Don't Let Insurer Expand Ruling's Reach In MDL, Court Told

By Lauraann Wood
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Law360 (May 12, 2021, 10:05 PM EDT) -- A group of Society Insurance Co. policyholders urged an Illinois federal judge Wednesday not to let their insurer cite a limited bellwether ruling to pursue dismissal of all civil authority and contamination claims in multidistrict litigation over its COVID-19 coverage refusals.

U.S. District Judge Edmond Chang should reject Society's bid to apply his ruling tossing civil authority claims from three bellwethers in the MDL because the request is part of the insurance company's aim to refuse to cover their COVID-19-related business losses and then take "every step possible to hinder [their] litigation of those denied claims."

"Those steps include, but are by no means limited to, Society's efforts to keep these cases fragmented, including its persistent refusal to acknowledge that, despite its efforts before the Judicial Panel on Multidistrict Litigation to halt the panel's formation of this MDL proceeding, the JPML did, in fact, form it," the policyholders said. "Society's present motion is just the latest iteration of that strategy."

Society argued last week that Judge Chang's denial of civil authority and contamination coverage in three bellwether cases should be applied to 39 suits in the MDL similarly asking for that coverage, as well as two other cases asking solely for civil authority coverage. The insurer argued that applying the bellwether ruling MDL-wide would help streamline the proceeding.

But the policyholders, including bars such as The Whistler in Chicago and Wiseguys Pizzeria & Pub in Wisconsin, argued that the insurer's bid broaden the bellwether ruling's scope is based on its misreading of the first case management order Judge Chang entered in the case.

Judge Chang said in that order that he wanted to resolve bellwether case dispositive and issue-dispositive motions on an earlier track, and he did, they argued. Society's bid to expand the scope of that provision in the court's case management order "both disregards the limited nature of that initial bellwether process and, again, finds Society proposing a course of action that would unwind the JPML's ruling and affirmatively undermine the purpose and function of MDL litigation," the policyholders said.

"Society doesn't get to attack each of the constituent actions comprising this MDL in this manner," they argued. "Indeed, Society argued against the formation of this MDL proceeding before the JPML and lost that fight."

Judge Chang tested Society's motions to dismiss and for summary judgment in three bellwether cases on policy interpretation issues over the denial of coverage for the pandemic that are common to most of the 40-plus cases folded into the MDL, which was formed by the JPML.

Two of the suits were brought in Illinois federal court by Chicago-area restaurants, theaters and bars dubbed the "Big Onion plaintiffs," and a Glenview, Illinois, eatery called Valley Lodge. A group of bars and restaurants known as the "Rising Dough plaintiffs" filed the third federal suit in Wisconsin.

In the February ruling, Judge Chang allowed the restaurants, bars and theaters to proceed on business income coverage claims. But the judge dismissed the policyholders' claims under civil authority coverage, saying the stay-at-home orders did not prohibit them from accessing the properties.

Judge Chang also said the policyholders could not tap into the contamination provision, which extended coverage for lost business income and cleaning costs associated with closures due to contamination. The policyholders did not claim that they closed based on an actual COVID-19 contamination, the judge said.

Society has already asked for an immediate appeal of Judge Chang's refusal to dismiss the policyholders' claims for business income coverage. It argued that the Seventh Circuit should be allowed to answer whether the policyholders' loss of use of property is a "direct physical loss" under its policies.

Counsel for the policyholders declined to comment on Wednesday. Representatives for Society didn't immediately respond Wednesday to a request for comment.

The policyholders are represented by co-lead counsel Adam J. Levitt of DiCello Levitt Gutzler LLC; W. Mark Lanier of The Lanier Law Firm PC; Timothy W. Burns of Burns Bowen Bair LLP; Shelby Guilbert Jr. of McGuireWoods, Shannon McNulty of Clifford Law Offices, and others.

Society is represented by co-lead counsel Laura A. Foggan and April N. Ross of Crowell & Moring LLP; Thomas B. Underwood of Purcell & Wardrope Chtd., and others.

The case is In Re: Society Insurance Co. COVID-19 Business Interruption Protection Insurance Litigation, MDL number 2964 and case number 1:20-cv-05965, in the U.S. District Court for the Northern District of Illinois.

--Additional reporting by Shawn Rice. Editing by Rich Mills.

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