues in dispute in these cases, and policyholders should continue to gain ground in the ongoing debate regarding business interruption coverage for losses due to COVID-19.
Earlier this year, lawyers for plaintiffs applied to the MDL Panel for consolidation of all COVID-19 business interruption cases in federal courts throughout the country. On August 12, the Panel rejected plaintiffs’ requests for a single consolidation but requested briefing on the possibility of mini-MDLS as respects five of the insurers that accounted for approximately one third of these cases: Lloyds (26 actions), Cincinnati (70 actions), Hartford (130 actions), Society Insurance (24 actions) and Travelers (45 actions). On Thursday, September 24, the Panel held a nearly three-hour hearing.
The Seventh Circuit affirmed a ruling from the Northern District of Illinois that a subcontractor’s insurer must defend the general contractor in a negligence suit brought by an employee of the subcontractor for injuries suffered on the job.
A New Jersey trial court recently denied an insurer’s motion to dismiss a COVID-19 business interruption suit brought by a group of optometry practices finding unsettled questions under New Jersey law about whether loss of a property’s functional use can constitute “direct physical loss” under a property policy. Optical Services USA/JC1 v. Franklin Mutual Ins. Co., No. BER-L-3681-20 (N.J. Super. Ct. Bergen Cty. Aug. 13, 2020) (transcript). Based on this finding, the court determined that the optometrists were entitled to issue-oriented discovery and to amend their complaint accordingly.