As business interruption lawsuits continue to fill up court dockets, we are beginning to see the first wave come crashing down on policyholders. Whether this is a sign of things to come is still an open question for both policyholders and insurers.
At present, there are nearly 300 business interruption lawsuits pending in various state and federal courts, including nearly 30 petitions seeking class action certification and two separate petitions seeking to form a Multi District Litigation (“MDL”) to oversee COVID-19-related business interruption claims. As policyholders clear themselves from the wreckage wrought by the COVID-19 pandemic, these numbers are certain to rise. In these cases, policyholders are asking the court to declare that business losses resulting from the COVID-19 pandemic are covered under the language of their respective insurance policies. As we’ve discussed in prior posts, the issue of whether COVID-19 contamination, if proven, constitutes a “direct, physical loss or damage” to the insureds property is the central issue triggering coverage under most policies, notwithstanding any exceptions that might be applicable.
At least one court has now ruled that COVID-19 contamination does not constitute “direct, physical loss or damage” under the terms of a policyholder’s business interruption policy. On May 14th, in the case Social Life Magazine Inc. v. Sentinel Insurance Co. Ltd., C.A. 1:20-cv-03311, U.S. Dist. Ct. SDNY, U.S. District Judge Valerie Caproni issued a decision from the bench denying Social Life’s application for a preliminary injunction to compel the payment of insurance proceeds under the business interruption provisions of its commercial property policy. Judge Caproni relied upon the New York Appellate Division’s opinion in Roundabout Theatre Co. v. Continental Casualty Co. 302 A.D.2d 1 (N.Y. App. Div. 1st Dep’t 2002), stating that “New York law is clear that this kind of business interruption needs some damage to the property to prohibit you from going.” That “the virus exists everywhere,” and causes physical injury to persons was insufficient to find, as a matter of New York law, that damage exists to the insureds property.
Judge Caproni’s comments suggest that the loss suffered by Social Life resulted not from physical property damage but from Governor Anthony Cuomo’s stay-at-home order. Counsel for Sentinel addressed this argument in rebuffing the plaintiff’s suggestion to Judge Caproni to look outside of New York authorities to more liberal interpretations of property damage such as mold, stating that any ‘loss of use’ which would arguably trigger coverage would require that the property “be entirely unusable or uninhabitable,” which was not the case. While a written opinion is forthcoming, the analysis employed by the Judge signals trouble for business interruption claims in New York. Social Life has filed its notice of appeal to the 2nd U.S. Circuit Court of Appeals and CMBG3 Law will continue to monitor developments in this case.
Another notable development in business interruption coverage litigation occurred on the same day, May 14th, when the Pennsylvania Supreme Court summarily denied an emergency application by the policyholder plaintiff for extraordinary relief under the court’s “Kings Bench” powers, which allow the court to assume jurisdiction over all matters “involving an issue of immediate public importance” and to establish an expedited schedule for briefing, argument and issuing a decision. The case, Joseph Tambellini, Inc. v. Erie Insurance Exchange, No. 52 WM 2020 (Pa. Sup. Ct), was filed April 17, 2020 in the Court of Common Pleas of Allegheny County, PA and sought declaratory, compensatory, and injunctive relief.
While the Pennsylvania Supreme Court’s denial did not include any explanation, arguments made in an amici curiae brief filed by a group of insurance advocates, led by the American Property Casualty Insurance Association, offer some insight into the coming fights over class-action certification and the creation of an MDL. In the brief, the insurers argue that business interruption lawsuits present numerous individualized issues, including a variety of different policies with different language, a variety of coverages which intersect with a myriad of unique factual circumstances. Given this, “determining coverage for each purported business interruption claim requires a detailed analysis of the meaning of relevant policy provisions and their application to the facts.”
These arguments will weigh heavily on the question of class certification. In order to be certified as a class, a plaintiff must show typicality, commonality and predominance – that the plaintiff’s claims are typical of the class; and that there are “questions of law or fact common to the class,”; and that such questions of law or fact “predominate over any questions affecting only individual members”. Similarly, these same questions will bear on whether an MDL (or multiple MDLs) is appropriate. 28 U.S.C. § 1407 provides that “[w]hen civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings,” and if it is determined to “promote the just and efficient conduct of such actions.”
CMBG3 Law continues to monitor these developments. If you’d like to learn more about how CMBG3 can help you to navigate these complex coverage and claims issues, please contact Eric Robbie at 617-279-8209 or by email.