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.
In non-coronavirus news, the Washington Office of the Insurance Commissioner has enacted a new Washington Administrative Code trade practice regulation that goes into effect on August 1, 2020. WAC 284-30-770. This new WAC relates to “Adverse Notification Requirements.” Going forward, for any coverage denial, final claim payment if it is less than what the insured claimed, or cancellation, termination, etc., the letter to the insured must contain the following language:
“If you have questions or concerns about the actions of your insurance company or agent, or would like information on your rights to file an appeal, contact the Washington state Office of the Insurance Commissioner’s consumer protection hotline at 1-800-562-6900 or visit www.insurance.wa.gov. The insurance commissioner protects and educates insurance consumers, advances the public interest, and provides fair and efficient regulation of the insurance industry.”
The foregoing language must be in the same font and size of the text of the rest of the letter and must appear either on page 1 or at the end of the letter.
Although the WAC does not go into effect for a couple of months, Lether Law Group is recommending that the above language be added to outgoing adverse claims correspondence immediately.
Also, although technically this WAC would not apply to ROR letters, it may be prudent to add the language to those correspondence as we often find that policyholders will argue that an ROR letter is tantamount to a denial.
New Washington Caselaw
In other developments, on May 7, 2020, the Washington State Supreme Court issued a decision reaffirming its long-held jurisprudence on the duty to defend. Robbins v. Mason County Title Ins. Co., 2020 Wash. LEXIS 288.
In Robbins, the insureds sought defense and indemnity from the title insurance provider on their property in a dispute with a local Native American tribe over the tribe’s claim that it had the right to harvest shellfish on the insureds’ property. The title insurer denied coverage and refused to defend the insureds. The denial was based on the title insurer’s conclusion that the tribe’s claim was an “easement” and that “[a] treaty between the federal government and a Native American Indian tribe is not a record that imparts constructive notice pursuant to Washington law.” Robbins, 2020 Wash. LEXIS 288, *5.
The Robbins’ then sued in Mason County Superior Court alleging breach of contract and bad faith. The Superior Court granted summary judgment in favor of the insurer. The Court of Appeals reversed, finding that not only was there a defense obligation, but also finding that the title insurer had acted in bad faith as a matter of law when it denied the defense. The Supreme Court accepted review of the Court of Appeals decision.
The Supreme Court affirmed, holding that the insurer breached the duty to defend in bad faith. The primary basis for the Supreme Court’s ruling is based on its prior decision in Am. Best Food, Inc. v. Alea London, Ltd., 168 Wn.2d 398, 229 P.3d 693, 2010 Wash. LEXIS 250. Where there is uncertainty in Washington law as to whether a defense is required, an insurer may not adopt its own interpretation of Washington law in order to justify denial of a defense. Because the title insurer in Robbins adopted its own interpretation of the law on a subject that the Washington Court’s had not addressed, the insurer placed its interests ahead of those of its insureds and acted in bad faith.
This result is frankly not too surprising. The Washington Supreme Court has been consistent on its stance on the duty to defend for the better part of the past two decades.
Truck Ins. Exch. v. VanPort Homes, 147 Wn.2d 751, 761, 58 P.3d 276, 282, 2002 Wash. LEXIS 718, *14.
There is, however, one aspect of the Robbins decision that is novel and should be highlighted. The Washington Courts have long held that the duty to defend is triggered by the filing of a Complaint against an insured and the insured’s tender of that lawsuit to its insurer. VanPort, supra., Woo v. Fireman’s Fund Ins. Co., 161 Wn.2d 43, 164 P.3d 454, 2007 Wash. LEXIS 555.
The insurer in Robbins argued that it could not have breached the duty to defend because the tribe’s harvest-rights claim had not been filed as a civil action, but merely was set forth in a demand letter to the insureds. The Supreme Court rejected that argument based on the insurer’s policy language, which stated that the insurer would defend any “claim or suit” to which the insurance applies. There has always been some ambiguity in Washington law regarding this issue and now the Supreme Court appears to have firmly resolved the issue. Insurers with “claim or suit” language should be prepared to assign defense counsel even when the claims against their insureds have not been formalized in a lawsuit.
If you would like to discuss these recent developments in Washington law or any other matters, please feel free to contact us at any time.
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.
As we enter day 29 of the Washington State shutdown order, it appears that the worst of the COVID-19 crisis in Seattle may be behind us. The weather in April has been fantastic. There have been sunny, clear days over the Emerald City. Boats, paddleboards, and kayakers have returned to Lake Union. Joggers, bikers, and walkers have flooded the bike trails in front of Lether Law Group’s office on Westlake.
On the work front, our attorneys, paralegals, and staff have gotten used to a new normal, working from home and continuing to serve our clients. Now that the end of the of the current restrictions appears to be close at hand, Lether Law Group has implemented new guidelines for workplace safety and have begun to bring in employees on a staggered schedule. It has been an entire team effort on behalf of everyone.
Finally, to prove that life can return to normal, we are pleased to announce that our Mama Goose hatched five baby chicks on April 19. Despite all of the sadness and fear in the world, mother nature has taken care of us. Her eggs were laid on March 26, a day after the shutdown order took effect in Seattle. Putting it into perspective, it really does not seem that long for these new lives to have been created and for all of us to have gone through this crisis. As we watched her goslings hatch into the world, we look forward to the new world that we are all entering into as the COVID-19 crisis slows down.
We hope everyone remains healthy and positive as we move forward.