As of last Wednesday, a federal court had received notice that 101 lawsuits have been filed as of seeking coverage from insurers for business interruption losses caused by COVID-19, and plaintiffs attorneys say they expect thousands more.
“Ultimately, I think what’s going to happen is small businesses are going to have to come to the table with the insurance companies and the government to figure out a solution for this,” said Richard Golomb, a partner with the Golomb & Honik law firm in Philadelphia.
The 101 cases filed so far—which does not include suits filed in state courts—were tagged by the U.S. Judicial Panel on Multidistrict Litigation because they are related to a petition filed by groups of plaintiffs in Philadelphia and Chicago to assign to a single judge all COVID-19 business interruption lawsuits filed in federal courts. The panel was created in 1968 to determine whether civil actions pending in different federal districts involve one or more common questions of fact and should be coordinated or consolidated for pretrial proceedings.The central question binding all of the lawsuits is whether the novel coronavirus amounts to a physical loss of property that triggers insurance coverage for business income lost because of government ordered closures. The federal filings shows that question is being asked by restaurants, taverns, dental practices, day care centers and hair salons all across America.
Golomb said insurers have been giving blanket denial to such claims, while business owners—especially restaurant owners—are counting on an insurance payout to survive. He cited an estimate by the National Restaurant Association that if no assistance is given, 40 percent of restaurants will not survive the pandemic.
The American Property and Casualty Insurance Association said forcing insurers to pay such claims would undermine the solvency of the industry. APCIA estimated business closures are costing businesses with fewer than 500 employees from $393 billion to $668 billion per month.
What started as a judicial question has moved to the legislative branch. Bills to require insurers to pay COVID-19 business interruption claims have been introduced in eight states, although a bill in the Louisiana state house has been dropped. The U.S. House of Representatives Small Business Committee is held a virtual hearing on the issue last Thursday.
Even the executive branch has chimed in. President Donald Trump pronounced his support for claims made by business owners who purchased insurance policies without any virus exclusions during an April 10 press briefing.
Golomb said he believes eventually insurers will eventually ask Congress for help in paying business-interruption claims. In the end, that might result in a complicated global settlement in which each of the parties—plaintiffs, insurers, and the government, pays a part of the lost income costs.
“The No. 1 goal has got to be to get these businesses open,” he said.
For now, plaintiffs attorneys don’t even agree among themselves whether all of the COVID-19 claims should be heard by the Multidistrict Panel.
A group of plaintiffs led by the Big Onion Tavern in Chicago in lawsuits against Society Insurance filed a memorandum opposing consolidation of the cases. They argue that each claim involves unique insurance policies in various states with differing laws.
There’s also a question of where to assign the cases. In addition to competing petitions from Philadelphia and Chicago, a third group of plaintiffs in South Florida asked the Multidistrict Panel to assign the litigation to the U.S. District Court in Miami.
Attorney Charles A. Silverman, a sole practitioner in Skokie, Ill., filed his own petition asking that his suit filed on behalf of Sandy Point Dental P.C. against Cincinnati Insurance Co. be heard in Chicago.
Silverman said he doesn’t travel and doesn’t want to hire co-counsel in a distant city. He said he doesn’t oppose consolidation of the cases in principal, although it may be difficult for the court to resolve questions of law that apply to a wide range of policy types across myriad jurisdictions. However, he said some coordination is possible. For example, the court may create consolidated cases for claims in each state, or lump them together by region.
Silverman said he wouldn’t be surprised to see Congress step in with some sort of bailout for either insurers or small businesses, even though he described himself as a “grumpy libertarian” who generally disfavors such interventions.
“This is what people are calling a black swan event,” he said. “Nobody was predicting this. I don’t think anyone was anticipating this degree of shutdown.”
Plaintiffs attorney Benjamin Widlaski from Kozyak Tropin & Throckmorton in Coral Gables, Fla., said he is hoping litigation, not government intervention, will resolve the coverage question. His firm is asking for cases to be consolidated in Miami, where the hospitality industry makes up a large part of the economy.
“The people who were harmed, they need relief and they need it soon,” he said. “They need that check to stay in business.”
Steven Badger, an insurance defense attorney for Zelle LLP in Dallas, said the COVID-19 claims don’t belong in a consolidated action, and shouldn’t be resolved politically either.
Badger said breach-of-contract lawsuits involving hundreds of different insurance companies, thousands of different policy forms with 50 different applicable state laws will not serve the purpose of the Multidistrict Panel, which is to expedite and simplify litigation.
“Just the opposite would occur here, with a single MDL judge being overwhelmed by the predictable morass of individual case issues,” he said in an email. “As a result, the insurance industry uniformly opposes a federal MDL.”
Badger said he believes personal injury attorneys are hoping for a modest “hold-up” settlement, but that won’t likely be the result. Settlements will be offered based on the merits of each claim without any expectation of a federal bailout, he said.
“Any plaintiffs’ attorney who believes that the insurance industry is just going to bundle-up thousands of lawsuits and write big checks without specific claim analysis is being shortsighted and doesn’t understand commercial first-party property insurance litigation,” he said.
But Badger the chances of insurers quickly crushing the plaintiffs arguments without a substantial expense for attorney fees are also “slim to none.”
“The commercial insurance industry, like it does in all catastrophe events, will litigate individual disputes and make decisions whether to take cases to trial or settle based on the facts of the individual disputes,” he said. “They will also consider the law as it develops on the key coverage questions. Early indications are that the law will be very favorable to the positions being taken by the insurance industry.”
(This article was originally published by Claims Journal, a sister publication of Carrier Management. Reporter Jim Sams is the editor of Claims Journal)