Legal Alert

What to Expect From Motions for Centralization of COVID-19 Business Interruption Cases in an MDL

by the Insurance Group
May 14, 2020

For each day that economic activity remains restricted due to the coronavirus pandemic, the stakes continue to rise both for businesses seeking insurance recoveries critical to their survival and for insurers that face the potentially devastating impact of paying claims on business interruption losses—estimated at up to $383 billion per month just for small businesses in the U.S. Insureds have filed dozens of lawsuits in federal and state courts seeking determinations as to who should bear this significant loss. The disputes have taken many shapes, including individual actions, putative class actions, and also arbitrations.

Recently, plaintiffs in the United States District Courts for the Eastern District of Pennsylvania and the Northern District of Illinois have filed separate motions seeking centralization of federal coverage cases in a multidistrict litigation (MDL). This alert provides an overview of the proceedings associated with these motions and potential impacts litigants should consider if these coverage cases are ultimately centralized in an MDL.

The Policyholders’ Motions for Centralization


On April 20, certain policyholder plaintiffs moved to coordinate and consolidate pending federal business interruption cases in an MDL. To be eligible for an MDL, a majority of a seven-judge Judicial Panel on Multidistrict Litigation (JPML or the Panel) must find that the cases involve one or more common questions of fact and that the transfer “will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions.”  (See 28 U.S.C. 1407.)

The motion filed by the Northern District of Illinois plaintiffs, found here, asserts that business interruption cases turn on two questions: (1) whether the coronavirus causes “physical damage or loss to property” under the policies; and (2) whether the coronavirus was present on the insured property, or sufficiently connected property, to trigger coverage. On the first question, plaintiffs claim that the presence or impact of the coronavirus on covered property should mean the same for every policyholder. They claim that the same type of evidence—including expert reports, depositions, and policy drafting history—will be necessary in each case. While plaintiffs acknowledge that “[n]umerous insurers have been sued under multiple insurance policies,” they claim that there are “great similarities and standard or near-standard terms across all the property insurance policies at issue.” Thus, they conclude that there should be “only one answer” to this question for all plaintiffs.

Plaintiffs claim the second question is “a pure question of fact” that will require the same type of expert evidence for every insured. They assert that each plaintiff will need epidemiological modeling evidence to explain the spread of coronavirus and ascertain its likely presence and impact. Plaintiffs allege that, due to the demand, multiple individual plaintiffs will be fighting to secure the services of the same epidemiological experts which could dilute the pool of experts for the litigants as well as the government officials fighting the virus.

The motion for centralization filed by the Eastern District of Pennsylvania plaintiffs, found here, is narrower. Plaintiffs claim that the core factual issue shared among all plaintiffs is whether various governmental orders, which closed non-essential businesses and/or mandated that individuals must stay at home, trigger coverage under the business interruption insurance policies.

The Upcoming Motion for Centralization Proceedings


The JPML recently extended the insurers’ time to file a consolidated response to the motions for centralization until June 5, and the insureds’ reply brief is now due by June 15.  (See In re: COVID-19 Business Interruption Protection Ins. Litig., Dkt. No. MDL-2942 (COVID-19 MDL), ECF No. 156.)  In addition, any party or counsel in one or more potential tag-along actions, as well as amicus curiae, may file a response to the pending motions. (Judicial Panel on Multidistrict Litig., R. 6.2(e).) Tag-along actions are those pending in federal district court that involve common questions of fact with the actions in which the motions for centralization are pending.

Following briefing, the JPML will likely hear oral argument on the motions at an upcoming hearing session. The Panel recently denied certain policyholders’ request for expedited argument on the motions at the May 28th hearing session. (See id., ECF No. 51.) Thus, assuming the Panel does schedule argument, the motions will likely be heard at the Panel’s next hearing session on July 30th.

If the Panel ultimately decides in favor of centralization, it will also determine the “transferee” court for centralization as well as the judge who will oversee the MDL. A transfer order would then be filed with the transferee court and the original court’s jurisdiction would cease. It is important to note that unless the Panel orders centralization of the coverage cases in an MDL, the courts where the cases were originally filed will retain jurisdiction. This means that pleading requirements will not automatically be stayed and the original courts may still address pending dispositive motions, even as the motion for centralization proceedings are ongoing. Further, state court cases not removed to federal court will not be affected by these proceedings, regardless of whether the Panel approves an MDL.

Potential Impacts of Transfer to an MD

While centralization of the business interruption cases is not a foregone conclusion, a decision by the Panel in favor of centralization would have important consequences. It is imperative that litigants consult with counsel about the current proceedings before the JPML and the potential impacts of a decision to centralize the coverage disputes. Below, we address potential consequences in the event the Panel approves an MDL:

  • Timing: In the long run, coordination of business interruption cases may ultimately expedite the discovery process. A single judge evaluating the parties’ discovery needs and coordinating a schedule could prevent cases from stagnating on slow-moving dockets or due to litigants’ stall tactics. However, the process to decide the motions for centralization and coordinate the next stages of the litigation if an MDL is approved will take time. As a result, federal court litigants may now be faced with near-term delays in their cases especially if the court in which the case originated decides to stay proceedings pending the outcome of the JPML proceedings.
  • Costs: The transferee court will appoint leadership counsel and steering committees for the plaintiffs and this could greatly reduce the upfront costs for any one policyholder.  However, by gaining cost reduction, policyholders may be forced to relinquish some of the control their chosen counsel would have had over their claims. While the leadership counsel for plaintiffs could be expected to seek the collective maximization of all claims, the leadership could emphasize certain cases or issues that do not necessarily benefit all policyholders the same. For the carrier-defendants, the combination of claims in a single forum could increase the ability to pool resources and share costs with respect to the litigation.
  • Discovery: Centralization of the cases in an MDL may reduce disruption to carriers’ businesses. Without transfer of these cases to an MDL, a carrier that has been sued by multiple policyholders could be required to respond to multiple sets of similar discovery and have its key employees deposed repeatedly in many jurisdictions. The MDL would ensure that discovery is coordinated and limited. Policyholders also may have an easier time obtaining discovery as the standards for discovery and timeframes will be set and managed by a dedicated MDL court. This could help prevent uncooperative defendants from seeking to avoid discovery obligations.
  • Experts: While epidemiology or other experts are likely to be necessary, their availability will be limited and their services costly. Centralization would allow policyholders to pool resources for this expensive phase of discovery. Further, an MDL could prevent early plaintiffs’ cases from setting bad precedent if they move forward with an expert who was not properly vetted or was not particularly thorough due to a lack of resources. This risk, however, would still exist with respect to state cases not removed to federal court. For carriers, the expert phase of discovery would likewise be streamlined in an MDL, and the carriers’ experts may have greater clarity on the opinions which they will be asked to rebut.
  • Uniform Conclusions:  While some may argue it would be beneficial to have a single judge decide the key issues involved in these cases, insurance coverage principles may create burdens in the context of an MDL. Insurance coverage disputes are generally determined through application of policy language to the undisputed facts. Despite policyholders’ argument in the motions for centralization, the insurance at issue—which was issued by many different carriers—will not have the exact same language with regard to key terms, let alone potentially applicable exclusions. Even slight differences in language can lead to significant differences in outcomes. Further, the language of governmental shutdown orders varies widely and will not be susceptible to uniform application. Another complication of having a single forum for these coverage disputes is that different policies will be governed by different states’ laws. Key policy provisions, such as the meaning of the phrase “physical loss or damage,” may have different interpretations under different states’ laws. While a single judge focused on the parties’ disputes is desirable, federal judges in the states where the cases originated may have more familiarity with the state law to be applied to the particular policy at issue. 


Conclusion


Centralization of these coverage actions in an MDL has the potential to dramatically change the landscape of business interruption coverage litigation. Policyholders and carriers need to understand how the motions for centralization will be heard and how they affect currently pending cases. Likewise, litigants should begin considering potential ramifications to their cases if the Panel approves an MDL.

Ballard Spahr’s Insurance attorneys continue to follow the developments of these critical issues and have planned additional updates on both the path of the coverage litigation as well as the key arguments raised.


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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.


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