Shawn Rice | Law360 (August 24, 2021)

Native American tribes and nations have seen mixed results in federal and state suits against insurance companies as they continue to bring litigation aiming to tap into billions of dollars of coverage for losses to casinos and resorts during the COVID-19 pandemic.

A California federal judge on Monday added to the loss tally by throwing out the Menominee Indian Tribe of Wisconsin’s proposed class suit against Lexington Insurance Co. and other insurers, saying the presence of the coronavirus didn’t cause “direct physical loss or damage” to the tribe’s property.

The tribe, which operates businesses in Keshena, Wisconsin, including a casino and health care center, argued it made repairs due to an actual exposure of COVID-19 at its businesses. But the judge wasn’t convinced that installing physical barriers and increasing cleaning measures was the same as making repairs.

Tim Burns of Burns Bowen Bair LLP, counsel for Menominee, told Law360 that the tribes’ cases are similar to what’s happening across the board in pandemic-related cases and is “something that nobody had anticipated— state courts are focusing on policy language and federal courts are focusing almost exclusively on earlier case law, instead of reading the policy as a whole.”

“In an ideal world, if we are to have any hope that the legal process will actually honor the meaning of ordinary people in interpreting insurance policies, Congress would pass a law sending decisions on the ordinary meaning of undefined insurance policy terms to civil juries,” Burns said.

While Lexington successfully had Menominee’s suit tossed, the insurer was named among others, in a suit brought earlier this month by Riverside County, California-based Pechanga Band of Luiseno Indians in California state court, in efforts to tap into a $1 billion policy for its own pandemic-related losses.

Ho-Chunk Nation also dragged Lexington and others to Wisconsin state court seeking coverage for pandemic-related losses to its casino and hotels. Ho-Chunk’s insurance program is similar to ones in Oklahoma state suits where the Cherokee Nation and Choctaw Nation of Oklahoma scored favorable rulings this year.

Burns said the insurance recovery law of all 50 states commands that undefined policy terms be read as an ordinary person would read them. The Oklahoma state courts took this command more seriously, according to Burns, unlike federal courts, where a majority is ignoring the contract language as a whole and comparing the dispute in front of them to earlier case law involving different factual situations.

“It displays an approach to the law of someone fresh out of law school, who has spent three years reading judicial decisions, but not a nanosecond reading insurance policies or other contracts,” Burns said.

These tribe and nation cases represent situations where the insurance companies “sold very expensive, high premium broad coverage policies to the tribes,” according to Scott Greenspan of Pillsbury Winthrop Shaw Pittman LLP, who represents policyholders in similar COVID-19 coverage fights.

“The insurance carriers are trying a bait-and-switch. These carriers sold these high-end policies, and now their lawyers are trying to take them away,” Greenspan told Law360, noting that “sweeping” pandemic exclusions were available to the insurers but that they chose not to use them.

For example, Pechanga Band alleged losses caused by physical loss and damage from the presence of the coronavirus were covered, as there isn’t any exclusion for pandemics, diseases or viruses in the policy. The tribe highlighted the addition of a communicable disease exclusion used in the policy’s renewal.

But the virus exclusion was in play on the opposite side of the country in a recent decision.

A Connecticut state judge ruled last week that the Mashantucket Pequot Tribal Nation could potentially recover only $2 million from the $1.6 billion available under its policy with Factory Mutual Insurance Co., finding most of the tribe’s pandemic-related losses are subject to the virus exclusion.

State high courts are likely to have the final word in many of the tribes’ and nations’ disputes.

In the Midwest, for example, the Oklahoma Supreme Court is already poised to hear COVID-19 coverage suits involving Lexington and the Cherokee Nation and Choctaw Nation, which were granted summary judgment wins in state courts. This is expected to be the first state high court to rule on the physical loss or damage issue.

Because the cases are being heard under the Oklahoma high court’s “accelerated appeals” procedure, absent extraordinary circumstances, Michael Levine of Hunton Andrews Kurth LLP, told Law360 that the Oklahoma high court won’t accept further briefing, nor does he expect it to accept amicus briefing.

Levine said the Oklahoma state courts’ findings of fact based on undisputed facts that put the claim within coverage for physical loss or damage, coupled with a correct application of the rules of insurance policy interpretation and pre-pandemic precedent, allowed the court to find in favor of the tribal nations.

“Despite the ‘scoreboard’ that insurers continue to tout vociferously, the factual findings and legal conclusions in the cases on appeal are fundamentally sound, which should lead to affirmances in each of the decisions under review,” said Levine, who represents policyholders in COVID-19 coverage suits.

The Oklahoma high court’s ruling will be “closely watched,” according to Greenspan, who expects “the insurance industry to come out swinging because the trial courts’ scholarly opinions are so devastating to their positions.”

Representatives for Lexington and Factory Mutual didn’t immediately respond to requests for comment Tuesday.

–Additional reporting by Shane Dilworth and Daphne Zhang. Editing by Vincent Sherry.