Panel’s Move to Allow Some BI Litigation Consolidation Will Be Unmanageable, Market Watchers Say

WASHINGTON - Merging some coronavirus-related business interruption lawsuits into centralized cases against four carriers would be as unmanageable as an industrywide consolidation of all the litigation filed by COVID-19 impacted businesses, insurers, trade groups and market observers said.

The seven-judge panel of the federal Judicial Panel on Multidistrict Litigation rejected a request by attorneys for businesses to create a single overarching case to hear all BI cases from across the country. The court said such a case would be overwhelming.

But, the court said it was inclined to combine all pending cases against the four carriers who face about one-third of the litigation — Cincinnati Insurance Co., certain underwriters at Lloyd’s, Hartford Financial and Society Insurance. Those cases could be combined into four insurer-specific MDLs — probably assigned to four different judges — that could improve judicial efficiency (Best’s News, Aug. 12, 2020).

Such a merger would still be daunting because no two claims are ever completely alike, said attorney Eric B. Hermanson, of White and Williams LLP. “Because the issue was never fully briefed, I think the panel may have misunderstood, and possibly overstated, the extent of the similarities between policies, issues, and claims, even when there is only one primary insurer involved,” Hermanson said.

“But, even in cases involving a single primary insurer, there are likely to be a number of different policy forms at issue, with different policy language, retentions, deductibles, and obligations,” Hermanson said. “Those terms are often negotiated case-by-case to fit the specific needs of specific businesses.”

And, for larger claims, there may be different excess carriers, sitting over the primary coverage. Those excess policies may not follow form to primary, Hermanson said.

“And even if you can find cases where a single primary carrier has used similar policy language with multiple insureds — that policy language may be subject to different state laws,” Hermanson said.

In a statement, Cincinnati Insurance said it remained opposed to any sort of litigation consolidation. “We agree with the panel’s decision against the centralization of these cases in an industrywide MDL,” the company said. “We think that insurer-specific MDL centralization should likewise be avoided.”

Representatives for Lloyd’s, Hartford Financial and Society Insurance declined comment.

Erin Collins, vice president, state affairs, National Association of Mutual Insurance Companies, said the group opposed an insurer-specific centralization. “We don’t see any additional efficiencies in consolidation and, in fact, believe it will most likely slow down the process as many motions to dismiss were already pending in jurisdictions that could efficiently take care of the suits,” Collins said.

Collins also questioned whether the panel had the authority to consider such consolidation when it was not requested by either the plaintiffs or the defendants.

Shanon J. Carson, one of the attorneys for the business plaintiffs, said during the July 30 hearing it was the panel of judges who suggested the insurer-specific merger.

“But in answer to one of the questions raised by the panel, we also support the alternative that insurance-specific MDLs against the Hartford and the other named insurers,” Carson said. “The number of cases that have been filed is overwhelming.”

Tom Pegues, founder of InSuri, an insurance and risk management consultancy for small businesses, said it made sense to do some form of litigation consolidation. “Policyholders will have differences in limits and deductibles, but all other coverage grants and exclusions will be consistent across all policies,” Pegues said.

“Not grouping the lawsuits gives an unfair advantage to the insurers — needless to say, most small business do not have the resources to fight the deep pockets of the insurers on their own,” Pegues said.

The court issued a show-cause order, requiring attorneys for the four carriers to explain why the pending litigation should not be merged. They were ordered to appear at the panel’s next hearing, set for Sept. 24.

To view AM Best analysis and commentary on the COVID-19 outbreak visit: https://www.ambest.com/about/coronavirus.html

(By Frank Klimko, Washington correspondent, BestWeek: Frank.Klimko@ambest.com)

BN-NJ-8-13-2020 1545 ET #

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