Law.com Litigation Trendspotter: One year into the pandemic, business interruption plaintiffs notch a win, but consumers' COVID claims fail
Officially one year into the COVID-19 lockdown in the U.S., business interruption insurance litigation continues to be a roller coaster ride, while another strain of coronavirus-related litigation — class actions filed by consumers who purchased tickets for sporting events, concerts and trips, or had annual gym memberships, that became unusable once the country shut down — has so far been trending in favor of defendants.
Officially one year into the COVID-19 lockdown in the U.S., business interruption insurance litigation continues to be a roller coaster ride, with plaintiff policyholders and defendant insurers in these cases are still trading wins and losses around the country.
Another strain of coronavirus-related litigation, however — class actions filed by consumed who purchased tickets for sporting events, concerts and trips, or had annual gym memberships, that became unusable once the country shut down — has so far been more predictable, trending heavily in favor of defendants, with the cases being routinely kicked to arbitration.
As we've noted in this column before, the central question in many business interruption lawsuits is whether the presence of coronavirus on a business' property constitutes a compensable "physical loss" under the subject insurance policy.
Attorneys around the country are waiting to see whether the Ohio Supreme Court will accept a federal judge’s recent invitation to take up the issue, which could provide a roadmap for similar cases moving forward. But in the meantime, after a string of defense wins in recent months, plaintiffs landed what could prove to be a key victory in the U.S. District Court for the Northern District of Illinois late last month, with a judge ruling that “the pandemic-caused shutdown orders do impose a physical limit: the restaurants are limited from using much of their physical space.”
The consumer class actions, however, have been more cut-and-dried, with several judges ruling that the plaintiff-consumers assented to (usually online) arbitration agreements.
As Law. com's Jason Grant reported last week, U.S District Judge Edmond Chang of the Northern District of Illinois, in handing plaintiffs their most recent victory in a business interruption case, focused largely on two key elements found in the relevant policy language issued by defendants society insurance: causation and the meaning of “direct physical loss.”
Chang's 31-page decision addressed two cases brought in the Northern District of Illinois and one in the U.S. District Court for the Eastern District of Wisconsin. After “all pandemic-related litigation” launched against Wisconsin-based Society Insurance was centralized before him in October 2020 by a judicial panel, he decided the three cases worked as “bellwether” cases for the entire multidistrict litigation. Chang analyzed the three bellwethers as one, noting that the relevant business interruption policy language issued by Society Insurance to the plaintiffs, Big Onion Tavern Group, Valley Lodge Corp. and Rising Dough Inc., was “common to all plaintiffs.”
In addressing the Society Insurance policy's requirement that there be a “direct physical loss” in order for business interruption coverage to apply, Chang noted in part that “Plaintiffs have not been able to use their premises as they did for indoor, sit-down [dining] service before the pandemic.”
“These on-site service restrictions have caused most of the Plaintiffs’ losses for which they seek business-interruption coverage” but, he wrote, “according to Society [Insurance] these losses are not ‘physical’ because tables and chairs, walls and floors, stovetops and sinks remain in good working order.”
“But a reasonable jury,” Chang wrote, “can find that the Plaintiffs did suffer a direct ‘physical’ loss of property on their premises.”
Adam Levitt of DiCello Levitt, who is co-lead counsel for the plaintiffs in the multidistrict litigation against Society Insurance, recently told Law.com’s Amanda Bronstad for her “Critical Mass” newsletter that the ruling affected “the entire lay of the land” of about 40 cases against Society. As to cases against other insurers, he said the ruling was the first to address business interruption claims in multidistrict litigation.
‘We believe that, in addition to being a strongly positive development for the plaintiffs and the proposed class in the Society MDL, Judge Chang’s ruling should give any other judge pause before dismissing a COVID-19 BIl case on the ‘direct physical loss or damage’ issue,” Levitt told Bronstad.
But Bronstad also reported this week that consumer lawsuits seeking refunds for COVID cancellations, including those against Major League Baseball, Ticketmaster and LA Fitness, are being routinely rejected by federal courts nationwide, with judges overwhelmingly sending the matters to arbitration.
The consumer cases differ from other COVID-19 refund cases in which arbitration agreements have not come up, such as those brought against airlines, which involved the Airline Deregulation Act, as well as against universities over tuition refunds for the spring 2020 semester.
“There is a prohibition of forced arbitration in passenger airline tickets, and there’s regulatory requirements now that colleges cannot use forced arbitration against students,” Sarah Rooney, senior director of federal affairs at the American Association for Justice, told Bronstad. “However, in these consumer goods and services cases, forced arbitration clauses are much more widespread.”
“That’s what you expect from an arbitration agreement in a consumer contract, or any other contract: Did the consumer have reasonable notice of these terms?” Stephen Ware, a professor at the University of Kansas School of Law, told Bronstad. “They held yes, the consumer did assent.”
Many involved sign-in wrap agreements where, instead of a consumer pushing “I agree,” like a clip-wrap agreement, the website asks whether a consumer agrees to the terms of service, Ware said.
Similarly, judges in the Southern District of Florida and the Southern District of New York over the past six months or so have granted arbitration motions brought by gyms in class actions over unusable memberships.
And a judge in the Eastern District of Pennsylvania in October kicked a class action against Grand Circle over a canceled trip to Africa to arbitration as well.
As Bronstad noted, lawmakers in both houses of Congress, on Feb. 11 and March 1, introduced the FAIR Act, which stands for “Forced Arbitration Injustice Repeal.” The legislation would ban forced arbitration, which are agreements signed prior to a dispute, like the ones at issue in these consumer case.
“By and large, the case law is that if an arbitration agreement exists, that the case or claim is sent to arbitration,” said Rooney of the AAJ, which has long supported a ban on forced arbitration. “It very much speaks to why we think the legislation is necessary.”