The anniversary of COVID-19 shutdown orders brought an upturn in both the number of business-interruption lawsuits against insurers and the amount of damages they are claiming.
In the past month:
- A New Jersey hospital system, RWJBarnabas Health, sued Zurich American Insurance Co. seeking $2.5 billion in damages from a virus that sickened 1,000 patients and killed nine staff members.
- Caesers Entertainment filed suit against 60 carriers seeking $2 billion in damages caused by restrictions at its Las Vegas resort casino. The company said it paid $25 million in premiums for $3.4 billion in coverage through a variety of “all-risk” policies, most of which did not include virus exclusions.
- Denison University, Kenyon College, Ohio Wesleyan University and the College of Wooster filed suit against their 16 insurers seeking $1.2 billion in coverage. The consortium of private colleges say their insurers turned their backs on them after the virus made their facilities unsafe and uninhabitable.
Also, some of the recent filings were made by groups of businesses against a single or multiple insurers. For example, on March 16, six restaurants and a fitness center in New Jersey filed a class-action suit in Bergen County Superior County against six carriers. On the same day, 26 Ohio dental practices filed suit against Amco Insurance Co. in the U.S. District Court in Toledo.
“We are seeing larger and more sophisticated business-interruption filings now,” said Steve Badger, an insurance defense attorney with the Zelle law firm in Dallas. “It appears a lot of them have waited on the sidelines to see how things progressed before filing suit.”
He said the increase in filings isn’t surprising. Many plaintiffs attorneys waited to see how the courts ruled on early claims to see how to draft their lawsuits to maximize their prospects for coverage.
Insurers are continuing to win the large majority of cases that have been decided so far through motions to dismiss or for summary judgment. In fact, Badger said in recent weeks the ratio of wins to losses tilted even more heavily toward insurers.
What’s more, guidance issued by the Centers for Disease Control and Prevention on Monday handed insurers another strong argument to use against business-interruption lawsuits that claim SARS-coV-2 causes physical damage by clinging to surfaces. The CDC said the virus spreads predominately through droplets in the air.
“It is possible for people to be infected through contact with contaminated surfaces or objects (fomites), but the risk is generally considered to be low,” the agency said.
A litigation tracker posted online by the Hunton Andrews Kurth law firm shows that 126 COVID-related insurance lawsuits were filed in state and federal courts in March, compared to 70 in February and 36 in March. That was the largest number of cases filed since August.
Another tracker maintained by the University of Pennsylvania’s Carey Law School shows that insurers have won in 243 cases in early rulings compared to 52 for plaintiffs, a ratio of about five to won. Those totals do not include cases cases that were dismissed without prejudice. The tracker says 1,538 business-interruption suits have been filed so far.
Since March 15, courts granted insurer motions and dismissed 46 cases with prejudice, while denying insurer motions or granting summary judgment for the plaintiff in just five cases. In other words, insurers have won almost nine out of 10 cases decided in the past three weeks.
Badger said plaintiff’s attorneys will have a hard time reversing an obvious judicial trend. This week’s CDC guidance will take another arrow out of their quiver.
“The risk of spread through property is very, very minimal,” he said. “You can go to Walmart and buy a can of Lysol that kills COVID on property.”
Plaintiff’s attorneys aren’t calling it quits. Michael S. Levine, a partner with Hunton Andrews Kurth in Washington, D.C., says the tide may change when cases reach the appellate courts. He said his law firm has at least two cases before the 11th Circuit Court of Appeal, two before the 3rd and one before the 1st.
Levine agreed with Badger that insurers have been winning an even larger share of cases lately.
“It’s the ongoing trend,” he said. “Unfortunately, most of these are in the federal courts. I see that as a snowball going downhill. It will continue to grow in movement until an appellate court puts the brakes on it.”
Levine said the federal courts are adopting “federal common law” of sorts. They are interpreting insurance contracts according to what their colleagues have decided instead of according to state law and the specific language in the insurance contract, as they should. He notes that plaintiffs are doing far better in state courts, where the win-loss rate is closer to half and half, according to the litigation tracker.
Also, the large number of losses in early rounds doesn’t surprise Levine. He said the first several hundred cases were filed by “activist” attorneys and many of the cases were poorly pleaded.
“There has been a huge learning experience in COVID; how it affects property and how it makes property unusable,” he said.
For one thing, COVID-19 remains suspended in air — as well as clinging to surfaces — for extended durations. Levine said the lawsuits filed by his firm allege that the airborne contamination causes physical damage in the same way that cat urine, ammonia and mold did in previous cases that were decided in favor of the plaintiffs.
A lawsuit filed this week by Scheicher & Stebbins Hotels against its insurers — the first business-interruption civil action filed in New Hampshire — sums up the argument.
“A virus certainly causes ‘loss or damage’ even though it is invisible to the naked eye,” the suit says. “Property impacted by the coronavirus is just as dangerous as property impacted by fire or fumes (if not more so), and all such damaged property is equally incapable of producing revenues.”
About the photo: The Forum Shops at Caesars Palace hotel and casino amid the global coronavirus pandemic, Thursday, June 4, 2020, in Las Vegas. (Kirby Lee via AP)
*This story appeared previously in our sister publication Claims Journal.