U.S. District Judge Edmond E. Chang’s denial of civil authority and contamination coverage in three bellwether cases should be applied to the businesses’ 39 suits asking for that coverage as well as two suits asking solely for civil authority coverage, Society said in Thursday’s filing.

“In line with the purpose of the bellwether mechanism to allow the court to streamline this MDL proceeding, this court should dismiss from the remaining MDL actions all claims that are premised on civil authority and/or contamination coverage provisions,” Society said.

Judge Chang tested Society’s motions to dismiss and for summary judgment in three bellwether cases on policy interpretation issues over the denial of coverage for the pandemic that are common to most of the 40-plus cases folded into the MDL, which was formed by the Judicial Panel on Multidistrict Litigation.

Two of the suits were brought in Illinois federal court by Chicago-area restaurants, theaters and bars dubbed the “Big Onion plaintiffs,” and a Glenview, Illinois, eatery, called Valley Lodge. A group of bars and restaurants known as the “Rising Dough plaintiffs” filed the third federal suit in Wisconsin.

In the February ruling, Judge Chang allowed the restaurants, bars and theaters to proceed on business income coverage claims. But the judge dismissed the policyholders’ claims under civil authority coverage, saying the stay-at-home orders did not prohibit them from accessing the properties.

Judge Chang also said the policyholders could not tap into the contamination provision, which extended coverage for lost business income and cleaning costs associated with closures due to contamination. The policyholders did not claim that they closed based on an actual COVID-19 contamination, the judge said.

Society has already asked for an immediate appeal of Judge Chang’s refusal to dismiss the policyholders’ claims for business income coverage. It argued the Seventh Circuit should be allowed to answer whether the policyholders’ loss of use of property is a “direct physical loss” under its policies.

Counsel for Society declined to comment on Friday.

Counsel for the policyholders did not respond to requests for comment.

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

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

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.

–Additional reporting by Celeste Bott and Jeff Sistrunk. Editing by Peter Rozovsky.

The policyholders, including an Ohio record store that also acts as craft beer pub and a New York jeweler, told U.S. District Judge Matthew W. McFarland on Monday that they had sufficiently shown the virus particles caused a direct physical loss or damage to their properties, as called for in their insurance policies.

Cincinnati Insurance Co., which asked the court to toss the suit, failed to fully appreciate the range of meaning in the phrase “direct physical loss,” the policyholders contended, saying that its plain meaning would include the loss of a building’s use, and not necessarily require any structural alterations.

The insurer chose to forego a textual analysis of the phrase in favor of trotting out a “scorecard of judicial decision wins and losses,” the policyholders said in their response to Cincinnati’s dismissal bid.

The record store, Craft & Vinyl in Columbus, Ohio, closed its doors in mid-March last year in compliance with Buckeye State restrictions, according to court records. The jeweler, Reeds Jewelers, was also forced to shut down for a time after it was deemed a non-essential business. Both businesses have since reopened as restrictions eased.

The businesses said in their consolidated complaint in February that they planned to produce expert testimony to show that even if alterations were required for coverage, they would still qualify.

“The probability of illness prevents the use of property in no less of a way than, on a rainy day, a crumbling and open roof from the aftermath of a tornado would make the interior space of a business unusable,” the policyholders said at the time.

In their Monday filing, they likened coronavirus particles to particles from dangerous materials like asbestos, lead, and ammonia gas, which would be covered by insurance policies.

The question of whether virus particles cause insurable property damage is currently before the Ohio Supreme Court, which agreed in April to look into the issue on behalf of a district court hearing a suit against Cincinnati brought by an Ohio audiology practice.

U.S. District Judge Benita Y. Pearson had refused to rule on the matter, calling the interpretation of state law “unresolved,” and said she was in need of a ruling from the state supreme court to ensure uniformity across Ohio. High courts in New York, Pennsylvania, and Florida have also been tasked in recent months with COVID-19 coverage questions.

Craft & Vinyl fought an effort made by Cincinnati last year to bring the Ohio Supreme Court into its case, then a standalone suit. The record store said the question of whether the coronavirus caused physical damage wasn’t one of state law. It accused the insurer of trying to secure a favorable ruling before the suit’s consolidation.

The policyholders on Monday, however, said it would be inappropriate to dismiss their case because multiple credible interpretations of the meaning of “direct physical loss or damage” still existed. They added that their interpretation of the phrase should take precedence over Cincinnati’s at this stage in the litigation process, before they get the opportunity to produce more evidence supporting their position.

Counsel for the policyholders declined to comment.

Counsel for Cincinnati did not immediately respond to requests for comment.

Troy Stacy Enterprises, doing business as Craft & Vinyl, is represented by Mark A. DiCello, Kenneth P. Abbarno, Mark Abramowitz, Adam J. Levitt, Amy E. Keller, Daniel R. Ferri, Mark Hamill and Laura E. Reasons of DiCello Levitt Gutzler LLC, Mark Lanier, Alex Brown and Skip McBride of the Lanier Law Firm PC, and Timothy W. Burns, Jeff J. Bowen, Jesse J. Bair and Freya K. Bowen of Burns Bowen Bair LLP.

Reeds Jewelers of Niagara Falls Inc. is represented by William R.H. Merrill, Burton S. DeWitt, Seth Ard, Marc M. Seltzer, Steven Sklaver and Jesse-Justin Cuevas of Susman Godfrey LLP, John Scott Black, Richard D. Daly and Melissa Wooden Wray of Daly & Black PC, and by Randolph H. Freking of Freking Myers & Reul LLC.

Cincinnati Insurance Co. is represented by Michael K. Farrell, Rodger L. Eckelberry and Carrie Dettmer Slye of BakerHostetler, and by Daniel G. Litchfield, Michael P. Baniak and Laurence J. Tooth of Litchfield Cavo LLP.

The case is Troy Stacy Enterprises Inc. et al. v. The Cincinnati Insurance Company et al., case number 1:20-cv-312, in the U.S. District Court for the Southern District of Ohio.

https://www.law360.com/articles/1381329/retailers-fight-for-coverage-in-ohio-covid-class-action?te_pk=1e88773e-2fa5-4d72-b6e7-d21c624f04f5&utm_source=user-alerts&utm_medium=email&utm_campaign=tracked-entity-alert

Celeste Bott | March 24, 2021

Society Insurance Co. asked an Illinois federal judge Tuesday to allow it to immediately appeal his February refusal to dismiss policyholders’ claims for COVID-19 business interruption losses, saying the question of whether a loss of use of property constitutes a “direct physical loss” is a pressing legal question that warrants quick appellate review.

Ruling in three bellwether cases in multidistrict litigation over the insurer’s widespread denial of pandemic-related coverage, U.S. District Judge Edmond E. Chang last month allowed a slew of restaurants, bars and theaters to pursue claims that Society wrongfully denied them coverage, but his decision on “direct physical loss” is a minority position, increasing the likelihood that it won’t stand on appeal, the insurer argues.

The majority of courts applying Illinois law have found that a loss of use or function of property does not constitute a direct physical loss “of” or “to” that property, Society said. And of 69 dispositive motions filed by insurers in COVID-19 business interruption lawsuits involving policies that do not contain a virus exclusion, 58 insurer motions have been granted and only 11, including the three decisions issued by Judge Change, have been denied, it said.

“Clearly, there is a substantial ground for difference of opinion, as well as a substantial likelihood that the question will ultimately be resolved in a manner that is inconsistent with this court’s ruling,” Society said in its bid for interlocutory appeal.

Should the Seventh Circuit reverse, the plaintiffs would need to show they suffered a “direct physical loss of or damage to covered property” through different means, changing the scope of discovery and increasing the chances of resolving the litigation prior to trial, the insurer said.

And resolving whether “direct physical loss of” covered property encompasses a loss of use would materially advance the litigation, Society said. Letting the appellate court address the matter now, before too much time and money has been spent, would be more efficient, the insurer said.

“A reversal of this court’s order will either end the litigation or, at a minimum, significantly limit the number of plaintiffs whose claims will go to trial and the scope of any discovery and damages,” Society said. “Finally, even if the Seventh Circuit affirms this court’s opinion, it will provide the parties a much clearer picture of the value of the case.”

Judge Chang had selected dismissal or summary judgment motions filed by Society in the three cases to serve as bellwethers to address critical policy interpretation issues common to most of the 40-plus cases that have been folded into the MDL, which was formed by the Judicial Panel on Multidistrict Litigation in October.

Two of the bellwether cases were brought in Illinois federal court: one by a group of Chicago-area bars, theaters and restaurants dubbed the “Big Onion plaintiffs,” and the other by an eatery in Glenview, Illinois, called Valley Lodge. The third was filed in Wisconsin federal court by a group of bars and restaurants known as the “Rising Dough plaintiffs,” located in Wisconsin, Minnesota and Tennessee.

One key COVID-19 coverage question that has split courts across the country is whether a policyholder’s inability to fully operate its business due to pandemic-related restrictions satisfies the threshold requirement that lost business income result from a suspension of operations caused by “direct physical loss of or damage to” property.

Society argued this phrase requires a tangible alteration to physical property, which, according to the insurer, has not occurred at any of the policyholders’ premises due to the novel coronavirus or the various government stay-at-home orders.

But Judge Chang was unconvinced, finding the policy wording indicates that “loss” is distinct from “damage.” And it is possible the policyholders could convince a jury that their inability to use all or part of their properties is indeed a covered physical loss, the judge said.

Accordingly, the judge allowed the plaintiffs in all three bellwether cases to proceed with their claims for coverage under the lost business income prongs of their policies. He also permitted the Big Onion plaintiffs and Valley Lodge to press their allegations that Society denied their insurance claims in bad faith, rebuffing the insurer’s assertion that no bad faith can possibly exist here because there is still a “bona fide” dispute over whether the policyholders are entitled to coverage.

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

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

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

https://www.law360.com/articles/1368456/insurer-asks-to-immediately-appeal-covid-19-mdl-ruling?te_pk=1e88773e-2fa5-4d72-b6e7-d21c624f04f5&utm_source=user-alerts&utm_medium=email&utm_campaign=tracked-entity-alert

U.S. District Judge Edmond E. Chang refused to dismiss the claims for lost business income coverage asserted by several dozen Society policyholders in the three suits, while throwing out the policyholders’ bids for coverage under a number of other policy provisions.

Judge Chang had selected dismissal or summary judgment motions filed by Society in the three cases to serve as bellwethers to address critical policy interpretation issues common to most of the 40-plus cases that have been folded into the MDL, which was formed by the Judicial Panel on Multidistrict Litigation in October.

Two of the bellwether cases were brought in Illinois federal court: one by a group of Chicago-area bars, theaters and restaurants dubbed the “Big Onion plaintiffs,” and the other by an eatery in Glenview, Illinois, called Valley Lodge. The third was filed in Wisconsin federal court by a group of bars and restaurants known as the “Rising Dough plaintiffs,” located in Wisconsin, Minnesota and Tennessee.

One key COVID-19 coverage question that has split courts across the country is whether a policyholder’s inability to fully operate its business due to pandemic-related restrictions satisfies the threshold requirement that lost business income result from a suspension of operations caused by “direct physical loss of or damage to” property.

Society argued this phrase requires a tangible alteration to physical property, which, according to the insurer, has not occurred at any of the policyholders’ premises due to the novel coronavirus or the various government stay-at-home orders. But Judge Chang was unconvinced, finding the policy wording indicates that “loss” is distinct from “damage.” And it is possible the policyholders could convince a jury that their inability to use all or part of their properties is indeed a covered physical loss, the judge said.

“According to Society, these losses are not ‘physical’ because tables and chairs, walls and floors, stovetops and sinks remain in good working order; indeed, the plaintiffs have been able to use the premises to conduct some amount of business,” Judge Chang wrote. “But a reasonable jury can find that the plaintiffs did suffer a direct ‘physical’ loss of property on their premises.”

Accordingly, the judge allowed the plaintiffs in all three bellwether cases to proceed with their claims for coverage under the lost business income prongs of their policies. He also permitted the Big Onion plaintiffs and Valley Lodge to press their allegations that Society denied their insurance claims in bad faith, rebuffing the insurer’s assertion that no bad faith can possibly exist here because there is still a “bona fide” dispute over whether the policyholders are entitled to coverage.

“Here, it might very well be that, ultimately, no reasonable jury could help but find that there is a bona fide dispute over coverage,” Judge Chang found. “But no discovery has taken place and the case is, for purposes of this issue, at the pleading stage.”

The district judge did, however, dismiss the policyholders’ bids for coverage under an array of other policy clauses, including “civil authority” and contamination provisions invoked by the Big Onion plaintiffs and Valley Lodge and a “sue-and-labor” clause cited by the Rising Dough plaintiffs.

The civil authority coverage in the Society policies applies if the policyholder is unable to access its premises due to a government order issued in response to loss or damage to a nearby property, according to court documents. The Big Onion plaintiffs and Valley Lodge have argued the state and local stay-at-home orders in Illinois constituted civil authority actions under this provision.

But Judge Chang said that, even if that is the case, those plaintiffs still cannot tap into the civil authority coverage because they have not alleged the stay-at-home orders barred them from accessing their properties.

“The civil authority coverage is not triggered by mere ‘loss of’ property; there must be ‘prohibited’ access,” the judge wrote.

The contamination provision, meanwhile, extends coverage for a policyholder’s lost business income and cleaning costs if it is forced to suspend operations due to contamination to “premises, machinery, or equipment.” Here, Judge Chang said, neither the Big Onion plaintiffs nor Valley Lodge made a “particularized factual argument that one or more of them has been closed due to actual COVID-19 contamination.”

As for the sue-and-labor clause invoked by the Rising Dough plaintiffs — which states the policyholder must take “all reasonable steps to protect the covered property from further damage, and keep a record of … expenses necessary to protect the covered property” — Judge Chang found it does not provide a separate grant of coverage, but rather “sets forth what the insured must do if there is coverage.”

“Nothing about the clause sets forth a duty to pay on Society’s part,” he wrote.

Judge Chang set the next status hearing in the MDL for March 9, to “give the parties time to confer over the proposed next steps of the case, including an efficient and speedy discovery schedule.”

Society spokeswoman Rebecca Kollmann told Law360 in an email that the order “correctly found no coverage under the civil authority, contamination and sue & labor provisions” but added that the insurer is “disappointed that the court allowed the claims for business-interruption coverage to survive early motions to dismiss and for summary judgment.”

“The company is exploring its options,” she said. “This is an early, preliminary ruling, and does not resolve the merits. Society will continue to vigorously defend its interests in the litigation.”

W. Mark Lanier of The Lanier Law Firm PC, who serves as co-lead counsel for the policyholder plaintiffs, said in an email that “Judge Chang’s well-reasoned opinion sustains critical causes of action that should drive insurance companies to resolve these cases.”

“He also indicates judicial concerns that the cases move forward rapidly, which is vital to our clients’ survival,” Lanier said.

Adam J. Levitt of DiCello Levitt Gutzler LLC, who is also one of the plaintiffs’ co-lead counsel, added that the ruling is significant both because it is the first decision on dispositive motions in the Society MDL and because it could prove influential in other business interruption cases.

“Judge Chang’s comprehensive and well-reasoned analysis of each of the critical issues will not only facilitate the efficient progress of the Society MDL toward trial, but it should also assist judges across the United States who are presently dealing with similar issues,” he said. “Indeed, we believe that Judge Chang’s ruling should give any other judge pause before dismissing a COVID-19 [business interruption] case on the ‘direct physical loss or damage’ issue.”

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

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

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

–Editing by Marygrace Murphy

https://www.law360.com/articles/1357868/society-insurance-must-face-covid-19-loss-claims-in-mdl

Tim has been appointed Interim Co-Lead Counsel in the consolidated class litigation relating to COVID-19 business interruption losses captioned:  Troy Stacy Enterprises Inc. v. The Cincinnati Ins. Co. (S.D. Ohio).  0057 – ORDER CONSOLIDATING CASES AND APPOINTING INTERIM CO-LEAD COUNSEL- Swearingen Smiles LLC et al. v.Th – Troy Stacy Enterprises Inc. v. The Cincinnati Insurance Company – ohsd – 1-2020-cv-00312

 

“The four firms here also have experience litigating class actions and knowledge of the applicable law. Adam Levitt and DLG were recently appointed interim co-lead counsel in a similar action. See The K’s Inc. v. Westchester Surplus Lines Ins. Co., No. 1:20-cv-01724-WMR, Dkt. Nos. 56-57 (N.D. Ga. Oct. 5, 2020). Susman Godfrey has served as interim class counsel in large insurance litigation before. E.g., 37 Besen Parkway, LLC v. John Hancock Life Ins. Co. (U.S.A.), No. 15-cv-9924, Doc No. 26 (S.D.N.Y. May 2, 2016). The legal teams at the Lanier Law Firm and Burns Bowen Bair LLP also have extensive experience in complex litigation, including insurance litigation.”

Tim has been appointed Co-Lead Counsel in In Re:  Society Ins. Co. COVID-19 Business Interruption Protection LitigaCo-Lead Ordertion (N.D. Ill.).  Co-Lead Order

“They bring the right mix of expertise in the pertinent area of law, leadership experience in other MDLs or class actions, and representativeness of different perspectives (both substantively in Illinois and non-Illinois cases and strategically in factual development and in considering the pluses and minuses of mass actions versus class actions).”

By Jeff Bowen

The Biometric Information Privacy Act (BIPA), a 2008 Illinois law governing the collection, maintenance and disclosure of biometric data, has generated thorny jurisdictional issues for years.  The statue places limitations on the collection and use of such data, mandates public disclosure of a plan governing the scope of use, and requires written consent from individuals whose data is obtained.  BIPA also provides a private right of action for persons aggrieved by violation of those requirements.  Under the 2016 Supreme Court case Spokeo v. Robins, 136 S. Ct. 1540 (2016), the harm alleged under a data privacy statute like this must be both concrete and particularized in order to give rise to standing in federal court.  District courts applying Spokeo to BIPA claims have reached quite different results, with some allowing the claims to proceed and others remanding to state court or dismissing the claims outright.  Earlier this year, the Seventh Circuit provided significant guidance as to the type of BIPA claims that may trigger federal jurisdiction, with individualized informational injury potentially meeting the standing threshold but violation of general disclosure requirements falling short.  Bryant v. Compass Group USA, Inc., 958 F.3d 617 (7th Cir. 2020).  The Bryant decision provides important information for both defense counsel and plaintiffs, though several other issues remain in play, such as the scope of preemption under statutes governing collective bargaining agreements and the availability of insurance coverage.

BIPA and Early Federal Court Decisions

BIPA subjects companies to potential liability for collecting, maintaining, or disclosing the biometric information of individuals without certain required disclosures and written consent.  740 Ill. Comp. Stat. § 14/1 et seq. (2008).  “Biometric identifier” includes a “retina or iris scan, fingerprint, voiceprint, or scan of hand or face geometry,” while “biometric information” includes any information based on a biometric identifier that is used to identify an individual.  Id. § 10. The Act requires publication of a retention schedule and guidelines for “permanently destroying biometric identifiers and biometric information.” Id. § 15(a).  BIPA also prohibits the collection or receipt of biometric information without informing the subject of such collection and its purpose and then obtaining written consent.  Id. § 15(b) Other provisions address the sale, disclosure, and retention of biometric information.  Some BIPA claims involve biometric data collected from customers, such as through ticket sales or vending machines.  Other cases involve claims brought by employees, whose employers use biometric data to track working hours or restrict access to certain hazardous or sensitive materials.

The Illinois supreme court has held that individuals who have suffered no injury beyond the violation of statutory rights under BIPA may still present a claim. Rosenbach v. Six Flags Ent. Corp., 129 N.E.3d 1197 (Ill. 2019).  In Rosenbach, the claimant’s 14-year-old son had provided fingerprint data in order to obtain a season pass to the amusement park.  She alleged that she had not received any information about the collection of his fingerprints, nor had she provided written consent, and she sued on behalf of a purported class of similarly situated park attendees.  The defendants argued that she had alleged no actual or threatened injury, but the court held that violation of BIPA obligations “constitutes an invasion, impairment, or denial of the statutory rights of any person or customer whose biometric identifier or biometric information is subject to the breach.”  Id. at 1206. Because such a person is “aggrieved” within the meaning of the provision creating a private right of action, she is “entitled to seek recovery” without pleading any additional consequences. Id.

The availability of this private right of action gives rise to important standing questions in federal court, even when parties have satisfied other diversity requirements.  Under Spokeo v. Robins, 136 S. Ct. 1540 (2016), claimants must allege an injury in fact that is both concrete and particularized in order to satisfy standing requirements.  In that case, the Ninth Circuit had held that a search engine’s alleged publication of inaccurate information about the plaintiff in violation of the Fair Credit Reporting Act was sufficiently individualized to confer standing, but the Supreme Court reversed, remanding the case for determination of whether the injury was also sufficiently concrete.  Id. at 1548-49.  The Court stressed that the alleged injury need not be tangible in order to be concrete, but nor could it be a bare procedural violation.  In the wake of Spokeo, violations of purely statutory rights may give rise to justiciable claims in state court, but federal jurisdiction requires specific allegations of concrete and particularized harm to the individual claimant.

Courts must therefore decide whether alleged violations of BIPA satisfy the Spokeo standard, and decisions rendered over the past several years reflect a variety of conclusions.  Several district courts recognized allegations of concrete and particularized harm.  One court found standing based on the sale of human resources software that collected and stored biometric data on employees without disclosure or consent.  Figueroa v. Kronos Inc., 2020 WL 1848206 (N.D. Ill. Apr. 13, 2020).  Another found standing based on the requirement that truck drivers provide fingerprint data in order to gain access to freight at railway terminals, which was obtained and disseminated without consent.  Rogers v. CSX Intermodal Terminals, 409 F. Supp. 3d 612 (N.D. Ill. 2019).  See also Namuwonge v. Kronos, Inc., 418 F.Supp.3d 279 (N.D. Ill. 2019) (finding standing under BIPA § 15(a) for failure to publish a data retention schedule but dismissing other claims for insufficiency of allegations).

By contrast, another court held that alleged anxiety over whether an employer would ever delete biometric information did not confer standing due to the absence of alleged concrete harm.  McGinnis v. U.S. Cold Storage, Inc., 382 F.Supp.3d 813 (N.D. Ill. 2019).  In Aguilar v. Rexnord, No. 17 CV 9019, 2018 WL 3239715 (N.D. Ill. July 3, 2018), the court found that employees forced to clock in through fingerprints obtained without written consent had failed to allege the necessary concrete injury.  Similarly, the creation and retention of unique face templates did not in themselves cause the concrete injury required to establish standing.  Rivera v. Google, Inc., 366 F. Supp. 3d 998 (N.D. Ill. 2018).  See also Heard v. Becton, Dickinson & Co., 440 F. Supp. 3d 960 (N.D. Ill. 2020) (finding insufficient allegations of control by defendant over collected data); Colon v. Dynacast, 2019 WL 5536834 (N.D. Ill. Oct. 17, 2019) (finding lack of standing given absence of allegations that data had been collected without knowledge of the subjects).

At the circuit court level, the Seventh Circuit agreed that union airline workers had satisfied standing requirements based on an obligation to clock in and out with biometric data.  Miller v. Southwest Airlines Co., 926 F.3d 898 (7th Cir. 2019).  The court noted that the need to bargain over employee consent or over the means of tracking time might affect the conditions of employment and that the employees had also alleged a heightened risk of disclosure. The Ninth Circuit also held that the use of facial-recognition technology by Facebook without informed consent satisfied standing requirements because plaintiffs alleged invasion of privacy.  Patel v. Facebook, Inc., 932 F.3d 1264 (9th Cir. 2019).  The Second Circuit, by contrast, held that the video game player plaintiff had effectively consented to the collection of his biometric data by permitting a lengthy scan of his face and proceeding with the creation of a game avatar. Santana v. Take-Two Interactive Software, Inc., 717 F. App’x 12 (2d Cir. 2017).

Bryant v. Compass Group

The Seventh Circuit attempted to synthesize these decisions and provide guidance on jurisdictional concerns in Bryant v. Compass Group USA, Inc., 958 F.3d 617 (7th Cir. 2020).  Bryant used a vending machine in her company break room that required each employee to provide a fingerprint, which was then linked to a payment account set up by that employee.  Id. at 619.  Bryant alleged that her employer instructed employees to provide a fingerprint, and she did so.  She generally understood why her biometric data was being collected but alleged that the lack of disclosure by the machine operator prohibited her from giving informed written consent.  She sued on behalf of a class of similarly situated people, alleging violation of BIPA §15(a) for failure to provide a public schedule of data retention and guidelines and violation of §15(b) for failure to inform her about the collection, use, and storage of her data and failure to obtain her written consent. Bryant filed in state court, but the defendant removed to federal court under the Class Action Fairness Act.  Bryant sought remand to state court, leaving the defendant to argue that the claimant had standing to pursue her claims in federal court.  The panel ultimately concluded that Bryant lacked standing to bring her §15(a) claim but held that she could proceed with her §15(b) claim.

The Bryant panel distinguished between the vindication of public rights and redress for violation of the private rights of an individual plaintiff, relying in part on the Spokeo concurrence penned by Justice Thomas.  While the §15(a) obligation was owed to the public generally, the court had “no trouble concluding that Bryant was asserting a violation of her own rights—her fingerprints, her private information” under §15(b) and that this was “enough to show injury-in-fact without further tangible consequences.”  Id. at 624.  After all, she had alleged invasion of her “private domain,” similar in many ways to an act of trespass.

The court further noted that the alleged inability to give informed written consent satisfied Seventh Circuit case law on standing for informational injury, which requires that the failure to disclose information impairs the “ability to use the information in a way the statute envisioned.”  Id.  Thus, in Groshek v. Time Warner Cable, 865 F.3d 884, (7th Cir. 2018), the plaintiff did not allege concrete injury because he merely received the required information in a larger document, rather than in a stand-alone disclosure, whereas in Robertson v. Allied Solutions, LLC, 902 F.3d 690 (7th Cir. 2018), the plaintiff alleged concrete injury because the failure to provide her with a copy of her background report meant she could not challenge the recission of her employment offer.  In Bryant, too, the failure to provide substantive information about the use and storage of her personal data meant that Bryant could not give the informed consent required by the statute.

In the wake of Bryant, district courts have found no standing for similar general disclosure claims but potential standing for failure to provide information necessary for informed consent. In Cothron v. White Castle System, No. 19 CV 00382, 2020 WL 3250706 (N.D. Ill. June 16, 2020), the plaintiff alleged that White Castle required her to provide a fingerprint in order to access the computer system.  Citing Bryant, the court permitted the claims under §§15(b) & (d) to proceed because they alleged failure to provide the information necessary to permit informed consent. In Kloss v. Acuant, Inc., No. 19 C 6353, 2020 WL 2571901 (N.D. Ill. May 21, 2020), the court remanded § 15(a) claims for lack of standing in light of Bryant and dismissed other claims for failure to allege sufficient facts in support.

Other BIPA Jurisdictional Issues

Bryant resolved many significant jurisdictional questions, but BIPA, of course, will likely continue to generate substantial litigation.  Although Bryant set forth the type of claims that may give rise to standing in federal court, allegations of an individual informational injury do not guarantee federal jurisdiction.  For example, employees subject to collective bargaining agreements governed by state or federal statutes may need to bring their claims before an adjustment board or similar entity.  Even though the employees in Miller v. Southwest Airlines, 926 F.3d 898 (7th Cir. 2019), alleged sufficient concrete and particularized harm to confer standing, the Railway Labor Act required their claims to be heard by an adjustment board.  Moreover, the scope of claims that must be submitted to such an entity continues to generate litigation.  One court found that that § 301 of the Labor Management Relations Act preempted BIPA claims arising after the collective bargaining agreement governing the plaintiff’s employment went into effect but permitted the plaintiff to proceed with claims relating to alleged violations prior to that date.  Peatry v. Bimbo Bakeries USA, Inc., 2020 WL 919202 (N.D. Ill. Feb. 26, 2020).  See also Darty v. Columbia Rehabilitation and Nursing Ctr., 2020 WL 3447779 N.D. Ill. June 24, 2020) (agreeing that the LMRA preempted BIPA claims but noting that the named plaintiff was not herself a member of the union, thus requiring remand to state court).  Another court found that the Illinois Worker Compensation Act only preempted accidental claims, thereby permitting an assembly worker’s BIPA claims against the manufacturer to proceed. Treadwell v. Power Solutions Intl., 427 F.Supp.3d 984 (N.D. Ill. 2019).

Similarly, the Bryant decision does not preclude enforcement of valid arbitration clauses, and plaintiffs whose claims fall within the scope of an employment arbitration agreement may need to arbitrate those claims. In Crooms v. Southwest Airlines Co., — F.Supp.3d —-2020 WL 2404878 (N.D. Ill. May 12, 2020), for example, the court held that all of the plaintiff ramp agents and supervisors were subject to arbitration of their claims under their employment agreement.  Three of the plaintiffs, however, needed to bring their claims before the Railway Labor Board, as the Railway Labor Act preempted immediate arbitration of those claims.

Another lingering issue involves the location of the injury and any potential extraterritorial application of the statute. Thus, the maker of a cloud-based point-of-sale system that allowed restaurants and other businesses to track employee time through a biometric finger scanner challenged the extraterritorial application of the statute.  Neals v. PAR Technology Corp., 419 F.Supp.3d 1088 (N.D. Ill. Dec. 18, 2019).  The district court rejected the extraterritoriality claim but noted the absence of allegations that the plaintiff restaurant was located in Illinois. The court therefore dismissed the complaint but with leave to amend.

Insurance Coverage For BIPA Claims

Finally, given the number of BIPA claims in recent years, potential insurance coverage for those claims has also become an issue. Depending on the nature of the claims, companies facing exposure under BIPA may turn to several different types of insurance coverage. Cyber policies may respond to a claim based on the unauthorized collection or release of biometric data, depending on the policy definitions of data and the presence of employment related exclusions.  General liability policies might cover BIPA claims under the “personal and advertising injury” coverage, though any exclusions related to loss of data or to statutory violations could come into play.  Employment practices liability policies could respond to claims brought by employees, though, again, potential exclusions would need to be considered.

Some of these insurance claims have already appeared in federal litigation, though very few decisions have been rendered.  In 2018, Zurich filed a declaratory judgment action after its policyholder was sued in Illinois for allegedly using fingerprint data to regulate access to stored medications. Zurich Am. Ins. Co. v. Omnicell, No. 3:18-cv-05345, 2018 WL 4198057 (Compl.) (N.D. Cal. Aug. 30, 2018).  The insurer pointed to exclusions in its general liability policy for statutory violations, but no decision was reached because the case was stayed pending resolution of the underlying matter.  Zurich Am. Ins. Co. v. Omnicell, No. 3:18-cv-05345, 2019 WL 570760 (N.D. Cal. Feb. 12, 2019).  In another recent case, the issuer of a multi-peril policy filed a declaratory judgment action in Illinois federal court, arguing that its employment practices policy excluded liability for violations of law, and that the other coverage forms issued, including general liability and professional liability, all contained exclusions for injuries to employees. Church Mut. Ins. Co. v. Triad Senior Living Inc., Case No. 1:19-cv-07599 (Compl.) (N.D. Ill. Nov. 18, 2019).  The case was voluntarily dismissed without prejudice before any decision was entered.  Finally, another insurer recently filed a declaratory judgment action arguing that its general liability policy excluded employment practices involving the collection and use of data.  Am. Family Mut. Ins. Co. S.I. v. Schmitt South Eola LLC, No. 1:20-cv-01872 (compl.) (N.D. Ill. Mar. 19, 2020) The underlying case alleged that a MacDonald’s restaurant violated BIPA by requiring employees to scan their fingerprints and then sharing that biometric data within the nationwide McDonald’s computer system.

Outside of federal court, one Illinois court held that an insurer had a duty to defend a BIPA claim under a general liability policy. West Bend Mut. Ins. Co. v. Krishna Schaumburg Tan Inc., No. 1-19-1834, 2020 IL App (1st) 191834, 2020 WL 1330494 (Ill. App. Mar. 13, 2020) (unpub).  The underlying case alleged that the defendant required customers to provide fingerprint data along with membership and then automatically entered that data in a national L.A. Tan database. The court concluded that publication to one third-party vendor was sufficient to constitute “publication” under the policy, thus triggering potential coverage under the advertising and personally liability coverage.  Id at ¶¶ 34-37.  The court also held that an exclusion for statutory violations did not apply to BIPA claims because it was limited to statutes governing certain methods of communication.  Id. at ¶¶42-43.  Although this decision was rendered in an Illinois appellate court, federal practitioners can expect the body of case law relating to insurance coverage for BIPA claims to continue to expand.

 

https://cdn.ymaws.com/www.7thcircuitbar.org/resource/resmgr/circuit_rider/cr_vol_28.pdf

 

In a response filed Monday, Caribe Restaurant & Nightclub Inc. took aim at Topa Insurance Co.’s bid to dismiss the suit, saying the insurer is misinterpreting the “physical loss of or damage” clause in the policy to require a structural alteration when no such requirement is in its language.

“Although the words are ordinary, the impact of any decision on the merits by this court will be extraordinary,” the restaurant told the court.

According to the brief, the plain meaning of the words “direct physical loss of or damage” supports coverage, as courts have taken “loss” to include loss of use even when the property did not suffer structural alteration.

The word “physical,” the restaurant argued, only aims to exclude tangential damages like depreciation in value, but should include things like loss of use.

Caribe’s suit is one of six class actions launched by attorneys from DiCello Levitt Gutzler LLC, the Lanier Law Firm PC, Burns Bowen Bair LLP and Daniels & Tredennick in April, with Caribe alleging like the others that it paid premiums to its insurer for business interruption insurance for situations in which it could be forced to close through no fault of its own, but its claim has been denied.

In Monday’s brief, the restaurant further argued that even if structural alteration was needed, the COVID-19 pandemic satisfies that requirement because Caribe pled that it is infested with a harmful agent and that the virus diminished its space and ability to use the property.

The restaurant cited another case, in the Northern District of California, that found that E. coli in a restaurant’s well constituted direct physical damage, saying that COVID-19 likewise should be found to cause physical damage.

In addition, courts have found that losing habitability or functionality constitutes physical loss, the restaurant said, referring to one case in which a nightclub owner got coverage because the club could no longer operate after losing its license following a shooting.

The restaurant also pointed to several recent decisions supporting businesses seeking COVID-19 coverage, including cases in Missouri and Florida in the past two months in which judges found that policy language regarding physical loss did not bar coverage.

The restaurant said various civil orders causing shutdowns bolster its argument, as they make clear that COVID-19 causes direct physical loss, with some containing language saying the virus “is physically causing property damage.”

And because the virus is causing that property damage to other businesses around Caribe, the restaurant argued, the civil authority coverage is likewise valid, adding that the policy does not require that Caribe’s business be entirely stopped.

Caribe also urged the court to find it can be reimbursed by Topa for any expenses it paid trying to mitigate its losses from the virus, as those are covered under the policy as well.

Finally, the restaurant took aim at the two exclusions Topa cited, saying that the “Nuclear, Biological, Bio-Chemical and Radiation Exclusion” is intended for intentional acts, not the natural spread of a virus, and the “Ordinance or Law” exclusion doesn’t apply because that’s exclusively concerned with compliance with building and land use codes.

An attorney for Topa said the insurer plans to file its reply, but otherwise declined to comment.

Representatives for Caribe could not immediately be reached for comment Tuesday.

Caribe is represented by C. Moze Cowper and Noel E. Garcia of Cowper Law LLP, Adam J. Levitt, Daniel R. Ferri, Mark Hamill, Mark A. DiCello, Kenneth P. Abbarno and Mark Abramowitz of DiCello Levitt Gutzler LLC, Timothy Burns, Jeff Bowen, Freya Bowen and Jesse Bair of Burns Bowen Bair LLP, Mark Lanier and Alex Brown of the Lanier Law Firm PC and Douglas Daniels of Daniels & Tredennick.

Topa is represented by Gordon A. Greenberg, Jason D. Strabo, Margaret H. Warner and Joshua B. Simon of McDermott Will & Emery LLP.

The case is Caribe Restaurant & Nightclub Inc. v. Topa Insurance Company, case number 2:20-cv-03570, in the U.S. District Court for the Central District of California.

–Additional reporting by Jeff Sistrunk. Editing by Amy Rowe.

https://www.law360.com/articles/1314849/la-nightclub-says-virus-triggers-physical-loss-insurance?te_pk=35c33428-8176-42bd-a2c9-eabaadc779c8&utm_source=user-alerts&utm_medium=email&utm_campaign=tracked-entity-alert

Dorothy Atkins | August 14, 2020

A steakhouse chain with more than 50 restaurants around the country has hit Zurich American Insurance Co. with a lawsuit in Illinois state court, alleging the Swiss insurance giant broke their contract by refusing to cover business losses caused by the pandemic, even though the chain paid for premium coverage.

In a 23-page complaint filed Aug. 12, Firebirds International LLC argued that the coronavirus poses an “imminent threat” to each of its 54 “Wood Fired Grill” restaurants, and since the spring, state-mandated closures have ravaged its business.

The Charlotte, North Carolina-based company said it paid the insurer premiums for $146 million per occurrence coverage for property damage and business interruption losses. And yet, Zurich has refused to reimburse the company “a single dollar” for its recent losses, in clear breach of their contract, according to the suit.

“There is no ‘contamination’ or ‘virus’ exclusion within this portion of the policies that could possibly exempt Zurich from providing Firebirds full payment thereunder,” the complaint says.

The provisions at issue cover business income losses, or “time element” coverage, including gross earning losses. They also cover losses caused by property damage and restricted access to property, including “loss of access caused by an order issued by a civil authority,” as well as any costs incurred in order to temporarily protect and preserve the insured property, the complaint says.

The six-count complaint asserts multiple breach of contract claims and asks the court to declare that its losses fall under multiple policy provisions.

Firebirds’ counsel, Jeffrey P. Goodman of Saltz Mongeluzzi & Bendesky PC, told Law360 on Friday that the company has been denied insurance coverage, “like so many other businesses,” even though his client paid a premium for an “all risk” policy that did not include any virus exclusions.

“It’s disappointing, but at the end of the day the Zurich policy here covering Firebirds is a very strong policy for the business owner,” Goodman said. “They clearly paid for certain protections with the understanding that Zurich would satisfy [the contract]. That’s the very reason we have insurance.”

Firebirds’ lawsuit is one of several that have been filed against insurers by restaurant chains, movie theaters, shopping malls, hair salons and other hospitality businesses that have been forced to close their doors since March due to state-mandated closures that aim to slow the spread of COVID-19.

The businesses generally claim that the insurers wrongfully denied them coverage for their losses, and the disputes have shed new light on the importance of various insurance policy terms and exclusions, including provisions that exclude coverage for losses due to contamination by viruses and bacteria.

Many of the lawsuits playing out in courts have also hinged on whether a virus can cause a “physical loss” to property, and so far, courts have appeared to lean in favor of the insurance companies on the matter. Earlier this month, a D.C. judge ruled that government shutdown orders don’t constitute a “direct physical loss” that triggers the policy.

The ruling followed a decision in July by a Michigan state judge who dismissed Gavrilides Management Co. LLC’s suit seeking $650,000 from Michigan Insurance Co. for losses it suffered after Gov. Gretchen Whitmer issued executive orders that limited its two restaurants to takeout and delivery orders.

At a hearing in the Judicial Panel on Multidistrict Litigation to determine whether to roll such suits into an MDL, attorneys called “direct physical loss or damage” the “five simple words” that were a common thread throughout the suits.

Representatives for Zurich didn’t immediately respond Friday to a request for comment.

Firebirds is represented by Adam J. Levitt, Amy E. Keller, Daniel R. Ferri, Mark Hamill, Laura E. Reasons, Kenneth P. Abbarno, Mark A. DiCello and Mark Abramowitz of DiCello Levitt Gutzler LLC; Robert J. Mongeluzzi, Jeffrey P. Goodman, Marni S. Berger and Samuel B. Dordick of Saltz Mongeluzzi & Bendesky PC; Mark Lanier, Alex Brown and Skip McBride of The Lanier Law Firm PC; Timothy W. Burns, Jeff J. Bowen, Jesse J. Bair and Freya K. Bowen of Burns Bowen Bair LLP; and Douglas Daniels of Daniels & Tredennick LLP.

Counsel information for Zurich American Insurance wasn’t immediately available Friday.

The lawsuit is Firebirds International LLC v. Zurich American Insurance Co., case number 2020CH05360, in the Circuit Court of Cook County, Illinois, County Department, Chancery Division.

–Additional reporting by Mike Curley.  Editing by Alyssa Miller.

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