Business Interruption MDL Declined By Federal Court…For Now
In an order issued on August 12th, the Judicial Panel on Multidistrict Litigation declined the requests from two groups of policyholders to consolidate business interruption insurance coverage disputes arising from the COVID-19 pandemic. In declining to consolidate, the panel found that “the industry-wide centralization requested by movants will not serve the convenience of the parties and witnesses or further the just and efficient conduct of this litigation”. That being said, the panel did not entirely close the door on a more creative MDL proposal.
Insurers unilaterally opposed consolidation. On the other side, the panel noted that not all policyholder groups were in agreement that a centralized MDL was the way to move forward, and various proposals were put forth by various policyholder plaintiffs.
At the heart of such cases is whether contamination from COVID-19, the threat of such contamination, and government orders which shuttered businesses trigger coverage under business interruption provisions of commercial insurance policies. The panel identified three common core questions: (1) do the various government closure orders trigger coverage under the policies; (2) what constitutes “physical loss or damage” to the property; and (3) do any exclusions (particularly those related to viruses) apply. The panel found that these questions had merely “superficial commonality,” which overwhelms any common factual questions. The panel pointed to a number of factors such as the lack of a single common defendant, as well as divergent policies with different coverages, conditions, exclusions and policy language, purchased by a variety of businesses in numerous industries in different states.
In recognizing that time is of the essence for many plaintiffs on the brink of bankruptcy, the panel felt that the creation of an MDL and the time it would take to develop a fair and efficient pretrial structure would ultimately not benefit managerial efficiency. With hundreds of plaintiffs and more than one hundred insurers, and divergent views of the litigation, the panel quipped “to say this litigation would result in a complicated MDL seems an understatement”.
The panel did signal a willingness to the creation of MDLs specific to each insurer or group of insurers, which, in the view of the panel, alleviated some of the differences that instructed against a single, unified forum while providing the possibility of managerial efficiencies. The panel requested further expedited briefing on this idea, which will be heard in the JPML’s next session in September.
Insurers are expected to oppose the idea of insurer-specific MDLs. At oral argument on July 30th, insurers argued that even when one looks exclusively to one insurers, policy language and factual circumstances can widely vary. Given that insurance is regulated on a state level, insurers argue, respecting the distinctions of each state’s jurisprudence as to coverage issues – in particular the three “core” questions ultimately highlighted by the JPML – is better served without an MDL. The most efficient means of resolving these cases is to allow them to remain in their respective forums.
So what comes next? With hundreds of other business interruption suits currently proceeding in state and federal courts seeking class action status, similar questions are likely to arise. In at least one state, Pennsylvania, a court has ordered the consolidation of present and future business interruption claims against Erie Insurance Exchange for coordination before the Allegheny County Court of Common Pleas. In its opposition, Erie had raised arguments similar to those made to the JPML, namely that the different factual circumstances in each case warranted denial. Notably, since the order was issued some policyholder plaintiffs have opposed transfer to the court, citing the very same arguments advanced by insurers. Even in light of this, it is possible that class certifications and consolidation orders begin to emerge before the next hearing of the JPML. If that happens, it is possible that the panel may move in the same direction. Either way, with business interruption coverage cases continuing to rise and more expected in the future, the panel’s ultimate ruling may finally provide some clarity for litigants.