By Shawn Rice | June 15, 2021

On the heels of a ruling in three bellwether cases in multidistrict litigation over Society Insurance Co.’s widespread denial of pandemic-related coverage, an Illinois federal judge on Tuesday refused the insurer’s bid for an appeal concerning claims for business interruption coverage.

U.S. District Judge Edmond E. Chang rejected Society’s call to send to the Seventh Circuit the question of whether a policyholder’s loss or partial loss of use of property is “direct physical loss of” its property. The judge noted the “intricacy of the policy’s provisions and complexity and fact-rich complaints.”

Society repeats many of the same arguments in its dismissal and summary judgment motions, the judge said. The denial of the motions on the business interruption claims focused on the fact-bound question of whether Society’s policy “is nothing if not ‘long’ and ‘detailed’ and ‘obscure,'” Judge Chang added.

And without certification of the liability question, Judge Chang also found no need to have the Seventh Circuit consider the viability of the policyholders’ bad faith claims, as those claims won’t affect discovery. Therefore, the likelihood of the case ending as a result of any appellate decision on the bad faith claims “is close to zero,” according to the judge.

“Appealing now would be premature, distract the parties from advancing the case in the district court, and would not speed this court’s progress of the litigation toward that final judgment,” the judge said.

At dispute is Judge Chang’s selection of dismissal or summary judgment motions filed by Society in three cases — two filed in Illinois federal court and one filed in Wisconsin federal court — to serve as bellwethers to address policy interpretation issues common to the 40-plus cases that are consolidated in the MDL.

The Illinois cases are comprised of Chicago-area bars, theaters and restaurants dubbed the “Big Onion plaintiffs,” and an eatery in Glenview, Ill., called Valley Lodge. The Wisconsin case involves bars and restaurants known as the “Rising Dough plaintiffs,” located in Wisconsin, Minnesota and Tennessee.

In February, Judge Chang allowed the policyholders in all three bellwether cases to continue with claims for business interruption coverage under the policies. The Big Onion plaintiffs and Valley Lodge were also permitted to proceed with allegations that Society denied their insurance claims in bad faith.

Judge Chang wasn’t convinced that physical loss or damage requires a tangible alteration to physical property. He ruled, however, that the claims under the civil authority, contamination and extra expense coverages, as well as the sue and labor provision of Society’s standard policy, can’t proceed.

Society asked for an appeal to the Seventh Circuit in March, arguing that the majority of courts applying Illinois law say a policyholder’s inability to use its property due to the presence of the coronavirus and government shutdown orders wasn’t a direct physical loss.

But in Tuesday’s ruling, Judge Chang declined to give Society that appeal. Having the Seventh Circuit weigh in on the business interruption coverage issue wouldn’t advance the litigation, the judge said, noting that he has already ordered mediation and discovery to proceed “as quickly as practicable.”

Counsel for the parties didn’t immediately respond to requests for comment Tuesday.

The policyholders are represented by co-lead counsel Shelby S. Guilbert Jr. of McGuire Woods LLP, Adam J. Levitt of DiCello Levitt Gutzler LLC, Timothy W. Burns of Burns Bowen Bair LLP, Shannon M. McNulty of Clifford Law Offices PC and W. Mark Lanier of The Lanier Law Firm PC.

Society is represented by co-lead counsel Thomas B. Underwood of Purcell & Wardrope Chtd. and Laura A. Foggan of Crowell & Moring LLP..

The case is In Re: Society Insurance Co. COVID-19 Business Interruption Protection Insurance Litigation, MDL number 2964, in the U.S. District Court for the Northern District of Illinois, Eastern Division.

–Additional reporting by Celeste Bott. Editing by Regan Estes.

By Shawn Rice | June 11, 2021

A Florida family-owned chain of restaurants urged the Fourth Circuit for another shot at obtaining coverage from Colony Insurance Co. for pandemic-related losses, arguing a Virginia federal judge incorrectly found that their properties had to be structurally altered by the coronavirus for there to be a covered physical loss.

Even under the judge’s restrictive interpretation, the owners of Skillets Restaurants said Thursday, the presence of the coronavirus caused a covered loss. The virus structurally altered the restaurants’ surfaces and air, resulting in the loss and diminishment of the properties, the owners told the Fourth Circuit.

“Not only is ‘structural alteration’ a requirement that is definitively not in the policy, but Colony and other insurers have known — since at least the early 1960s — that many courts do not agree that ‘direct physical loss of or damage to property’ requires structural alteration,” the restaurant owners said in a brief.

Skillets LLC and Good Breakfast LLC were forced to temporarily stop in-person dining at their nine Skillets Restaurants locations in Florida under government orders to mitigate the spread of the coronavirus, according to the proposed class suit filed in August. The restaurants accused Colony of wrongfully denying coverage for the pandemic-related losses.

In March, U.S. District Judge Henry E. Hudson of the Eastern District of Virginia, applying Florida law, tossed the suit. The judge ruled that Colony didn’t have to cover the losses as there wasn’t any “direct physical loss of or damage” to property as a result of the coronavirus or the closure orders.

In Thursday’s brief, the restaurants argued to the Fourth Circuit that courts have held a property’s loss of use is “direct physical loss or damage” triggering coverage. The owners said the presence of the coronavirus forced them to repair and refurbish the restaurants to make them safe for customers again.

“Functional spaces in the restaurants could only be used at a severely diminished capacity, with the dining rooms being entirely closed to customers for over a month and only reopening on a limited basis after significant alterations were made to the dining rooms and surrounding areas,” the owners said.

The Fourth Circuit is hearing a separate bid by an art class company to resurrect its proposed class suit for pandemic-related losses. That policyholder already argued that a West Virginia federal judge was wrong in finding that the coronavirus doesn’t cause physical loss because it can be cleaned from surfaces.

Florida law’s position on what is covered for pandemic-related losses is also before the Eleventh Circuit in cases involving appeals by a brunch chain, a steakhouse, another restaurant and a furniture chain.

Timothy W. Burns of Burns Bowen Bair LLP, counsel for Skillets Restaurants, told Law360 on Friday that his clients are hopeful the Fourth Circuit, and others like it, “will make short work” of decisions with poor reasoning, that are “linguistically suspect” and aren’t true to principles of policy interpretation.

There is no difference in the rules of policy interpretation between Virginia and Florida, Burns added. Rather, he said the case, like many others, presents straightforward claims for coverage that, under the policyholder-friendly rules of policy interpretation cited by most federal district courts, “are no brainers.”

“The insurance industry has managed to fragment the litigation and create a snowball effect from a few early, wrongly-decided victories,” he said. “Fortunately, fifty or so strong trees still stand.”

Counsel for Colony declined to comment Friday.

The Skillets Restaurants are represented by Timothy W. Burns and Brian P. Cawley of Burns Bowen Bair LLP; Lisa Sarah Brook and Edward Kyle McNew of MichieHamlett PLLC; Adam J. Levitt and Kenneth Abbarno of DiCello Levitt Gutzler LLC; and W. Mark Lanier of The Lanier Law Firm PC.

Colony is represented by William F. Stewart and Gary W. Berdeen of Stewart Smith Law.

The case is Skillets LLC et al. v. Colony Insurance Co., case number 21-1268, in the U.S. Court of Appeals for the Fourth Circuit.

–Additional reporting by Hailey Konnath, Daphne Zhang, Rosie Manins and Joyce Hanson. Editing by Abbie Sarfo.