COVID-19 Business Interruption Insurance Claims Reach Consolidation

On Tuesday, December 15, the U.S. Judicial Panel on Multidistrict Litigation moved to consolidate COVID-19 business interruption lawsuits against Erie Insurance Group. This MDL, In Re: Erie Covid-19 Business Interruption Protection Insurance Litigation, is the latest pandemic-driven litigation to reach consolidated status.

The Rise of Business Interruption Insurance Claims

Between March 16 and November 23, 2020, U.S. businesses filed 1,427 business interruption cases against insurance carriers. Given the volume of cases, the U.S. Judicial Panel on Multidistrict Litigation continues to assess motions to the consolidation of these actions. Earlier in the year, the Panel declined to consolidate business interruption litigation on an insurance industry-wide basis, explaining that carrier policy factual differences would not promote efficiency. Since then, the panel has approved a few consolidations, including this most recent MDL against Erie Insurance Group.

The Erie Order

The Panel decided that consolidation of In Re: Erie in the Western District of Pennsylvania “will serve the convenience of the parties and witnesses and further the just and efficient conduct of litigation.” At this time, more than two dozen cases are consolidated in the Western District, presided over by Judge Mark R. Hornak. This includes the initial 13 lawsuits plus additional pending cases.

The Parties & Claims

Plaintiffs in the consolidated cases operate in various industries, including restaurants, hair salons, hospitality, and spas. The plaintiffs have filed suits in federal district courts located in Illinois, New York, Pennsylvania, and Tennessee.

The defendant, Erie Insurance Group, is a regional insurance carrier. It operates in 13 jurisdictions, including the District of Columbia, Illinois, Indiana, Kentucky, Maryland, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and Wisconsin.

The plaintiffs claim that Erie wrongfully denied policyholders’ claims for business interruption protection insurance. Depending on what provisions plaintiffs individually purchased, Erie business interruption coverage provides business income coverage, civil authority coverage, and extra expense coverage.

Common Factual Issues

Consolidation will promote the actions’ efficient resolution because the claims share common factual issues related to Erie’s business interruption policies. The Panel determined that the legal actions all require an assessment of “whether COVID-19 caused any “loss” or “damage” to property, and “whether any of Erie’s policy exclusions apply to preclude plaintiffs’ claims.” Any discovery concerning the drafting and interpretation of the policies will be common to all actions.

Just and Efficient Actions

Per 28 U.S. Code § 1407, consolidation is required not only for efficiency but also to promote the just conduct of the actions. In the transfer order, the Panel noted that many of the plaintiffs “are on the brink of bankruptcy as a result of business lost due to the COVID-19 pandemic and the government closure orders.” With 25 total actions pending in six states and the District of Columbia, the Panel believes these cases can be best streamlined in a proceeding before a single judge.

A Defined Geographical Scope

Opponents maintained that consolidation would face discovery complications because of each case’s property-specific and unique aspects. The Panel, however, points out that there are only 13 jurisdictions involved, and suggested that the transferee judge can use any number of pretrial techniques—including establishing state-specific tracks and selecting certain already-briefed motions in individual cases as bellwether motions—to manage any differences that the Erie MDL may present.

The parties opposing consolidation also asserted that informal coordination among the parties and courts is a better approach than formal centralization. The Panel observed that unconsolidated action coordination would be difficult with “more than two dozen cases brought by diverse counsel before twenty judges” and determined the multidistrict nature required consolidation.

Final Thoughts

Businesses struggling in the pandemic will certainly continue to sue insurance carriers to attempt to enforce payment on business interruption coverage. And as these lawsuits continue to amass, the U.S. Judicial Panel on Multidistrict Litigation will also keep evaluating each motion for consolidation based on the principles they laid out in In Re: Erie. Practitioners can use this case to bolster their motions pro or con for consolidation of multidistrict lawsuits.