The lopsided victories to date by insurers in litigation over whether policyholders’ business interruption policy provisions cover losses due to government-mandated closures during the COVID-19 pandemic likely won’t continue, experts say.
Eventually, more courts will rule in favor of policyholders, say both insurer and policyholder attorneys, although many are reluctant to hazard estimates as to which side will win the most cases.
A major factor in future rulings will likely be state law precedents, which vary significantly, observers say, while noting court proceedings are generally still in their very early stages. A ruling in the United Kingdom largely in favor of policyholders may also be influential in the United States.
As of late last month, there were a handful of pro-policyholder rulings in COVID-19 business interruption cases, including two by a federal district court in Missouri issued by the same judge and one by a federal district court in Florida, with about a dozen other courts ruling in insurers’ favor (see related story). More than 1,200 business interruption lawsuits have been filed to date in the U.S.
Insurers have largely successfully argued that coverage for lost income is excluded because the COVID-19 virus did not cause physical damage or loss under terms of policyholders’ property coverage when they were forced to close by government orders, or because of a virus exclusion.
In Mudpie Inc. v. Travelers Casualty Insurance Co. of America, for instance, the U.S. District Court in San Francisco held in its Sept. 14 ruling that a Travelers Cos. Inc. unit was not obligated to pay a lost income claim submitted by Mudpie Inc., a San Francisco children’s clothing and toy store that was forced to close earlier this year to help limit COVID-19’s spread, because the store did not sustain a physical loss under the terms of the policy.
Experts say many of the initial decisions have been procedural in ruling whether the cases can move forward, and eventually there will be appellate court rulings that will more directly address the cases’ substantive issues.
Ty Childress, insurance recovery practice leader at Jones Day in Los Angeles, said that in the procedural-based cases, it is “hard to know what the courts would do if the pleadings were different.”
“As more is learned from court decisions, pleadings will become more precise,” said David E. Weiss, a partner with Reed Smith LLP’s litigation insurance recovery group in San Francisco.
Policyholder attorney Micah E. Skidmore, a partner with Haynes & Boone LLP in Dallas, said, “If you look at the decisions coming down, and adjust your pleadings accordingly, you would expect the policyholder-to-carrier ratios of cases that are going to get decided will even out, and perhaps even eclipse the carriers.”
For policies with broad language and no virus exclusion “there’s a lot of wiggle room” for potential coverage, “based on what your facts are,” policyholder attorney Stephen V. Masterson, with Andrade Gonzalez LLP in Los Angeles, said.
However, insurer attorney Jennifer L. Mesko, counsel with Tucker Ellis LLP in Cleveland, said, “Most policies are written in a way that is not covered,” and typically require a direct physical loss.
David Simonton, counsel with Dentons US LLP in San Francisco, who represents insurers, believes insurers will continue to prevail. The case law “has really grown into a robust body and consistent line of cases,” he said.
Some experts say a major factor in the insurer victories to date is that many of these cases have been handled by plaintiff attorneys who do not specialize in insurance law.
Most of the plaintiff attorneys specialize in class actions, personal injury and other regular business issues, said policyholder attorney Michael S. Levine, a partner with Hunton Andrews Kurth LLP in Washington. “They’re not pleading the cases properly,” he said.
Over the long term, the bigger claims will be handled by sophisticated firms, he said.
There will ultimately be a “mixed bag of outcomes,” said K. James Sullivan, a policyholder attorney with Calfee, Halter & Griswold LLP in Cleveland.
“Because each state has its own insurance laws, and each judge may be asked to look at the issues through different lenses, you’re going to see at least a handful of cases that are going to cut for policyholders,” he said.
Experts cite states including Florida, Illinois, New Jersey and Pennsylvania as among those whose laws are considered to be more policyholder friendly, while Michigan and New York are considered more pro-insurer.
Brenton W. Vincent, a partner with Bryan Cave Leighton Paisner LLP in Chicago, said despite having no precedential value, the English High Court’s business interruption ruling in September in favor of policyholders, in a case filed by insurance regulator the Financial Conduct Authority, may be influential.
However, Keith Moskowitz, a partner with Dentons in Chicago, said he does not believe that litigation will influence U.S. cases because the policies at issue “do not have that physical damage requirement” that are in the U.S. policies. “We’re talking about some very unique policy language,” he said.
