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While policyholders continue to lose most COVID-19-related business interruption coverage disputes, a clear picture on the issue will likely not emerge before state supreme and federal appellate courts issue more rulings on the issue.
Insurers so far have largely argued successfully that the coronavirus does not result in physical loss or damage to property – the critical issue in many COVID-19 cases – and therefore lost revenue is not covered under all-risks policies. Federal courts in particular have mainly ruled in favor of insurers, but policyholder attorneys say it is too soon to draw any conclusions on the overall eventual outcome.
Observers estimate that of the cases filed, 90% of federal court cases have been decided in the insurer’s favor, compared with 75% of state court cases. Experts have a range of theories that explain the discrepancy, but there is no clear consensus as to why this has occurred.
Two recent cases have gone in opposite directions. Last week, a Pennsylvania state court refused to dismiss a COVID-19-related business interruption suit filed by the New York Yankees’ Triple-A baseball team against CNA Financial Corp.
But a New York state judge agreed to dismiss COVID-19-related business interruption litigation filed by a Dallas-based restaurant chain against a Swiss Re Ltd. unit.
Policyholder attorney Micah E. Skidmore, a partner with Haynes & Boone LLP in Dallas, said policyholders have asked that several cases filed in federal appeals courts be referred to the relevant state supreme court. He said this “makes a lot of sense” because these cases ultimately involve contractual interpretation issues, which are matters of state law.
No state supreme courts have issued rulings on the issue yet, and only one federal appeals court, the 8th U.S. Circuit Court of Appeals in St. Louis, has issued a decision, which was in insurers’ favor.
“The trend has been overwhelming in the federal courts, and almost as overwhelming in the state courts, that there’s no coverage under traditional commercial policies for COVID-19 business interruption claims,” said insurer attorney Lee Siegel, a member of Hurwitz & Fine PC in Melville, New York.
But policyholder attorneys say it is too soon to reach any conclusions. While federal rulings so far have been disappointing for policyholders, it is “by no means the end of the line” because state laws, policy language and facts differ, said Cary B. Lerman, a policyholder attorney with Munger, Tolles & Olson LLP in Los Angeles.
Some policies have virus exclusions, for instance, while others do not, and some explicitly provide coverage for government-ordered shutdowns, he said.
Policyholder attorney Paul Walker-Bright, counsel with Neal, Gerber & Eisenberg LLP in Chicago, said many decisions so far were based on policies that have virus exclusions, so “the numbers look a little lopsided because of that.”
If federal appellate decisions “follow the pattern that has been seen in the state trial court level,” which has recently been in policyholders’ favor, “we should start to see a shift here” because the federal courts “will not be able to ignore” the rulings, he said.
“I don’t know how it’s going to turn out,” said policyholder attorney Scott D. Greenspan, senior counsel with Pillsbury Winthrop Shaw Pittman LLP in New York. “It’s really going to be up to the state supreme courts.”
“I don’t think there’s going to be a deluge one way or the other when it all shakes out,” said Mr. Lerman of Munger, Tolles & Olson.
Policyholder attorney Marshall Gilinsky, a shareholder with Anderson Kill P.C. in New York, said, “When you mix and match the different permutations, as well as the different approaches used in different states, I think what we’ll see is different outcomes,” with policyholders winning some and losing others. “But it’s all going to depend” on policy language, the facts of the case and the state law, he said.
Tyrone R. Childress, insurance recovery practice leader with Jones Day LLP in Los Angeles, said, “There are new cases being filed daily, and trial courts are going to do whatever trial courts are going to do,” but until federal circuit or state appeals courts provide more guidance, “everyone is still going to be wondering where the cases are going to go.”
Insurer attorney Larry D. Mason, a partner with Goldberg Segalla LLP in Chicago, said insurers overall will prevail. “We’re seeing more and more settled law emerging for which judges are more likely to find comfort in what is becoming the majority trend” of pro-insurer rulings, he said.
Pro-policyholder rulings will likely be overturned on appeal, Mr. Mason said.
However, policyholder attorney Scott Godes, a partner with Barnes & Thornburg LLP in Washington, said that in past decades, “hotly contested” asbestos and environmental litigation cases initially went insurers’ way, in whole or in part, before the trend shifted toward policyholders.