JPML judges struggle with ‘nightmare’ prospect of COVID-19 insurance coverage MDL

By Alison Frankel | July 30, 2020

(Reuters) – No fewer than three different people used the word “nightmare” at a Judicial Panel on Multidistrict Litigation hearing Thursday morning about whether to consolidate hundreds of federal-court suits by insurance policyholders whose claims for business interruption coverage was denied. And one of them was a judge.

That apt depiction of the challenge that these cases pose for the JPML came from U.S. District Judge Matthew Kennelly of Chicago – a JPML panel member whom many plaintiffs’ firms have proposed to oversee a nationwide consolidation of the business interruption litigation. Judge Kennelly was asking questions of the insurance industry’s lead counsel, Richard Goetz of O’Melveny & Myers, who had told the panel that insurers oppose any MDL consolidation, whether it’s a single nationwide proceeding or multiple insurer-by-insurer or state-by-state MDLs. But 200 of the more than 400 suits already filed in federal court are class actions, Kennelly said.

“Isn’t that going to be nightmare to reconcile and resolve if there isn’t some form of consolidation?” Kennelly asked Goetz.

The insurers’ lawyer fired back that consolidation would be the nightmare – and that the panel should not allow plaintiffs’ lawyers to use the specter of prospective class actions to justify an MDL that would be crippled by variation among state insurance laws, state public emergency declarations, insurance policy language and contracts and plaintiffs’ individual circumstances. Even the theories plaintiffs have asserted in the class actions on file differ widely, Goetz said.

“That would be the tail wagging the dog,” he advised the panel. (For the record, the third person who described management of the business interruption coverage litigation as a “nightmare” was David Boies of Boies Schiller Flexner, who represents plaintiffs opposed to a nationwide MDL.)

The JPML did not clearly indicate which way they’re leaning at Thursday’s hearing, which was conducted by Zoom with more than 440 people listening in on an audio-only phone line. Plaintiffs’ lawyers presented the panel with a variety of options, as I’ll explain. The judges had tough questions about all of the proposals – including the insurance industry’s suggestion that the panel simply allow individual judges to decide the cases before them.

U.S. District Judge Ellen Huvelle of Washington, D.C., who presided over the hearing, was clearly concerned about lumping insurers that have been named as defendants in only a handful of cases into a vast MDL. U.S. District Judges Catherine Perry of St. Louis and David Proctor of Birmingham pressed plaintiffs to specify the common factual issues in the cases, a prerequisite for MDL consolidation. Judge Kennelly was particularly interested in whether there are common epidemiological questions about the nature of COVID-19 and how it’s spread that cut across the entire litigation.

Judge Proctor said he agreed with arguments by plaintiffs’ lawyers that small businesses need a quick resolution because they’re counting on insurance coverage to survive the pandemic. But a single MDL judge would have to deal with policy language from hundreds of insurers and the laws of all 50 states, he said. “How in the world is a judge going to get through all this with any type of efficiency?” Judge Proctor asked.

But at other moments in the hearing, Judge Proctor seemed interested in the prospect of multiple MDLs, or multiple tracks within an MDL, for different insurers. He homed in on plaintiffs’ arguments that although policy language varies from insurer to insurer, each carrier uses consistent language across its policies. Judge Proctor also suggested that MDL judges could effectively coordinate with state judges overseeing insurance coverage suits filed in state court.

Leading the charge for a single, nationwide proceeding was Mark Lanier of the Lanier Law Firm, who told the JPML (in a phrase repeated by other plaintiffs’ lawyers who presented arguments) that all of these cases are governed by five words: “direct physical loss or damage.” (Lanier’s firm, which is working on these cases with DiCello Levitt Gutzler, Burns Bowen Bair and Daniels & Tredennick, is pushing for Judge Kennelly to preside over a single proceeding.) Lanier contended that variations in state insurance law are overwhelmed by every state’s basic contract law principles.

Other plaintiffs’ lawyers, however, suggested alternatives to a nationwide MDL. Patrick Stueve of Stueve Siegel Hanson proposed MDLs against three carriers – Cincinnati, Lloyds and the Hartford – that have each been named in multiple suits instead of a single proceeding that, he said, would be “not manageable.” Shelby Guilbert of King & Spalding, who represents about 50 bars and restaurants in Chicago that are all suing Society Insurance, opposed any formal consolidation by the JPML, even when Judge Huvelle asked if it would be better for Society policyholders to be litigating before one judge instead of five or six.

Arguing on behalf of dozens of insurers, Goetz directly confronted the judges’ concern with efficiency. Individual cases, he said, are already moving fast. Insurers have filed motions to dismiss in 18 suits. Rather than stop these cases in their tracks to wait for an MDL to gear up, Goetz said, the panel should allow the suits to move ahead on their own to deliver the quickest resolution. (Sarah Gordon of Steptoe & Johnson, who argued against consolidation on behalf of The Hartford, reiterated the point that the fastest way to find out if individual policyholders were wrongly denied coverage is to allow their individual suits to go forward outside of an MDL.)

Perhaps looking for a reason to justify consolidation, Judge Huvelle asked Goetz if there were similarities among those 18 dismissal motions. Goetz said they addressed varying claims and were very different.

Plaintiffs’ lawyer Adam Levitt of DiCello Levitt predicted to me that if an insurer wins one of those dismissal motions, the industry will argue that the ruling should be binding nationwide, despite emphasizing dissimilarities at Thursday’s hearing. “This nationwide economic collapse calls for a unified response, and, yet, at today’s JPML hearing, the insurance industry argued for a fragmented, chaotic, judicial response,” Levitt said.

I emailed Goetz after the hearing to ask but he didn’t get back to me. Hartford counsel Gordon referred me to a company spokesman who didn’t immediately respond.

Lanier said in an email that the business interruption insurance litigation is a “tough situation” for the JPML. “The choice is between a very difficult MDL or chaos,” Lanier said, noting that this will be a rare MDL ruling that could affect the stock market. “I hope they opt for MDL. It will speak with one voice to the economy.  The economy will listen.”

https://www.reuters.com/article/legal-us-otc-insurance/jpml-judges-struggle-with-nightmare-prospect-of-covid-19-insurance-coverage-mdl-idUSKCN24V3E2

JPML Probes Bids To Combine COVID-19 Coverage Battles

By Jeff Sistrunk | July 30, 2020

The Judicial Panel on Multidistrict Litigation on Thursday peppered attorneys for policyholders and insurance carriers with questions over whether the hundreds of COVID-19 business interruption coverage disputes pending in federal courts nationwide should be centralized in one or more courts or left to be resolved case by case.

During a 90-minute hearing held via Zoom, the JPML heard arguments from 15 attorneys on dueling petitions filed in April by two groups of policyholder plaintiffs, one seeking to centralize federal business interruption cases in the Northern District of Illinois in Chicago and the other asking for them to be centralized in the Eastern District of Pennsylvania in Philadelphia.

Arnold Levin of Levin Sedran & Berman LLP, who represents the petitioners seeking centralization in Philadelphia, told the seven-member JPML there is no merit to insurers’ contention that consolidation is inappropriate due to the high number of different defendants and policies involved in the coverage cases. He pointed to several past MDLs, such as one concerning orthopedic bone screw products liability litigation, that centralized cases involving multiple different defendants and products.

“So, Mr. Levin, what is the common issue of fact?” asked U.S. District Judge Matthew Kennelly.

“The common issues of fact are, one, whether or not there is property damage. Did the virus get into the property?” Levin replied. “Also, the exclusions are all the same.”

Levin added that the insurance policies at issue “have all been formulated, for the most part,” by the Insurance Services Office.

“We have sought discovery from the ISO to show they are the same,” he said.

Mark Lanier of The Lanier Law Firm PC, who represents the petitioners requesting centralization in Chicago, also contended that the hundreds of cases will share certain common factual issues, “regardless of state, regardless of insurance company, regardless of policy.” Those include whether the different iterations of the novel coronavirus should be treated as one or multiple occurrences under a policy, whether the virus is considered to be present “everywhere people congregate” and what type of scientific analysis “is going to be acceptable and not acceptable,” according to Lanier.

“The preponderance of common facts will, by and large, be huge,” he said.

Moreover, Lanier added, many insurers that have already filed motions to dismiss policyholders’ suits have asserted the same arguments, including that COVID-19 did not cause “direct physical loss or damage” to the insured business, as required for business interruption coverage to apply. Those “five simple words” are a common thread running through these coverage disputes, he argued.

“So you are telling me the state laws of all 50 states interpret those five words in the context of every insurance policy the same way?” U.S. District Judge Catherine D. Perry asked Lanier.

Lanier replied that he would not say “quite that, totally,” but that “by and large, every state has the same basic principle of contract interpretation, that you give plain and ordinary meaning to contractual terms.”

“I don’t think the courts are going to find this to be that different in terms of each state, and I think that is why insurance companies are seeking a national legislative solution,” he said.

While the petitions requesting centralization in Philadelphia or Chicago have garnered the support of some policyholder plaintiffs, other policyholders have opposed them and pitched wildly varying proposals of their own.

The full range of policyholders’ views was on display during Thursday’s hearing. Some attorneys representing policyholders backed one of the two petitions, while others opposed any form of centralization. Several attorneys pushed for centralization in California, Florida or Washington. And still others advocated for the creation of multiple MDLs, either by consolidating cases filed against the same insurance company or lumping together cases lodged in the same state.

For instance, Patrick J. Stueve of Stueve Stueve Siegel Hanson LLP, who represents several policyholders in suits pending in Missouri federal court, suggested an “incremental approach” in which the JPML would create smaller MDLs to consolidate cases against “insurers who have been sued in many lawsuits, in multiple jurisdictions, by many plaintiffs firms.” Currently, only a few of the nearly 100 insurers named in coverage cases around the country meet that criteria, including The Hartford, Cincinnati Insurance Co. and underwriters at Lloyd’s of London, he said.

“Several smaller MDLs will ensure the most manageable and efficient resolution of these cases,” he said.

While policyholders’ views are varied, insurance carriers have uniformly opposed the formation of any kind of MDL.

Arguing on behalf of Westchester Surplus Lines Insurance Co. and more than 30 other insurers, Richard Goetz of O’Melveny & Myers LLP said the factual differences among the coverage disputes outweigh any commonalities. Goetz emphasized that all the organizations that filed amicus briefs with the JPML, including both insurance industry trade groups and the prominent policyholder advocacy group United Policyholders, oppose centralization.

“The fact issues are overwhelmingly centered on individual plaintiffs,” he said. “What is their business? Did they close? When and why would they have had any business if they had remained open? Did they claim that the virus was or was not there? Was there a stay-at-home order, and what did it say?”

Goetz further contended that creating smaller “insurer-specific” MDLs is “not the answer,” given that the policy language and factual circumstances can vary even across cases involving the same insurer.

U.S. District Judge Nathaniel M. Gorton asked Goetz what his “alternative suggestion” would be for dividing up the business interruption cases.

“Your honor, I think you could leave the cases where they are,” Goetz said, pointing out that insurers’ motions to dismiss have already been fully briefed in at least 18 cases.

Sarah D. Gordon of Steptoe & Johnson LLP, who represents Hartford and a number of its subsidiary insurers, later said she agreed with Goetz that the creation of multiple single-insurer MDLs would not resolve the issues that would abound with an industrywide MDL.

“The only efficiency that might be gained from a single-insurer MDL is a reduction in the variation of policy language, but even at the single-insurer level, there are still variations,” Gordon said.

The case is In re: COVID-19 Business Interruption Protection Insurance Litigation, case number 2942, before the Judicial Panel on Multidistrict Litigation.

–Editing by Gemma Horowitz

Lloyd’s Insurers Want COVID-19 Coverage Fight Sent To Fla.

Joyce Hanson | July 29, 2020

A group of Lloyd’s underwriters has asked to send two pizza companies’ COVID-19 coverage suit to Florida, telling a New York federal court that the companies suing are based in the Sunshine State as are the agents who sold them their commercial property insurance policies.

The Lloyd’s of London insurers argued Wednesday before the New York court that the Florida-based lead plaintiffs in the proposed class action, Gio Pizzeria & Bar Hospitality LLC of Coral Springs and Gio Pizzeria Boca of Boca Raton, are merely engaging in forum shopping.

The pizzeria companies claim their case should be heard in New York only because their policies provide that service of a complaint should go to London-based Lloyd’s service agent, “who happens to be in New York,” the underwriters say in their motion to transfer venue.

But the truth, according to the underwriters, is that the two policies delivered to the Gio Pizzeria companies were issued by a Floridian producing agent and a Floridian surplus lines agent. And the pizzeria companies don’t like their odds of winning in Florida federal court because five other COVID-19 cases pending there may hurt their chances of prevailing on the argument that government closure orders triggered their policies’ “civil authority” coverage, the underwriters say.

“Plaintiffs’ filing in this court is nothing more than transparent forum shopping,” the underwriters argue. “The critical witnesses and evidence regarding are located in South Florida. The Southern District of New York’s connection with this dispute is nonexistent. Further, transfer to the Southern District of Florida will allow this matter to proceed in coordination with the five currently pending putative class actions against members of the Lloyd’s, London insurance market, arising out of COVID-19.”

The Gio case stems from Lloyd’s underwriters’ denial of coverage after the plaintiffs were forced to reduce business at their Nick’s pizzerias due to the COVID-19 pandemic and resultant orders issued by civil authorities in Florida mandating the suspension of business for on-site services.

Attorneys from DiCello Levitt Gutzler LLC filed the suit April 17 on behalf of the two Gio Pizzeria companies, joining the Lanier Law Firm PC, Burns Bowen Bair LLP and Daniels & Tredennick in launching class action suits against six insurance companies in federal courts over their denials of coverage for businesses shut down because of the coronavirus outbreak.

The complaints target Certain Underwriters at Lloyd’s, London in New York, Society Insurance in Wisconsin, Auto-Owners Insurance Co. in Ohio, Topa Insurance Co. in California, Oregon Mutual Insurance Co. in Oregon, and Aspen American Insurance Co. in Texas, the attorneys announced in an April 17 press release.

In each case, the businesses, which include the pizzerias, bakeries, taverns, restaurants, nightclubs and bridal retailers, allege they paid premiums to the insurance companies for business interruption insurance for situations in which they could be forced to close through no fault of their own, but their claims have been denied.

Adam Levitt of DiCello Levitt Gutzler LLC, a lawyer for the Gio Pizzeria companies, on Wednesday shot down the underwriters’ bid to transfer venue, telling Law360 in an email that the suit is lodged in the proper court.

“Our complaint and the underlying facts speak for themselves. We filed our case in the correct venue,” Levitt wrote. “It would be helpful if defendants, instead of playing procedural games in an effort to confuse, attenuate, and frustrate the litigation process, would actually step up and honor their substantial contractual obligations to our clients and the other class members.”

Counsel for the Lloyd’s underwriters could not immediately be reached for comment Wednesday.

The Gio Pizzeria plaintiffs are represented by Adam Levitt, Mark DiCello and Ken Abbarno of DiCello Levitt Gutzler LLC.

The underwriters at Lloyd’s are represented by Peter J. Fazio of Aaronson Rappaport Feinstein & Deutsch LLP.

The case is Gio Pizzeria & Bar Hospitality LLC et al. v. Certain Underwriters at Lloyd’s, London, case number 1:20-cv-03107, in the U.S. District Court for the Southern District of New York.

https://www.law360.com/articles/1296508

Houston Rockets sue FM Global unit for COVID-19 coverage

The Houston Rockets basketball organization and its venue the Toyota Center sued FM Global’s midmarket unit on Wednesday seeking business interruption coverage for coronavirus-related losses.

In the suit, Clutch City Sports & Entertainment LP (d/b/a Toyota Center) and Rocket Ball Ltd. v. Affiliated FM Insurance Co., which was filed in state court in Providence, Rhode Island, where FM Global is based, the team and the venue said the insurer wrongly denied their claim last month.

According to the suit, the Rockets and the Toyota Center, which hosts concerts and other shows in addition to National Basketball Association games, bought an “all risks” commercial insurance policy from Affiliated FM that provides $412 million in property damage limits “with a substantial portion of that amount in coverage for business interruption losses.” The policy includes $100,000 sublimits for property damage due to communicable disease and business interruption due to communicable disease.

The organizations paid $719,490 in premium for the coverage, which went into effect on Oct. 6, 2019, court papers say.

The Toyota Center attracted nearly 1.3 million people to events in 2019 but has attracted only 340,000 in 2020 due to the forced closure of the venue during the COVID-19 pandemic, court papers say.

City and state officials issued various orders in March imposing restrictions on businesses in Houston and issued further orders in June after an increase in COVID-19 cases in the state.

The venue and the Rockets contend in the suit that the presence of COVID-19 at the Toyota Center constitutes physical damage that triggers coverage for lost revenue under various clauses in its policy, including business interruption, extra expense, attraction and communicable disease coverage, according to the suit.

The communicable disease sublimits “do not purport to reduce other coverages available under the Policy. They are additive,” according to the suit.

“AFM is unable to discuss because it is a legal matter,” a spokesman for FM Global said in an email in response to a request for comment.

The suit is one of scores of suits filed by businesses across the country. Most of the suits are pending, but judges in Michigan and New York ruled in favor of insurers in two cases.

 

https://www.businessinsurance.com/article/20200715/NEWS06/912335633/Houston-Rockets-NBA-sue-FM-Global-unit-for-COVID-19-coverage-coronavirus-pandemi

 

Houston Rockets Sue Insurer For COVID-19 Coverage

By Mike Curley | July 16, 2020

The NBA’s Houston Rockets and their home arena are suing their insurance company, alleging it denied them coverage for losses stemming from the COVID-19 pandemic in an act of bad faith as part of a companywide policy to deny coverage for similar claims.

In a complaint filed in Rhode Island state court Wednesday, Clutch City Sports & Entertainment LP, which owns the Toyota Center, and Rocket Ball Ltd., which owns the Rockets, say Affiliated FM Insurance Co. owes them coverage under the team’s $412 million property insurance policy.

According to the Rockets, the arena was forced to shut down after the COVID-19 pandemic hit Houston and the NBA suspended the remainder of its season, saying the presence of the virus in Houston and the arena constitutes physical loss and damage under the policy.

“The loss of functionality is no less physical than the impact of a property having lost its roof to a tornado or hurricane,” the team wrote. “Where once the property could carry on its business function, the property with a blown away and crumbling roof cannot operate in that way. Where once the property could seat patrons away from the elements, it can no longer do so. That is physical damage, as is the loss of function at Toyota Center caused by COVID-19.”

As a result of the pandemic, the arena says it had to cancel 29 events, including nine Rockets games, plus an unknown number of playoff games. While the NBA has announced plans to resume its season, the team and arena say, none of the games are set to be played at the Toyota Center.

According to the complaint, the team’s policy with Affiliated FM, which is a subsidiary of FM Global Group, expressly considers a communicable disease like COVID-19 as physical loss and damage, as the policy specifically covers “cleanup, removal and disposal” of communicable disease.

The team further alleges that the governor’s shutdown orders, which closed the doors on nonessential businesses, also trigger the policy under the civil authority clause, which grants coverage for business interruption caused by government orders prohibiting access.

According to the complaint, the policy’s exclusion for contamination does not apply, as it does not include communicable disease like COVID-19 among its list of contaminants. In addition, the team argues that the policy’s sublimits for communicable disease coverage don’t limit coverage of the business interruption and physical damage claims, and should not apply.

The complaint also cites an internal “talking points” memo from FM Global, which the team claims informs insurance adjusters that the virus doesn’t count as physical damage, nor does a communicable disease. According to the team, this memo is the basis for FM Global and its affiliates’ bad faith effort to deny coverage for COVID-19-related claims, as adjusters are not instructed to take into account the policy language or local law when denying the claims.

A spokesperson for FM Global declined to comment Thursday.

Attorneys for the Toyota Center and the Rockets referred questions to the Toyota Center. A spokesperson for the team declined to comment.

The suit comes after Minor League Baseball teams began suing their insurers over coverage after the cancellation of their season, including the farm team for the New York Yankees.

The arena and the team are represented by Stephen M. Prignano of McIntyre Tate LLP; W. Mark Lanier, Alex J. Brown, Ralph D. McBride and Matthew D. Przywara of The Lanier Law Firm PC; Denman H. Heard of Heard Law Firm PLLC; Adam J. Levitt, Mark A. DiCello and Kenneth P. Abbarno of DiCello Levitt Gutzler LLC; Timothy W. Burns, Jeff J. Bowen, Jesse J. Bair and Freya K. Bowen of Burns Bowen Bair LLP; and Douglas Daniels of Daniels & Tredennick.

Counsel information for Affiliated FM was not available.

The case is Clutch City Sports & Entertainment LP et al. v. Affiliated FM Insurance Co., case number PC-2020-05137, in the Providence/Bristol County Superior Court, Rhode Island.

 

https://www.law360.com/articles/1292586/houston-rockets-sue-insurer-for-covid-19-coverage?te_pk=35c33428-8176-42bd-a2c9-eabaadc779c8&utm_source=user-alerts&utm_medium=email&utm_campaign=tracked-entity-alert

The Houston Rockets and billionaire owner Tilman Fertitta are suing their insurer for denying the National Basketball Association team’s bid to tap its business-interruption insurance policy over revenue losses from the Covid-19 pandemic.

Fertitta’s Rocket Ball Ltd. and Clutch City Sports & Entertainment L.P., the respective holding companies for the team and Toyota Center where the Rockets play, sued Affiliated FM Insurance Co. Wednesday in state court in Rhode Island. That company is a division of commercial property insurer FM Global Group, which is based in Johnston, Rhode Island.

The suit is the first by an NBA team seeking to recover losses tied to the economic body blows wrought by the coronavirus. Fertitta said in court filings he paid around $719,000 in annual premiums for more than $400 million in business-interruption insurance. He said the policy covers the pandemic because it was not specifically excluded.

Steven Zenofsky, a spokesman FM Global, declined to comment on the Rocket’s suit.

Fertitta, who also owns the Golden Nugget casino and the Landry’s restaurant chain, joins more than 50 other businesses across the U.S. who’ve sued insurers for denying claims on business-interruption policies, according to data compiled by Bloomberg.

Pandemic Exclusions

The stakes in this wave of business-interruption cases are high for insurers, who say such policies were only intended for physical damage and were never priced to cover a global virus outbreak. Many specifically exclude pandemics.

U.S. companies with fewer than 100 workers could face aggregate losses of as much as $431 billion a month, the American Property Casualty Insurance Association estimated. That’s nine times more than the $47 billion the industry said it paid for covered losses arising from the Sept. 11, 2001, terrorist attacks, when only a third of claims were for business interruptions, according to the Insurance Information Institute.

Insurers could face as much as $100 billion in losses from the pandemic, Wells Fargo & Co. analyst Elyse Greenspan estimated in a note to clients in June. Chubb Ltd. Chief Executive Officer Evan Greenberg has warned that the pandemic is likely the largest event in insurance history.

The NBA is straining to restart its suspended season by having 22 teams gather at a facility in Walt Disney World in Orlando, Florida. The plan is to have an eight-game wrap-up to the regular season, then hold playoffs at the facility. Players will live in seclusion at the park during the truncated season.

New Epicenter

Lawyers for the Rockets and the team’s arena say in the suit that the pandemic, in which Houston has emerged as a new epicenter, has hit them especially hard. On July 14, Texas Covid cases increased by almost 11,000, a new record, with the statewide total numbering more than 270,000.

Toyota Center officials were forced to cancel not only NBA games, but rodeos, concerts, a World Championship BBQ cook-off and other revenue-generating gatherings, according to the suit. The Rockets’ lawsuit contend loss of use of the arena constitutes “physical damage” triggering the coverage.

“The property has been impaired,” the team’s lawyers said in their 30-page complaint. “The loss of functionality is no less physical than the impact of a property having lost its roof to a tornado or hurricane.”

The case is Clutch City Sports & Entertainment LP and Rocket Ball Ltd v. Affiliated FM Insurance Co., No. PC-2020-05137, Providence/Bristol County Superior Court (Providence).

https://www.bloomberg.com/news/articles/2020-07-15/houston-rockets-owner-sues-insurer-over-covid-19-claim-denials