Business owners continue to grapple with ongoing issues as they begin the reopening process following coronavirus government-mandated closures. As business interruption insurance claims continue to mount following these closures, so do lawsuits against insurance carriers. With the continued influx of litigation, it’s important for business owners to understand the difference between a class action lawsuit and multidistrict litigation (MDL), as well as how these consolidated legal proceedings may not be the best route for companies with solid business interruption coverage.
Class Action and Multidistrict Litigation
Though similar, class actions and MDLs are two different types of aggregate litigation. A class action is a type of lawsuit where one (or a handful) of the parties in a group of similarly situated plaintiffs collectively represents the entire group. Class actions are designed for instances where tens of thousands of individuals have suffered similar injuries as a result of actions taken by a defendant or defendants. Class actions are most appropriate when the damages claimed by each plaintiff are too small to merit individual claims. By filing suit as a group, the plaintiffs consolidate and share resources to obtain restitution. A class action can be attractive to a defendant in some respects, because if a settlement is approved, it usually results in a broad release for the defendant by all members of the class.
Multidistrict litigations, or MDLs, on the other hand, are different from class actions in that they usually involve thousands of different individual lawsuits. An MDL consolidates individual lawsuits filed in federal courthouses across the country and transfers them into a single federal court. MDLs were created to conserve judicial resources for lawsuits that involve similar allegations or, as is often the case, involve a single product that has been alleged to have caused harm. Often, MDLs will streamline the discovery process for the constituent cases, with a single federal judge fashioning discovery rules and procedures that apply across the MDL. MDLs often involve hundreds or thousands of individual lawsuits, with each individual maintaining his or her own case and obtaining his or her own subsequent recovery – unlike in class actions where the financial recovery will largely be uniform across the class.
Business Interruption Coverage Lawsuits
With the continued influx of COVID-19 claims under business interruption policies, it’s important for business owners to understand that class actions and MDLs aren’t necessarily a good fit in the event their business interruption coverage is sound. Traditionally, cases against insurance carriers involve disputes between an insured and their carrier on basic issues such as whether or not the claim is covered under the policy terms, if the claim is excluded under the policy, and how much loss the policyholder suffered.
With regard to coronavirus class action cases, however, one class representative would allege a claim on behalf of all policyholders whose policies do not specifically exclude coverage for pandemics. Unfortunately, there are important issues to address with this in regard to class actions:
Scope of litigation is too broad
COVID-19-related class actions are likely to be incredibly broad in nature and not limited to the specific form of the plaintiffs’ policies. Rather, class actions of this degree will likely seek to bundle all policies defendants issued that have three common characteristics: coverage for business income loss, extra expense coverage, and no exclusion for pandemics. There will likely be disputes over which policies satisfy those criteria. As class actions continue to develop, there may be attempts to define a more narrow class limited to policyholders whose policies follow a particular format issued by a particular insurer.
Varied state actions
Because the coronavirus didn’t just affect a few states or one centralized area in the U.S., there are likely to be jurisdictional issues. For example, in Florida, professional wrestling was deemed essential; however, in Michigan, a Detroit resident who wanted to travel to a hunting cabin in the Upper Peninsula would have violated the state’s shelter-in-place order. The different criteria under which a business can be deemed essential and the differing rules of each stay at home order would impact a nationwide class action insurance lawsuit because these variations are too significant to the ultimate damages model.
Law professors expressed concerns that the Judicial Panel on Multidistrict Litigation (JMPL) has become increasingly reluctant to create MDLs. The likeliest candidates for federal litigation consolidation are products liability and disaster claims stemming from one single adverse event that caused signature injuries. Lawsuits involving insurance policies historically have only a 40% chance of achieving MDL consolidation, meaning the likelihood of this occurring with COVID-19 business interruption cases is unlikely. Since insurance law concerns involve matters of state law, and each individual state has its own unique precedent as to what constitutes a physical loss or damage, among other major business interruption policy questions, making these matters difficult to consolidate as the issues of law could vary by the geographic location of each business.
COVID-19 Insurance Claims Attorneys
COVID-19 has thrown businesses for a loop for months. With many business interruption claims left up in the air, it’s no surprise business owners are unsure of what is covered by their policies. As lawsuits begin to mount against insurers, policy language must be thoroughly reviewed and assessed in order to determine available coverage. Raizner Law has held the top insurance carriers in the world accountable for wrongfully denying, delaying, or underpaying valid claims. If your business has been directly impacted by COVID-19 and you would like insight on your coverage options, contact the experienced attorneys at Raizner Law today.