COVID-19 Coverage Litigation Update: Will Your Claim Be Batched with Others for Resolution?

Robert N. Lane* and Linda Kornfeld

Part 1

So far, traditional first-party property insurers have taken hardline “no coverage” positions for COVID-19 business interruption claims. As a result, policyholders nationwide (and even around the world) have been left to contemplate whether to press their coverage claims through litigation, or stay on the sidelines and watch as others develop the issues. Those policyholders already in coverage litigation or considering filing suit should be aware of the debate between policyholders and their insurers regarding how to manage the coverage suits that have been filed in many different courts in many different states around the country. To be sure, there are currently nearly 700 lawsuits pending in federal and state courts nationwide (most of which thus far involve small businesses) seeking rulings regarding whether business interruption losses associated with COVID19 are covered by traditional first-party property policies. Of those 700 cases, almost 200 of them are identified as putative class actions.

Recently, some of the policyholder-side lawyers representing restaurants, bars, theaters and other retail establishments across the country in already filed suits have sought to consolidate all federal court cases into one lawsuit and, thus, create a multi-district lawsuit commonly known as an “MDL.” Essentially, when federal court litigants request an MDL, a panel of federal judges is convened to hear and decide whether to grant the MDL request. Here, more than 30 insurers and several dozen policyholders have challenged the MDL effort by arguing that the cases are not similar enough to be batched together for purposes of full or even partial resolution, and that consolidation will in fact slow the path to resolution for many policyholders.

To read the full Part 1 article, please click here.

Part 2

Last month we advised that a group of policyholders that have filed COVID-19 business interruption lawsuits against their insurers, asked the federal courts to consolidate all COVID-19 lawsuits that have been or will be filed in federal court.

They argued that the issues between these cases are so similar that they can and should be grouped together for resolution into one or a few multi-district lawsuits (“MDL”). Insurers fought hard against this MDL effort. So too, did many policyholders that did not want to give up control of their own lawsuits filed in the strategic jurisdictions that they preferred, with the counsel they chose making the arguments they believe best suit their particular COVID-19 insurance claim. Others agreed with the consolidation concept, but instead sought that cases be batched on a state-by-state, regional, or insurer-by-insurer basis.

During the pendency of the MDL proceeding, policyholders considering COVID-19 coverage litigation needed to make a judgment call about where and when to file suit. Many policyholders who pursue litigation against their insurer believe that it is strategic to file suit in the state courts where the policyholder operates its business. Frequently, however, policyholders and insurers are from different states and, therefore, are “diverse” for purposes of triggering federal court jurisdiction. Thus, policyholders that want to best protect their chances of litigating in the state where they operate often will file in their state’s federal court and proceed from there.

Before the MDL proceeding resolved, filing in federal court in any state had its risks for policyholders (and even their insurers)—if the MDL court granted the consolidation requests, all federal court COVID-19 coverage cases were at risk of being transferred to that consolidated federal lawsuit(s). Thus, policyholders that decided to file suit in advance of an MDL ruling either filed in federal court and crossed their fingers that the MDL would be denied or, to avoid all risk of consolidation, policyholders considered filing suit in the state court where the insurer resides: defendants in litigation have no right of “removal” to federal court in their home state.

To read the full Part 2 article, please click here.

“COVID-19 Coverage Litigation Update: Will Your Claim Be Batched with Others for Resolution?” by Robert N. Lane* and Linda Kornfeld was published by Alliant in August and September 2020.

* Robert N. Lane, Esq. serves as executive vice president of Alliant Specialty Group.