Law360 (January 14, 2022, 5:56 PM EST) — COVID-19 coverage issues should continue to be sent to the highest courts in each state instead of being decided piecemeal by federal courts, policyholder attorneys told Law360 on the same day that the Seventh Circuit heard four more cases over denied insurance coverage for losses during the pandemic.

A group of policyholders — with cases from Indiana, Wisconsin and Illinois federal courts — urged the Seventh Circuit on Friday to give their coverage suits over pandemic-related losses another chance despite the federal appellate court’s previous rulings in December in favor of insurers.

The Seventh Circuit in December ruled the loss of use of property for policyholders without any physical alteration wasn’t a physical loss triggering coverage. The rulings, which also addressed several exclusions, led to one group of businesses dropping their appeal.

With five Seventh Circuit appeals decided or voluntarily dismissed, another poor showing in Friday’s four cases is a concern for policyholder attorneys. They warned federal appellate courts are deciding COVID-19 coverage issues that haven’t yet been interpreted by the highest courts in relevant states.

Tim Burns of Burns Bowen Bair LLP, who counsels policyholders, described what’s going on at the Seventh and Sixth Circuits — another federal appellate court that has put out several rulings — like a dinner scene in the 1983 comedy film, “Reuben, Reuben” where an arrogant upper middle class type drones on to a Scottish poet about taking a speed-reading course.

“The poet says, ‘I wish I could take a slow reading course.’ In much the same way, I wish the Sixth and Seventh Circuits would take a slow reading course and let these cases develop. Decisions devoid of factual development and context tend to be bad decisions,” Burns said in a statement to Law360.

Seth Lamden of Blank Rome LLP pointed to the Seventh Circuit’s recognition in one of the cases, Sandy Point Dental PC v. Cincinnati Insurance Co., that there isn’t any interpretation yet by the Illinois Supreme Court on “physical loss or damage” as reason enough that the issue among others should be certified.

Though the Illinois Supreme Court doesn’t have a COVID-19 coverage case before it, the Wisconsin Supreme Court does — which could impact Wisconsin federal cases before the Seventh Circuit.

Lamden, who represents policyholders, had misgivings with the Seventh Circuit’s earlier reliance on a particular case, Travelers Ins. Co. v. Eljer Mfg. Inc., saying that the Illinois justices interpreted “very different” language found in a commercial general liability policy rather than a property insurance policy for a construction defect case.

“There is a concern because if the Wisconsin or Illinois Supreme Courts rule in favor of coverage, policyholders with adverse rulings in the Seventh Circuit will have been unfairly prejudiced by federal decisions that incorrectly predicted state law because the federal decisions were issued first,” he said.

Demands For Certification

The Seventh Circuit’s relative quickness in moving through appeals is indicative of insurance companies’ “strategic choice to fast-track” motions to dismiss in these cases before policyholders could conduct discovery, according to Bradley Dlatt of Perkins Coie LLP, who represents policyholders.

He told Law360 in an emailed statement that “fast-tracking a huge swath of similar cases is normal where there’s a similar, discrete legal issue” but the problem here is that there wasn’t development of evidence on the impact the virus has to property in early-filed cases that “won the race” to the Seventh Circuit.

The Seventh Circuit is “wrong so far” in its refusal to certify critical issues of state law, Pillsbury Winthrop Shaw Pittman LLP’s Scott Greenspan told Law360. He said that a “shining example” on how to act is the First Circuit — which issued stays in similar disputes pending a decision from the Massachusetts Supreme Court.

“State supreme courts are taking umbrage at the refusal of most federal courts to certify COVID-19 coverage questions to them and are acting on it,” said Greenspan, who represents policyholders, noting that Wisconsin, Washington and Iowa state high courts have issued bypass orders so cases will skip intermediate appellate courts and head straight to the top.

“State supreme courts are taking control of their own state law back from the actions of federal courts to decide COVID-19 coverage issues under federal common law by issuing a wave of bypass orders to take immediate review of COVID-19 coverage appeals,” he said.

But a lot of the federal appellate courts “have fallen into a similar trap of relying exclusively” on each other and early trial court rulings rather than looking at state law, according to Dlatt of Perkins. He echoed other policyholder attorney concerns that federal appellate courts are ignoring certification of the coverage questions to state high courts.

“It is easier for the federal courts to say, ‘look at what Judge X in Court Y’ said on an undeveloped, premature record instead of admitting they are not experts and sending the case back for complete discovery below, or waiting for state supreme courts to rule,” Dlatt said.

Federal Appellate Speediness

Attorneys for insurance carriers see resolutions by federal appellate courts as a better, more efficient way when a state high court isn’t addressing all relevant issues to a case — like a virus exclusion.

Jonathan Schwartz of Goldberg Segalla LLP, who represents insurance carriers, said once the Seventh Circuit “did the heavy lifting” on the four Illinois cases back in December, it made sense to resolve the Wisconsin and Indiana case appeals given the “great importance” to both insureds and insurers.

Insureds are taking a “contradictory approach” to file cases in federal court and then take them to the federal appellate court to now ask for stays to get them before state high courts, he said.

Where a case like the one before the Ohio Supreme Court doesn’t have a virus exclusion, Schwartz explained the Sixth Circuit should tackle that issue and make its best guess on the physical loss issue. Any conflict could be resolved at a later time, he said.

Hinshaw & Culbertson LLP partner Scott Seaman told Law360 in an emailed statement that the Seventh Circuit is understandably reaching decisions quickly to find there isn’t coverage for these claims under the policy language and state contract law. State law “is readily discernible to the sophisticated justices,” he said.

“The Seventh Circuit stands in good company,” Seaman said, referencing the majority outcome of no coverage in sister circuits at the federal appellate level for insurance carriers. “If this were poker you could say the insurers had a straight flush, it would be a royal flush if there were more circuits.”

The cases heard Friday are Circle Block Partners LLC et al. v. Fireman’s Fund Insurance Co., case number 21-2459, Paradigm Care & Enrichment Center LLC et al. v. West Bend Mutual Insurance Co., case number 21-1695, Green Beginnings LLC v. West Bend Mutual Insurance Co., case number 21-2186, and Melcorp Inc. v. West American Insurance Co., case 21-2448, in the U.S. Court of Appeals for the Seventh Circuit.

–Additional reporting by Eli Flesch and Ben Zigterman. Editing by Nick Petruncio.

Law360 (January 3, 2022, 12:03 PM EST) — The COVID-19 pandemic that swept the world and its courts in 2020 continued to drive New Jersey litigation throughout 2021, filling up dockets with coronavirus-related complaints that included challenges to Garden State employee-testing mandates and public college vaccination requirements.

The bankruptcy court also heated up with two notable matters driven by massive tort litigation: a Johnson & Johnson unit and a Roman Catholic diocese each filed Chapter 11 petitions amid a barrage of lawsuits by cancer patients and clergy abuse accusers, respectively.

Employment law was another active sector as an increasing number of wage earners fought their alleged misclassification as independent contractors. The New Jersey Supreme Court will tackle a matter in that realm brought by a Weichert real estate agent, an outlier in a sea of misclassification plaintiffs typically engaged in transportation work.

Here are the top New Jersey legal sagas to watch in 2022.

Johnson & Johnson Talc Claims Spinoff Under Fire For Ch. 11

In a closely watched Chapter 11 saga, a Johnson & Johnson unit, created to shoulder massive tort liability from talcum powder users who developed cancer, has come under fire for its controversial path to insolvency.

Under a divisional merger process endorsed by Texas business law, J&J spun off a new corporate entity, LTL Management LLC, and assigned it with the litigation alleging asbestos-tainted baby powder caused the claimants’ ailments.

LTL then filed Chapter 11 in what claimants consider a bad-faith move to steer their potential recovery away from the jury system and into the bankruptcy claims process, potentially undercutting the value of their recoveries. The spinoff unit is currently facing a motion by the claimants to dismiss the Chapter 11 case. It is also facing a bid by the U.S. Trustee’s Office’s to appoint an examiner to probe J&J’s use of the divisional merger just prior to their bankruptcy filing.

One key question is how J&J went about determining the necessary capitalization of LTL, said David Prager, a Kroll LLC managing director who leads the firm’s restructuring advisory practice in the U.S.

“If [the company] utilized independent advisors and conducted a full valuation process before undertaking the transaction, then the filing may survive,” Prager said, adding that the question of remedies if the assigned values were inappropriate will remain.

“However, if the procedures followed were perfunctory, the ramifications could be much more draconian,” he noted.

J&J has defended its strategy as an efficient may to manage the tort liability and has noted that claimants are leaving things up to chance in the jury system. Sullivan & Worcester LLP partner Jeffrey R. Gleit, leader of his firm’s bankruptcy and restructuring team, thinks that position might have some sway with the court.

“Bankruptcy is an appropriate forum to handle mass tort claims and should result in an equitable recovery to the claimants as opposed to the potentially disparate treatment that could occur with piecemeal litigation throughout the country,” Gleit said.

The case is In re: LTL Management LLC, case number 21-30589, in the U.S. Bankruptcy Court for the District of New Jersey.

Judiciary, Education Workers Strike Back at Virus Testing Rule

As New Jersey courts and schools began reopening for in-person operations amid the drop in COVID-19 cases and hospitalizations, their employees were met with requirements that they show proof of coronavirus vaccination or submit to regular testing, or face penalties.

A bevy of the workers, employed by the state that reigned as one of nation’s top two coronavirus hot spots, responded with a constitutional challenge in federal court, alleging the rules violate the right to be free of forced medical testing and surveillance.

The odds are against the employees given decisions in the First, Second, Fifth and Sixth circuits that have been “largely deferential” to the government’s authority to hand down the rules, according to employment law attorney Michael R. Futterman of MARC Law.

Jurisprudence on the topic dates back to 1905, when the U.S. Supreme Court handed down its landmark decision in Jacobson v. Commonwealth of Massachusetts, which upheld a town’s vaccination mandate in the face of a smallpox outbreak in furtherance of public health, Futterman noted.

“I expect this trend to continue in [the current case], as vaccine mandates have been held constitutional for over 100 years,” Futterman told Law360.

The case is Kathleen Wright-Gottshall et al. v. State of New Jersey et al., case number 3:21-cv-18954, in the U.S. District Court for the District of New Jersey.

College Students Say Vaccine Requirements Fail Constitution Test

Students at public colleges in the Garden State were likewise met with pandemic-prompted requirements, only this set of rules made vaccination a condition of enrollment at Rutgers, the state university of New Jersey, and The College of New Jersey.

Their lawsuits against the schools also raise constitutional challenges against the policies, while the schools have pointed to the Jacobson ruling. McDermott Will & Emery LLP employment partner Michelle Strowhiro noted that the Jacobson case has repeatedly been applied by courts upholding vaccination requirements.

“Now, with the delta and omicron variants posing new and potentially greater risks for SARS-CoV-2 viral spread than ever, the colleges have a strong position that their vaccine mandates meet the Jacobson standard of bearing a real and substantial relation to protecting public health and safety, and therefore that the mandates are constitutional,” Strowhiro said.

The fact that the vaccines have FDA approval eliminates any lingering questions in that respect about the legitimacy of the mandates, noted Mark D. Kruthers, a director at Fennemore Craig PC.

“However, that could change if individual states take action to prevent the universities from enforcing vaccine mandates,” Kruthers said.

The cases are Children’s Health Defense Inc. et al. v. Rutgers, the State University of New Jersey et al., case number 3:21-cv-15333, and Messina et al. v. The College of New Jersey et al., case number 3:21-cv-17576, both in the U.S. District Court for the District of New Jersey.

Bankrupt Catholic Diocese Fights Survivors over Abuse Claims

Dozens of lawsuits accusing clergy of sex abuse drove a Roman Catholic diocese in southern New Jersey into bankruptcy court, where the survivors’ compensation has become the most contentious issue plaguing the Chapter 11 case.

The confirmation of the plan has been delayed amid motions by the diocese to declare many of its assets off limits, while the claimants have balked at the diocese’s attempts to shield funds. The parties spent hours in closed-door negotiations recently amid the diocese’s offer, which increased from $26 million to $53 million after its insurers agreed to pitch in.

The fact that bankruptcy courts are courts of equity tilts in favor of the claimants, according to insurance trial attorney Tim Burns of Burns Bowen Bair LLP. He predicts the court will “heavily scrutinize a debtor’s true ability to pay its creditors, including the sexual abuse survivors that it has injured.”

“The likely result is that the diocese will not get away with its current position, but will have to produce more compensation for the survivors. These issues tend to be negotiated and the [Diocese of] Camden survivors appear to be gaining the upper hand,” Burns said.

The case is In re: The Diocese of Camden, New Jersey, case number 1:20-bk-21257, in the U.S. Bankruptcy Court for the District of New Jersey.

NJ Justices to Mull Real Estate Agent Job Classification

The misclassification of employees as independent contractors by employers seeking to dodge the cost of worker benefits and other perks has fueled a slew of class action lawsuits and debate over how, exactly, to determine the proper designation.

The matters have intrigued the Supreme Court of the State of New Jersey, which has agreed to decide whether the so-called ABC test for determining if a worker is an employee or a free agent applies to real estate agents. The ABC test tasks courts with considering, among other things, how much control an employer has over the worker’s duties.

The matter examines the relationship between two New Jersey statutes: the Unemployment Compensation Law and the Wage Payment Law, noted Andrew S. Burns, chair of Einhorn Barbarito Frost & Botwinick PC’s commercial litigation and employment practices.

The state’s compensation law includes a statutory exemption from the employment designation for real estate salespersons. The issue driving the matter before the justices is whether the statutory exemption should preclude the application of the ABC test to real estate agents under the Wage Payment Law, according to Berns.

“Thus, if the Supreme Court categorizes these individuals as employees, it will change the entire business model utilized by large real estate entities in the sale of residential and commercial real estate,” Berns said.

The case is James Kennedy II vs. Weichert Co., case number 086060, in the Supreme Court of the State of New Jersey.

–Editing by Lakshna Mehta.