Centralization Sought for COVID-19 Business Interruption Insurance Coverage Lawsuits

A motion filed with the U.S. Judicial Panel on Multidistrict litigation (JPML), seeks to centralize and consolidate pretrial proceedings for all lawsuits filed on behalf of small business owners nationwide who have been denied insurance coverage for business interruptions linked to the COVID-19 outbreak.

In recent weeks a number of individual lawsuits and class action lawsuits have been filed by restaurant owners and other small businesses who were denied COVID-19 business interruption insurance coverage, even though they paid premiums to insure against lost business.

While many insurance companies have argued the claims are not covered due to policy provisions that exclude losses due to viral pandemics or outbreaks, small business owners indicate that claims have been denied even when policies do not contain that clause, and in many situations the losses are not resulting directly from illnesses associated with COVID-19, but rather result from government “stay-at-home” orders, school cancelations or other actions taken to reduce the spread of the outbreak.

With a growing number of complaints being filed in U.S. District Courts nationwide, several plaintiffs filed a motion to transfer (PDF) on April 20, asking the U.S. JPML to centralize all coronavirus insurance coverage lawsuits before one judge in the Eastern District of Pennsylvania.

According to the motion, there are already about a dozen such COVID-19 business interruption insurance lawsuits filed nationwide, and it is estimated that hundreds, if not thousands, of similar complains will likely be filed in the coming months, as more small businesses are pushed to the brink only to find their insurance companies are not denying payments on policies they paid for.

“The Actions seek recovery of the losses sustained by businesses as a result of these government-mandated closures through the plaintiffs’ business interruption insurance policies,” the motion states. “This issue – whether business interruption insurance policies will cover losses incurred by businesses forced to shutter their business as a result of the Governmental Orders – is one of national importance and great significance to the ultimate survival of many businesses.”

Following the SARS outbreak in 2002 to 2003, many insurers placed exclusions in their coverage plans for damages resulting from pandemics. As a result, many businesses throughout the U.S. have experienced difficulties getting insurance companies to honor policies sold in recent years, claiming coverage for business interruptions caused by global pandemics are excluded. However, legal experts suggest many of these business interruption insurance denials may be improper.

The insurance companies are attempting to avoid covering large losses small business owners now face, but the lawsuits point out that the business losses are not caused by the loss of customers who contracted the virus, but rather due to “civil authority” actions that have required businesses to shut down to prevent the spread of illness.

In complex product liability litigation, where a large number of claims are filed throughout the federal court system by individuals who suffered similar injuries as a result of the same or similar products or venues, it is common for the federal court system to centralize the litigation for pretrial proceedings. However, if settlements are not reached during discovery or following a series of early “bellwether” trials, each claim may later be remanded back to the U.S. District Court where it was originally filed to go before a jury.