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.