Daphne Zhang | Law360 (August 24, 2021)
Society Insurance Co. has urged an Illinois federal judge to nix all bad faith claims against it in pandemic business-interruption multidistrict litigation, saying it never issued a blanket coverage denial over COVID-19 losses.
The carrier asked U.S. District Judge Edmond E. Chang on Monday to dismiss the bad faith claims asserted under Iowa, Indiana, Minnesota, Tennessee and Wisconsin law. Society said it did not act in bad faith by issuing widespread denials, and that each coverage decision was based on the specifics of individual claims.
The policyholders have said Society wrongfully refused to honor its coverage obligation by denying their coronavirus-related loss claims. The insureds argued that the carrier issued “wholesale, cursory coverage denials,” and that Society’s CEO Rick Parks misrepresented coverage and discouraged them from filing insurance claims.
Judge Chang in February refused to dismiss the claims for lost business income coverage asserted by several dozen Society policyholders in three lawsuits. The judge had selected dismissal or summary judgment motions filed by Society in the three cases to serve as bellwethers for addressing critical policy interpretation issues common to most of the 40-plus cases that have been folded into the MDL, which the Judicial Panel on Multidistrict Litigation formed in October 2020.
Two of the bellwether cases were filed 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 in Wisconsin, Minnesota and Tennessee, known as the “Rising Dough plaintiffs.”
In February, the Big Onion plaintiffs and Valley Lodge were also permitted to proceed with allegations that Society denied their insurance claims in bad faith.
“Society denied coverage based on the policy terms and whatever individual facts they provided in submitting their claims,” the insurer countered Monday. “Society did not deny coverage to any policyholder — let alone on a blanket basis to all policyholders — via the Parks Memos.”
According to Society, Parks said in a March 5, 2020, memo that coverage for COVID-19 infections was “unlikely” and that policyholders should be prepared for uninsured loss. The CEO also said the insurer’s coverage decisions will be made based on the specifics of each case. A few days later, after the World Health Organization declared COVID-19 a global pandemic, Parks said policyholders must show direct physical loss or damage to property to get coverage.
In its Monday motion, the insurance company said Parks’ memo provided general information about the pandemic and listed what policyholders should expect without reaching a conclusion that Society would definitely deny all lost business income claims. Although “Parks did explicitly state that COVID-19 exposure ‘is not a Spoilage Covered Cause of Loss,'” he “did not discuss a coverage determination being made by Society specifically,” the carrier said, emphasizing that the CEO’s memo was “not a claim denial, but a description of the insurance system.”
“Mr. Parks’ memos carefully use non-conclusory language and describe general concepts. They are designed to inform, not to dictate individual claim outcomes,” the carrier said.
Counsel for the parties didn’t immediately return phone calls seeking comment Tuesday.
The policyholders are represented by co-lead counsel Shelby S. Guilbert Jr. of McGuireWoods 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.
–Editing by Breda Lund