By Jeff Sistrunk

Law360 (September 23, 2020, 3:39 PM EDT) -- The Judicial Panel on Multidistrict Litigation will hear arguments Thursday over whether to create a quintet of multidistrict litigation proceedings to centralize scores of COVID-19 business interruption coverage lawsuits against four insurers and a group of carriers affiliated with Lloyd's of London, several weeks after the panel refused to create an industrywide MDL.

Here, Law360 breaks down the closely watched MDL battle.

What's At Stake

The JPML is poised to decide whether to create five separate "single-insurer" MDLs to centralize all of the COVID-19 coverage actions pending in federal district courts against The Hartford, Cincinnati Insurance Co., Society Insurance Co., Travelers and various underwriters at Lloyd's of London. The panel's ruling will determine whether nearly 300 suits against those insurers will move forward individually or on some sort of consolidated basis.

How We Got Here

The MDL effort dates to late April, when two groups of businesses affected by state and local COVID-19 shutdown orders filed petitions with the JPML asserting that the business interruption coverage battles pending in federal courts across the country were well suited for consolidated or coordinated pretrial proceedings on a nationwide scale. At the time, fewer than 20 COVID-19 coverage disputes were pending in federal courts; as of Wednesday, that number stood at more than 700, according to a Law360 review of court records.

The dueling petitions — one of which sought centralization in the Eastern District of Pennsylvania and the other in the Northern District of Illinois — drew a deluge of responses from insurance companies and policyholders alike.

Dozens of insurers opposed any form of centralization, backed by the insurance industry's two leading trade groups, the American Property and Casualty Insurance Association and the National Association of Mutual Insurance Companies. Meanwhile, 20 groups of policyholder plaintiffs supported the creation of some form of MDL, but a dozen others opposed centralization, as did nonprofit policyholder advocacy group United Policyholders.

The fierce debate culminated in a 90-minute Zoom hearing in late July before the seven-member JPML. On Aug. 12, the panel issued an order denying the petitions for nationwide centralization of all COVID-19 insurance cases.

Noting that the cases involve more than 100 insurers, a wide variety of policy forms and the insurance laws of many states, the JPML concluded that an "industrywide MDL in this instance will not promote a quick resolution of these matters."

However, the JPML signaled in its order that it would possibly be open to the creation of smaller "single-insurer" MDLs to centralize actions against specific insurers facing high volumes of cases.

In particular, the panel said potential candidates for smaller-scale MDLs included Hartford and several of its subsidiary insurers, which are facing 130 COVID-19 coverage cases in federal courts; Cincinnati, which is named in 70 actions; and Lloyd's of London underwriters and Society, which are facing 26 and 24 cases, respectively. The following week, the JPML added Travelers — which is named in 45 federal court actions — to that list. The panel requested additional briefing on the suitability of single-insurer MDLs against these insurance carriers.

Opponents' Stances

Hartford, Cincinnati, Society, Travelers and the Lloyd's underwriters all opposed the creation of single-insurer MDLs, wielding many of the same arguments they had asserted in opposition to a nationwide MDL. 

The insurers — again backed by insurance industry trade groups — all took the stance that single-insurer MDLs would suffer from the same problems that led the JPML to reject industrywide centralization, noting that business interruption policy language can vary even among policies issued by the same insurance company.

"These actions involve different policyholders, with different businesses, with different insurance policies, governed by the laws of different states, who were impacted by COVID-19 and different governmental orders in different ways," Hartford argued in its response, adding that "individualized issues nearly always predominate in insurance coverage litigation."

The Lloyd's underwriters additionally argued that the phrase "single-insurer MDL" would be a misnomer as applied to the cases against them. The underwriters asserted that they are not the same insurer or even an "affiliated insurer group," but are rather 40 separate insurance carriers that sold a variety of policies to businesses through the Lloyd's marketplace.

"The result is there are significant variances in policy forms from one Lloyd's market insured to another," the underwriters contended.

As it was in the debate over the nationwide MDL, policyholder plaintiffs were split on whether single-insurer MDLs would be appropriate. A total of 23 individual businesses or groups of policyholders litigating cases against Hartford, Travelers, Society, Cincinnati or the Lloyd's underwriters filed briefs opposing such centralized proceedings.

The policyholders opposing centralization echoed many of the insurers' arguments regarding the individualized factual issues involved in coverage litigation and the differences among states' laws interpreting the prerequisites for business interruption coverage, such as the requirement that a business's lost income stem from a "direct physical loss of or damage to" its property.

For instance, a group of Chicago-area restaurants, taverns and movie theaters pursuing cases against Society, dubbed the "Big Onion" plaintiffs, argued that decisions in Illinois and some other states support the notion that the direct physical loss prerequisite does not require a tangible alteration or damage to a property. When those states' laws are applied, policyholders' COVID-19 claims should be able to withstand insurers' motions to dismiss, the Big Onion plaintiffs asserted.

"But the analysis in other jurisdictions may differ depending on how similarly worded provisions have been interpreted in those states," they added. "There is no reason for a single federal court in one state to interfere with the process of policy interpretation of many states, especially given the differing circumstances surrounding each policyholder's loss."

Supporters' Stances

Meanwhile, 32 individual companies or groups of policyholders lodged briefs supporting the formation of single-insurer MDLs against Hartford, Travelers, Society, Cincinnati or the Lloyd's underwriters.

In general, the policyholders supporting centralization took the position that the cases filed against the same or related insurers will involve numerous common, overlapping factual questions.

For instance, Florida eateries El Novillo Restaurant and Sun Cuisine LLC, which both brought cases against Lloyd's underwriters, said the underwriters commonly provide business interruption coverage on standard forms that are approved by the Insurance Services Office and, as a result, share many common terms. Therefore, the restaurant operators argued, a single court could determine "in one stroke" whether the COVID-19 pandemic fulfilled standard terms in the Lloyd's underwriters' policies, including the direct physical loss or damage requirement.

"Uncommon questions — such as whether particular state and municipal civil authority orders 'prohibited access' to covered property — are also best answered with one voice," El Novillo and Sun Cuisine added. "These questions may turn to some extent on common issues, and the resolution of all common and uncommon questions by one judge will allow the just and expeditious resolution of all actions to the overall benefit of the parties."

Similarly, plaintiffs in four separate cases pending against Hartford, including the law firm Karmel Davis and Associates, contended in a joint brief that the creation of an MDL to centralize cases against that insurer is appropriate because of the "sheer volume of similar cases across the country implicating common issues."

According to the quartet of Hartford policyholders, the insurer "consistently utilizes a small subset of template policy forms" and has "uniformly denied" business interruption claims for one of several reasons, including that the pandemic caused no direct physical loss or damage to property, that government stay-at-home orders are not a covered cause of loss or that an exclusion for virus-related losses applies.

"Whether an insurance policy provides coverage cannot be separated from the factual predicate that gives rise to coverage in the first place," they contended. "Here, the related actions all share the same or similar triggering events: the losses of business income occasioned by COVID19 and/or related stay-at-home orders."

--Editing by Kelly Duncan and Aaron Pelc.

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