Law360 (April 24, 2020, 4:27 PM EDT) -- The legal battles over business interruption insurance for losses from the COVID-19 pandemic heated up this past week, with Travelers becoming the first insurer to sue for a ruling backing its coverage denial, policyholders filing another dozen class action suits and several law firms seeking to consolidate cases in a multidistrict litigation.
Travelers Strikes Back
Since litigation over business interruption coverage began to proliferate in late March, the suits have almost uniformly been filed by policyholders. Of 60 state and federal court complaints reviewed by Law360, 59 of them were initiated by insured businesses.
As of Friday, the one exception was a suit that Travelers Casualty Insurance Co. of America filed on April 20 against Geragos & Geragos APC in California federal court, seeking a declaration that the law firm's business losses due to COVID-19 aren't covered because the virus has not caused "physical loss or damage" to the firm's offices.
Travelers' complaint, lodged by a legal team composed of insurance litigation heavyweights Gibson Dunn & Crutcher LLP and Robinson & Cole LLP, came a week after Geragos & Geragos launched five separate suits in Los Angeles Superior Court accusing Travelers of wrongfully denying coverage to it and several other California businesses.
Travelers contended that the policy Geragos & Geragos holds simply does not cover the outbreak, and has exclusions specifically for business losses resulting from a virus.
According to the complaint, the policy only covers physical loss or damage to the property that results from a covered cause under the policy. But the presence of the coronavirus does not cause physical damage, Travelers argued.
And while the policy includes an endorsement for civil authority orders, that clause also depends on there being "direct physical loss of or damage to" property nearby, Travelers said, adding that the firm's loss of access to the courts is the result of government action, not physical loss.
Travelers further alleged the policy includes an exclusion for loss "due to virus or bacteria," which would bar coverage even if the business shutdown could be considered "physical loss."
"Travelers Insurance, after cashing our premium checks for years, decided yesterday that instead of paying our business interruption claim that they would hire a large law firm to sue us in federal court instead," Mark Geragos of Geragos & Geragos told Law360 on Tuesday. "Apparently, their way of adapting to a pandemic is filing lawsuits against their own insured. We welcome the opportunity to fight on behalf of small business against rank corporate greed and their legal enablers."
Class Action Surge
Companies in the hospitality, manufacturing and health care industries are increasingly turning to class action litigation, alleging their insurers have been systematically denying business interruption claims stemming from the pandemic without performing sufficient investigations.
This past week alone, companies based in nine different states filed a dozen new proposed class action complaints against units of Chubb Ltd., Travelers, Nationwide and The Hartford, among others, seeking certification of both national classes of policyholders and various subclasses based on policyholders' states of residence or their specific types of damages.
The policyholders' arguments cover a number of variations in business interruption policy language.
For example, Truhaven Enterprises Inc., doing business as Fiorino Ristorante in Summit, New Jersey, argued in its April 20 complaint that Chubb improperly rejected its claim for business interruption coverage this month on the grounds that the restaurant had not been "physically altered," saying that determination runs afoul of applicable case law.
"In fact, applicable case law holds that loss of use of property that has not been physically altered does constitute 'physical loss or damage' for purposes of first-party property insurance, such as that contained in the policy," Truhaven alleged in its complaint, drafted by the legal team of Carella Byrne Cecchi Olstein Brody & Agnello PC, Seeger Weiss and Robbins Geller Rudman & Dowd LLP.
While Truhaven's policy contains an exclusion for losses tied to viruses, bacteria or microorganisms, the restaurant operator said the clause doesn't bar coverage under the circumstances because its losses are attributable not to the coronavirus itself but to New Jersey's lockdown order.
"Rather, the efficient proximate cause of plaintiff's, and other class members' losses, were precautionary measures taken by the state of New Jersey to prevent the spread of COVID-19 in the future, not because coronavirus was found in or on plaintiff's insured property," Truhaven contended.
Other litigants' policies don't contain virus or bacteria exclusions. Café International Holding Company LLC, owner of IT! Italy Ristorante Café & Bar in downtown Fort Lauderdale, Florida, emphasized that its policy lacks such an exclusion in its April 20 putative class action complaint against Chubb and its Westchester Surplus Lines unit.
"There are many hundreds, if not thousands, of policies like this one where there is no exclusion for viruses — yet Chubb refuses to pay," said Steve Zack, administrative partner of the Miami office of Boies Schiller Flexner LLP, which is representing Café International alongside Podhurst Orseck PA.
Chubb declined to comment on both the Truhaven and Café International cases.
Two groups of firms representing shuttered businesses filed petitions last week seeking to create a new federal multidistrict litigation program to consolidate the growing number of business interruption insurance cases sprouting up nationwide.
In the first petition, attorneys at Golomb & Honik PC and Levin Sedran & Berman LLP representing a pair of Philadelphia-based restaurants told the U.S. Judicial Panel on Multidistrict Litigation on April 20 that the availability of business interruption coverage in light of the novel coronavirus would be a key question requiring a uniform answer as the country deals with the economic fallout of the pandemic.
"This issue — whether business interruption insurance policies will cover losses incurred by businesses forced to shutter their business as a result of the governmental orders — is one of national importance and great significance to the ultimate survival of many businesses," the petitioners said. "Addressing this issue in a uniform manner as opposed to potentially disparate treatment by different courts throughout the country helps to serve one of the main purposes" of multidistrict litigation.
The April 20 petition asked that cases be consolidated before U.S. District Judge Timothy J. Savage of the Eastern District of Pennsylvania, who is currently presiding over two business interruption coverage cases.
"Judge Savage is a fair, demanding but reasonable, extremely organized, and efficient judge accustomed to presiding over complex and multi-plaintiff, multi-defendant cases," the petition said.
A day later, a group of attorneys from DiCello Levitt Gutzler LLC, the Lanier Law Firm PC, Burns Bowen Bair LLP and Daniels & Tredennick, which are collectively representing policyholders in a slew of proposed class actions around the country, lodged a second petition in the JPML.
The April 21 petition emphasized the importance of coordinating expert witnesses in the business interruption cases, as the policyholders will need to present "epidemiological modeling of the spread of the virus in order to ascertain its likely presence and impact."
"If these myriad cases were not coordinated for discovery, thousands of plaintiffs would potentially be seeking to retain the same limited pool of epidemiological modelers," the petition said. "Not only would that competition create a costly logistical nightmare for litigants, but that same pool of experts is also needed to help lawmakers fashion the best policies for dealing with the pandemic."
The second group of petitioners suggested the cases be consolidated before U.S. District Judge Matthew F. Kennelly of the Northern District of Illinois, who is overseeing an MDL over cardiovascular issues allegedly caused by a testosterone replacement therapy drug.
"A member of this panel, Judge Kennelly clearly has the requisite experience in multidistrict litigation," they wrote.
Later on April 21, the JPML issued an order calling for both groups of petitioners to file briefs by May 12 to further flesh out their positions. The order said the petitioners should address "what steps they have taken to pursue alternatives to centralization," such as "engaging in informal coordination of discovery and scheduling" or seeking venue transfers in one or more of the cases.
--Additional reporting by Craig Clough, Matt Fair, Nathan Hale and Bill Wichert. Editing by Marygrace Murphy.
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