Insurers Face Increased Pressure to Expedite Wildfire Claims Due to Notice from Insurance Commissioner
The rapid spread of COVID-19 throughout the United States and resulting governmental shut-down orders have sparked a large increase in business interruption claims and subsequent litigation. While “direct physical loss” and “necessary suspension” policy language have been addressed in most jurisdictions, the less commonly litigated terms of civil authority coverage and virus exclusions are the subject of debate in many courts across the country. The following is a summary of notable rulings on COVID-19 business interruption coverages:
Lether Law Group currently represents several national insurers in COVID-19 business interruption litigation in state and federal courts in Washington, Oregon, California, and Pennsylvania. If you have questions about any state-specific requirements which have been enacted due to the COVID-19 pandemic or general questions in regard to pending insurance claims and compliance with any regulatory requirements, please feel free to contact our office.
The above article is an opinion based on various resources such as industry knowledge and is not to be construed as legal advice or to be used as such. If you require legal advice or would like to inquire further about the information contained in this article, please feel free to contact our office directly.
Earlier today, the Panel for Multi-District Litigation issued an Order denying consolidation of hundreds business interruption coverage lawsuits related to COVID-19.
The Panel held that the allegedly common issues supporting consolidation, “share only a superficial commonality.” The Panel further held that there would be little potential for common discovery and that because each case will involve, “different coverages, conditions, exclusions, and policy provisions purchased by different businesses in different industries located in different states,” the differences in analyzing coverage will overwhelm any common issues.
The Panel held that consolidation would present serious managerial and efficiency concerns that make consolidation inappropriate for these claims.
As a result of this ruling, nearly all of the COVID-19 related business interruption lawsuits filed through the United States will remain in the District Courts where each case originated.
The exception may be for a limited number of insurers. The Panel has asked for additional briefing as to whether insurer-specific MDL’s might be appropriate for Lloyd’s, Cincinnati Ins. Co., the Hartford insurers, and Society Insurance.
Lether Law Group represented The Dentists Insurance Company in opposing MDL treatment for these matters. We are pleased that we were able to obtain this result. If you have any questions or if we can be of assistance on any COVID-19 related matters, including class actions, please feel free to contact us at any time.
Finally, in light of the potentially severe impacts of the COVID-19 pandemic on business throughout the state and country, we expect more complicated valuation disputes.The risk of inflated claims may also increase.
These are just a few of the potential coverage issues raised by the Insurance Commissioner’s announcement and the damage caused during by the recent civil disturbance claims.
As many of you likely recall, the Washington Supreme Court affirmed the trial court’s dismissal of the statutory extra-contractual claims asserted against an employee-adjuster on October 3, 2019 in Keodalah v. Allstate, 194 Wn.2d 339, 449 P.3d 1040 (2019). However, as we noted in our newsletter discussing the opinion, the Court seemingly left open the possibility that certain extra-contractual claims could be brought against adjusters based on the common law.
In particular, we noted that the majority opinion did not address whether a common law bad faith claim against an adjuster was legally sustainable in Washington. In fact, the dissent expressed a belief that such a claim should be recognized in Washington. Further, all of the Consumer Protection Act (“CPA”) claims addressed in Keodalah were per se claims based on violations of statutes and regulations applicable to insurers. The Keodalah court did not address so-called traditional common law CPA claims based on the Hangman Ridge elements proscribing any deceptive or unfair act or practice that occurs in trade or commerce, affecting the public interest and proximately causing injury to business or property.
A recent federal court decision has once again addressed the dispute over whether adjusters can be held liable under certain extra-contractual claims post-Keodalah. In Leonard v. First Am. Prop. & Cas. Ins. Co., 2020 U.S. Dist. LEXIS 23680 (W.D. Wash. 2020), Judge Ronald B. Leighton was confronted with a Motion to Remand after First American removed the Leonards’ state court action asserting various extra-contractual claims against First American and its adjuster. The Removal was based on the premise that the claims asserted against the non-diverse adjuster were fraudulently joined and precluded by Keodalah.
In granting the Motion to Remand, Judge Leighton expressly recognized that the Keodalah court left open the possibility that a common law bad faith claim against an insurance adjuster could be a viable cause of action in Washington. He also cited to Panag v. Farmers Ins. Co. of Washington, 166 Wn.2d 27, 41-42 (2009), wherein the Court held that no contractual relationship was necessary to prevail on a CPA claim, to support the proposition that a traditional CPA claim against an insurance adjuster could also be viable. While Judge Leighton recognized that these causes of action might eventually be dismissed or precluded, he ultimately ruled that “it is better to leave such novel questions of Washington State law to Washington State courts.”
Based on Judge Leighton’s analysis in Leonard, it appears that the Supreme Court’s decision in Keodolah may have only been a partial step in addressing the viability of direct causes of action against insurance adjusters in Washington. We will likely not know with certainty what, if any, claims may be brought against adjusters in Washington until common law bad faith claims and common law CPA claims against adjusters are tested in Washington appellate courts.
If you have any questions regarding the effect of the cases discussed herein or any other issues involving Washington insurance law, please do not hesitate to contact our offices.
The Petitioners argued that the order was invalid for a number of reasons including lack of constitutional authority. The Pennsylvania Supreme Court disagreed and found that the Governor did have authority for the Executive Order. In reaching its conclusion, the Court noted that the Governor had authority under the Pennsylvania Emergency Code to protect the public from natural disasters. Under the Emergency Code, the term “natural disaster” is defined to include catastrophes that result in “substantial damage to property, hardship, suffering or possible loss of life.” The Court held that the COVID-19 pandemic qualified as a “natural disaster” and fell within the same general class of disasters as the specifically enumerated “natural disasters” because they all involve “substantial damage to property, hardship, suffering or possible loss of life.”
The Friends of Devito Court went on to note that the Petitioners’ arguments ignored the nature of the virus including the way in which it is transmitted. Because the virus is transmitted by person-to-person contact, has an incubation period of up to fourteen days, can live on surfaces for several days, and carriers can be asymptomatic, the Court concluded that “any location (including Petitioners’ businesses) where two or more people can congregate is within the disaster area.” Thus, the Court rejected the argument that there had “been no disasters in the areas in which [the Petitioners’ businesses] are located.”
On the surface, both arguments are concerning for insurers faced with COVID-19 related Business Interruption claims. However, both arguments appear to conflate “loss of use of property” with “physical loss of” property. As such, they ignore the term “physical.” These types of arguments have already been rejected by several courts. These courts have held that the “physical loss” is not the same as “loss” in general because actual physical change to the condition of the insured property is required to qualify as “physical loss.” See, e.g., Ward Gen. Ins. Servs., Inc. v. Emp’rs Fire Ins. Co., 114 Cal. App. 4th 548, 556-57, 7 Cal. Rptr. 3d 844, 850-51 (2003); MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., 187 Cal. App. 4th 766, 778-80, 115 Cal. Rptr. 3d 27, 37-38 (2010); Se. Mental Health Ctr., Inc. v. Pac. Ins. Co., 439 F. Supp. 2d 831, 837 (W.D. Tenn. 2006); and Phx. Ins. Co. v. Infogroup, Inc., 147 F. Supp. 3d 815, 825 (S.D. Iowa 2015).
While unpublished, a 2006 Washington State Court of Appeals case is instructive on the flaw in the newest COVID-19 arguments. In Washington Mutual Bank v. Commonwealth Ins. Co., the bank argued that “direct physical loss of” and “damage to” property have two separate meanings and were separated by the word “or”, such that the trial court erred in requiring actual physical damage to trigger coverage. The bank further argued that the term “loss” was broader than the term “physical damage.” The Washington State Court of Appeals rejected that argument and stated:
The language of this clause specifies that the loss must be “direct physical loss.” The clause does not use the word “loss” in the abstract. … When NWPT recommended evacuation, there was no actual physical loss to the property and no actual damage to the property. See Wolstein v. Yorkshire Ins. Co., 97 Wn. App. 201, 211-12, 985 P.2d 400 (1999) (noting that language in a similar “all risks” policy required the insured property to sustain actual damage or physical loss to invoke coverage).
Wash. Mut. Bank v. Commonwealth Ins. Co., No. 56396-3-I, 2006 Wash. App. LEXIS 1316, at *7-8 (Ct. App. June 26, 2006).
While the actual COVID-19 coverage arguments have largely yet to be formally briefed, it seems likely that courts across the country will continue to apply the well-settled rules of interpretation for insurance policies and apply meaning to each word used in a policy instead of rendering certain language superfluous. We at Lether Law Group will continue to monitor the COVID-19 arguments and cases as they develop.
Lether Law Group is already actively defending insurers in multiple class action lawsuits filed by policyholders seeking Business Interruption coverage. We are open and available to assist in the defense of any individual or class action lawsuits that may be brought seeking this coverage.
If you would like any assistance in navigating the coverage issues involved in COVID-19 related claims, please feel free to contact us for a free discussion regarding your issues and how we can be of assistance.