I am pleased to see that the Institute for the Advancement of the American Legal System at the University of Denver has released discovery protocols for “Business Interruption Disputes Arising from the COVID-19 Pandemic and Similar Public Health Threats.” Great to see so many people I know on the working group: Steven Badger, David Brown, Jay Levin, Adam Levitt, Judge Lee Rosenthal, Ron Schiller, and Joyce Wang. What a balanced, powerhouse group! Just in time for the discovery disputes that will follow on the current winnowing stage of the litigation.
Over the past eight months, Covid-19 has forced countless businesses across the country and around the world to shut down their operations. Virtually every industry has been impacted, and professional sports leagues are no exception. According to a complaint recently filed on behalf of Major League Baseball (“MLB”) and all 30 MLB clubs in Alameda County Superior Court, the league and its clubs have suffered billions of dollars in losses due to Covid-19. MLB and the clubs filed business interruption claims with their insurers under their “All Risk” policies. The insurers issued blanket rejections of these Covid-19 coverage claims, carefully cultivated to avoid absolute statements, while simultaneously denying claims on a broad basis.
After taking their time to prepare a strong opening pitch, MLB and the clubs filed suit seeking declaratory relief and money damages in state court, traditionally a more welcoming home for policyholders than federal court.
MLB is far from the first business to file suit against their insurers for business interruption coverage. The Covid Coverage Litigation Tracker is aware of more than 1,400 such cases filed in state and federal courts since March. We estimate that several hundred more have been filed in state courts but have yet to be identified due to the imperfect state case identification process.
In fact, this complaint is not even the first by a professional sports organization nor the first baseball-related case. The Houston Rockets and Atlanta Falcons have both filed suits in Rhode Island state court, and several Minor League Baseball cases are currently pending, with one MiLB case already been resolved in favor of the insurers due to the presence of a virus exclusion in the policy at issue in that case. Despite their first win in one minor league case, insurers are still in the early innings of a long legal battle for pandemic-related losses and as one might expect, MLB came out swinging in their 66-page complaint.
As I explained in a summer blog post about the first MiLB case, the sports-related cases for business income coverage do not differ radically from cases in other industries. The central, hotly contested issue is whether Covid-19 causes “physical loss or damage” to property, but each case’s outcome depends on the specific language contained in their insurance policy. As the Tracker shows, insurers have had the upper hand in judicial rulings thus far. But most of the dismissals result from defective pleadings or the presence of strongly worded exclusions in the insurance policies at issue that specifically refer to losses from viruses that cause disease.
The MLB complaint is crafted to avoid these pitfalls. Consequently, the case has a strong chance of surviving a potential motion to dismiss the case. Assuming the case does not get dismissed, MLB will have the burden of proving that Covid-19 does indeed cause physical loss or damage to property; if so, defendant insurers are potentially on the hook for billions of dollars in coverage, unless they can prove that an exclusion or sub-limit applies.
The key Factory Mutual insurance policy at issue appears to contain what the CCLT classifies as a “hidden virus exclusion” as well as “specific coverage for communicable disease.” A “hidden virus exclusion” is an exclusion for pollution, or as here, “contamination” where the policy defines “contamination” to include “virus[es].” “Specific coverage for communicable disease” means exactly what it says – the insurance policy provides specific coverage for losses due to interruption by communicable disease.
Courts have not yet addressed the merits of specific communicable disease coverage provisions, but of the five buckets in the CCLT database, specific coverage is the most favorable coverage bucket for policyholders. Indeed, the MLB complaint alleges that this communicable disease coverage undermines the insurers’ assertion that the hidden exclusion applies, because the specific coverage implies that covered communicable diseases are distinct from the viruses referenced in the contamination exclusion.
Given the importance of the physical loss or damage requirement, it is no surprise to see so much discussion of physical loss and damage in the complaint. The league relies heavily on an assortment of scientific studies pertaining to Covid-19 fomites and their persistence on objects and surfaces, in the air, and their ability to spread through HVAC systems. Moreover, the complaint details government shut down orders, as well as those imposing gathering limitations that specifically refer to the physical loss and damage caused by Covid-19.
Note that the previous sentence reads: “physical loss and damage” as opposed to “physical loss or damage.” Unlike most complaints, MLB consistently uses “and” instead of “or.” The slight phrasing variation could prove important and signify a change in future Covid coverage pleadings. Insurers’ use of the disjunctive “or” in their insurance policies suggests that loss and damage are distinct. As such, MLB need only prove one of the two. Yet MLB asserts that Covid-19 causes both physical loss and physical damage, suggesting that they are marshalling the evidence and arguments to prove both, increasing their odds of success. The following quoted paragraph is excerpted from the complaint and provides a very basic example of the difference between damage and loss.
“The presence of the coronavirus and COVID-19, including but not limited to coronavirus droplets or nuclei on solid surfaces and in the air at insured property, has caused and will continue to cause direct physical damage to physical property and ambient air at the premises. Coronavirus, a physical substance, has attached and adhered to Plaintiffs’ property, and by doing so, altered that property. Such presence has also directly resulted in loss of use of those facilities.”
Here, the physical adherence of droplets and nuclei to property and in the air physically alter property and thus, constitute physical damage to property. Conversely, the last sentence states that the presence also resulted in “loss of use” of facilities which constitutes “physical loss.”
Just as an umpire’s view of a pitch a mere inch off the plate can determine the outcome of a playoff series, a judge’s interpretation of a single phrase, or even word, could determine the outcome of this case. Perhaps then it is fitting that these cases rest in the hands of judges, whom Chief Justice of the United States John Roberts so aptly compared to baseball umpires.
Other Interesting Notes from the Complaint
- According to the complaint, Factory Mutual covers 60% of the Insurers’ total limits of liability, AIG covers 30%, and Interstate Fire & Casualty Company covers 10%.
- Plaintiffs include all 30 MLB Clubs, the Office of the Commissioner of Baseball, MLB Advanced Media, MLB Network, and Tickets.com.
- The complaint alleges that Covid-19 was physically present at every plaintiff’s property.
- MLB asserts eight total bases for coverage including: Time Element Loss, Civil Authority Coverage, Ingress/Egress Coverage, Leasehold Interest and Rental Insurance Coverage, Contingent Time Element, Crisis Management Coverage, Communicable Disease Coverage, Protection and Preservation of Property Coverage.
- According to the complaint, policy limits apply on a “per occurrence” basis, providing up to $1,635,869,608 in coverage for any single occurrence and potentially more for multiple occurrences. The AIG Policy’s Crisis Management coverage is subject to a $10 million sub-limit, but it applies on a “per occurrence” basis and sets no aggregate limit.
- The complaint provides some background and detail about the extent of financial losses, including some explanation of the league’s and clubs’ various revenue sources.
- The outcome of this litigation may significantly impact the operations of the league and individual clubs and may even reach player contracts. If clubs recover their losses through insurance, they will have more to spend in Free Agency.
- The Atlanta Falcons case was actually filed several weeks after the MLB complaint.
- MLB is represented by the Covington and Burling law firm.
Policyholders are winning motions to dismiss in cases without virus exclusions.
We are working on a graphic to depict the following finding in dynamic fashion (so that it updates automatically as our data develop), but in the meantime here is a significant finding that hasn’t yet been reported.
Of the seven cases in which a merits-based motion to dismiss has been denied, four involve insurance policies without any virus exclusion, one involves the Hartford’s Endorsement for Limited Fungi, Bacteria, or Virus Coverage (which contains a virus exclusion that could be read to apply only to losses involving defective materials), and two have virus exclusions that apply to sickness or disease.
By contrast, of the eighteen cases in which a court has granted a merits-based motion to dismiss, only two don’t have virus exclusions.
This matters, among other reasons because the presence of a virus exclusion inhibits policyholders from pleading their cases in ways that would help them meet the requirement that their business income losses result from “physical loss of or damage to” the premises in question.
Bottom line: insurers are winning, overwhelmingly, when their policies have virus exclusions. But they are losing, at least at the motion to dismiss stage, when their policies do not have virus exclusions.
On our main page we have a pie chart displaying the count of the outcomes of merits rulings on motions to dismiss — rulings in which the court makes a determination that the plaintiff has or has not alleged facts that, if true, could support coverage. We now have a list of those cases at the link below the chart. I’m sure that it’s not complete, but it’s as complete as we can make it without your help. Please let us of of any additional rulings.
Chris French has a new essay questioning the decision to file Covid 19 coverage suits in federal courts: Forum Shopping COVID-19 Business Interruption Insurance Claims. Chris summarizes the empirical support for the conventional wisdom that state courts are more favorable to policyholders than federal courts and asks why policyholder lawyers are nevertheless filing suits in federal court. Using CCLT data, he reports the number of business interruption claims in federal court (over 700 as of today) and the percentage of those that are filed as class actions (about 1/3). He suggests that policyholders would be better served by filing state-based class actions in state court. We have state court class actions in the CCLT database. Thus, one of the many questions that CCLT data will help answer is whether Chris French is right.
I spoke to Scott Cooper and Jonathan Shub today about their successful effort to consolidate the Pennsylvania state court covid coverage cases brought against Erie Insurance. They shared their strategies for keeping cases in state court.
First, file cases against an insurer in the state of domicile. Hence, the consolidated PA cases against Erie. See also the recent suit filed against FM Global in Rhode Island by the Houston Rockets.
Second, if the policyholder used a broker based in the same state as the policyholder and if there is a basis for alleging a breach of duty by the broker, name the broker as a defendant, so there is no diversity.
Third, file a purely declaratory judgment action in state court. When the insurer removes to federal court, move to remand on the grounds that (a) jurisdiction over declaratory judgment actions in federal courts is discretionary, (b) the legal questions at issue involve unsettled questions of state law, and (c) the state courts are the best place to answer these questions. This third strategy has worked for them so far. See DiAnoia’s Eatery v. Motorists Mutual Insurance Company, No. 20-706 (W.D. Pa. May 19, 2020) (remanding a covid coverage matter to state court).
Hundreds of plaintiffs have filed suit against their insurance companies to recoup business income losses from shutdown orders across the country. These suits allege that the insurance companies have denied claims across the board, regardless of the coverage described in the insurance policies. Some policies include explicit exclusions against loss due to a virus, some hide a virus exclusion within a broader pollution or contamination provision, and some have no such exclusion at all. While no decisions have yet been rendered, some analysts predict that policyholders with exclusions will be left high and dry, and some policyholder recovery lawyers have declined to represent such policyholders on a contingent fee basis.
Some plaintiffs with exclusions in their policies have also brought suit against the producers who brokered their insurance contracts, alleging negligence in procuring policies that provide insufficient coverage.
For example, in Magna Legal Services LLC v. Hartford Fire Insurance Company et al, Plaintiff included its insurance producer, Nottingham Agency, Inc., and its individual broker agent as defendants. The insurance policy in question contains a “Pollutant and Contaminant” exclusion, although it does not specifically include “virus.” Plaintiff alleged reliance on Defendants’ representation as experienced brokers in evaluating and recommending insurance coverage for commercial business clients, and negligence on Defendants’ part in failing to advise Plaintiff about the exclusion or meet Plaintiff’s direction to procure “as broad as possible Business Income, Contingent Business Income, Extra Expense, and Civil Authority coverages.”
In Ethan & Austin, LTD. et al v. Illinois Casualty Company et al, Plaintiffs similarly included their insurance producer, U.S. Insurance Group, and their individual broker agent as defendants. This insurance policy does contain an explicit exclusion against “Loss Due to Virus or Bacteria.” Plaintiffs in this case alleged reliance on Defendants’ representation of expertise and that Defendants had a duty of care to exercise reasonable diligence in providing insurance advice. Furthermore, Plaintiffs allege negligence by Defendants in failing to advise Plaintiffs about the virus exclusion and its impact on business interruption claims, or to procure a broader insurance policy for the Plaintiffs.
Should Plaintiffs in either of these cases fail in their claims against their insurance company to collect business income losses due to the pandemic, they may yet succeed in these claims against their insurance producer.
Writing an effective, persuasive and well-pleaded complaint can be one of the most important stages of the litigation process. The complaint provides the plaintiff the first opportunity to craft a compelling narrative to justify the remedies sought. Writing is an individualized process, of course, and thus approaches to writing a complaint can vary by industry, law firm, or individual.
Having now read about 90 Covid-19 coverage complaints, I have noticed a marked difference in the way restaurants and dental offices express their grievances through writing. For example, in LJ New Haven LLC v. AmGUARD Insurance Company, in which a local seafood restaurant seeks coverage, the introduction not only introduces the parties to the case, but also observes how “in addition to their contribution to the national economy…restaurants are also vital to the national spirit because shared meals are an important mental relief.” The introduction goes on to incorporate quotes from Oscar Wilde declaring that “after a good dinner, one can forgive anybody, even one’s relations,” and from Anthony Bourdain noting that “food is everything we are. It’s an extension of nationalist feeling, ethnic feeling, your personal history, your province, your region, your tribe, your grandma.” These embellishments continue throughout the complaint, bolstering the plaintiff’s desire for relief.
Conversely, in Cascadia Dental Specialists Inc v. American Fire and Casualty Company, the introduction comprises just six lines. Unlike in LJ New Haven these six lines do not explicitly elicit an emotional or sentimental response, but rather adhere to the standard protocol of presenting the parties to the case. Moreover, the bulk of Cascadia Dental Specialists’ complaint remains true to the mechanical nature of the introduction, with every sentence conforming to a strict and compact pattern that relates directly back to the plaintiff’s allegations. The straightforward approach of the complaint leaves no room for ambiguity, and ultimately could afford the reader with a more candid assessment of the case.
While both complaints include a standard factual background of Covid-19 (detailing state-ordered mandated closures and specific insurance company denial responses), LJ New Haven has taken more creative liberties when writing their complaint – to evoke a more emotional appeal from the reader. Perhaps the food industry more highly values the expressive aspects of life, evidenced here in writing (i.e. the inclusion of vivid detail to enhance and illuminate the facts), while the dental industry prioritizes the mechanical (i.e. the inclusion of succinct phrasing as to not deflect from the facts)?
I don’t mean to suggest that one complaint writing style trumps the other; or that this stylistic decision will apply to every case involving restaurant owners and dental practices. The observation merely denotes a particular writing style an individual or law firm may be inclined to follow when dealing with these particular industries.