Since COVID-19 struck, state and local governments have attempted to mitigate its spread by, among other things, suspending or restricting business operations.
In the wake of these measures, affected businesses throughout the country have filed lawsuits against their insurers, alleging their insurance policies provide coverage for COVID-19-related business-interruption losses. In April, several businesses called on the Judicial Panel on Multidistrict Litigation to set up multidistrict litigation, or MDL, concentrating all federal COVID-19 business-interruption lawsuits before a single judge. The panel may centralize cases “involving one or more common questions of fact” if centralization would “be for the convenience of parties and witnesses” and “promote the just and efficient conduct of such actions.”
The panel received notice of hundreds of COVID-19 business-interruption lawsuits scattered throughout the country and involving more than one hundred insurers. Although most plaintiffs supported industry-wide centralization, some favored state-based or insurer-specific centralization, and others were opposed to centralization entirely. In contrast, insurers were uniformly opposed to centralization.
Supporters argued the lawsuits shared common questions, namely: (1) whether government orders can trigger coverage?; (2) what constitutes “physical loss of or damage” to property?; and (3) whether any exclusions (such as virus-related exclusions) apply? Supporters further argued centralization would promote efficiency by providing for common discovery and expert testimony. Opponents argued the government orders varied throughout the country, presenting a “patchwork” of regulations that affected different policyholders differently. Additionally, opponents argued that an industry-wide MDL would present significant administrative and efficiency concerns.
In August, the panel rejected an industry-wide MDL, concluding that pending cases “share(d) only a superficial commonality.” The lawsuits involved different policies, different coverage limits, different exclusions, different businesses, and different states. Those differences “overwhelm(ed) any common factual questions.” The panel expressed doubt that one judge could manage proceedings involving hundreds of plaintiffs and more than 100 insurers, calling such a task “an ambitious undertaking for any jurist.” The panel also rejected proposals for regional or state-based MDLs.
However, the panel did not eliminate the possibility of insurer-specific MDLs, stating it required “a better understanding of the factual commonalities and differences among these actions, as well as the efficiencies that may or may not be gained through centralization, before creating an insurer-specific MDL.” The panel ordered five insurers—Certain Underwriters at Lloyd’s, London; Cincinnati Insurance Company; the Hartford; Society Insurance Company; and Travelers—to show cause why the lawsuits against them should not be centralized.
The panel heard oral arguments regarding the five insurer-specific MDLs on September 24. Support for centralization was again concentrated exclusively among plaintiffs, whereas the insurers each opposed centralization. In addition, several plaintiffs again were opposed to centralization.
Supporters argued each insurer uses standard forms and all cases would involve the interpretation of common policy language. Supporters further contended the government orders in each state contain similar language and could be analyzed together efficiently. To the extent there were relevant factual differences among the policyholders, the MDL court could establish separate tracks to manage those differences.
Opponents argued insurer-specific MDLs would present the same issues that made an industry-wide MDL unmanageable. They asserted that potential efficiencies in discovery were overstated because any questions of fact would be largely plaintiff-specific, so there would be little common discovery. Opponents additionally pointed out that dispositive motions had been filed and briefed in many actions, suggesting that individual cases were proceeding toward resolution without the formal structure of an MDL.
On October 2, the panel denied centralization as to the Lloyd’s, Cincinnati, Hartford, and Travelers actions. Although centralization presented a “close question,” the panel concluded that “(e)fficiency here is best obtained outside of an MDL.” Centralization would require (1) establishing a pretrial structure to manage various plaintiffs who were pursuing different theories of liability, and (2) the resolution of threshold policy-interpretation issues involving the laws of many states.
This organizational period would take significant time, whereas the transferor courts could efficiently decide key policy interpretation issues raised in the already filed dispositive motions. Moreover, if plaintiffs’ claims survived those motions, discovery would be “straightforward” because “much of the discovery will be plaintiff- and property-specific.” The panel “impress(ed) upon the courts overseeing these actions the importance of advancing these actions towards resolution as quickly as possible.”
On the other hand, the panel granted centralization for the Society actions. The panel observed that the Society CEO had circulated a memorandum concluding that there was likely no coverage for COVID-19 business-interruption losses, presenting a common factual allegation. The panel further distinguished the Society actions because their geographic scope was limited to six Midwestern states where Society writes policies. This limited scope made the Northern District of Illinois an appropriate forum. The panel also noted that the assigned judge, the Honorable Edmond E. Chang, could establish state-specific tracks and select bellwether motions to manage any differences among the actions.
If not insurer-specific centralization, then what?
What, then, of the more than 100 insurers not considered for insurer-specific centralization? The panel stated that “centralization does not appear appropriate” for those insurers, considering the “limited number of actions and districts involved as to each.”
Although the panel has not definitively foreclosed the consideration of other insurer-specific MDLs, there are signs that will not occur. For instance, in an August 18 order, the panel denied a request to issue a show-cause order to various State Farm entities, stating that it had “carefully considered which actions warranted a show cause order and did not grant” the earlier show-cause order against Travelers “lightly.” The panel does not reconvene until December 3, and, during that time, district courts around the country will most likely issue rulings on many of the dispositive motions that have been filed. Those outcomes may further foreclose consideration of additional insurer-specific centralization.
The panel’s order denying industry-wide centralization noted that “(t)here are alternatives to centralization available to minimize any duplication in pretrial proceedings.” The panel suggested “informal cooperation and coordination,” such as relating actions pending within a single district, so those cases are decided by one judge. The panel repeated this suggestion in the orders denying insurer-specific centralization. Coordination is likely to be a point of emphasis in the many pending cases that were not centralized.