Plaintiffs in Some States Defy Insurer Winning Streak in COVID Lawsuits

To anyone keeping score, it appears that insurers are crushing policyholders who sued for business income lost because of COVID-19 restrictions.

As of Tuesday, insurers had won 147 motions for dismal or summary judgment in state and federal courts, according to a litigation tracker maintained by the University of Pennsylvania’s Carey Law School. Policyholders had won only 34 cases in early rounds — less than one out of five.

But if you look closer, glaring outliers emerge.

In Ohio, insurers had won only two of 11 motions to dismiss or for summary judgment, as of Tuesday. In one case, Henderson Road Restaurant Systems et al v. Zurich American Insurance Co., a federal judge actually granted summary judgment in favor of the policyholder.

On the other end of the spectrum, insurers have won all 10 early rounds in Illinois so far, and 30 out 31 cases in Florida.

“Counting wins and losses, that doesn’t give you a reliable source to look at the issues,” said Mark A. Wilner, a partner with Gordon Tilden Thomas & Cordell in Seattle. “Each state has its own law, and that’s what’s being applied so far.”

Wilner’s law firm represented two policyholders who won early rounds in COVID-19 business-interruption litigation. In fact, the rulings in those two cases were the only decisions on the issue made by Washington courts so far.

In Perry Street Brewing Co. v. Mutual of Enumclaw, the Spokane County Superior Court ruled that because a restaurant’s insurance policy covered “physical loss of” property as well as physical damage, a reasonable person could interpret that to include income lost because of government COVID-19 restrictions. Judge Michelle Szambelan said if terms are not defined, Washington state law requires any reasonable interpretation of policy language that favors the policyholder to be accepted. She granted summary judgment to Perry Street on the question of coverage.

In Hill and Stout PLLC v. Mutual of Enumclaw, the King County Superior Court denied an insurer’s motion to dismiss a coverage lawsuit filed by a dental practice. Judge Susan Amini said in her order that “physical loss” can be interpreted to mean the same thing as “deprivation of property,” which would be covered because the dental practices were forced to close for all services other than emergencies.

Hill and Stout’s insurance policy, however, had a virus exclusion. Wilner is arguing that coverage is still owed because no virus was found on the property. The question will be decided during a trial set to begin on April 19.

Wilner said relatively few cases in Washington state have been decided in early motions because many of the lawsuits filed against insurers have been consolidated in a class-action lawsuit before U.S. District Judge Barbara J. Rothstein. The case is titled Kara McCulloch DMD MSD PLLC v. Valley Forge Insurance Co.

National Fire Insurance Co. of Hartford, Transportation Insurance Co. and Valley Forge Insurance Co. on Jan. 15 filed a joint motion to dismiss the cases filed against them.

Wilner said a long line of Washington state cases favors policyholders in the coverage question, but those precedents may not exist elsewhere. While a large number of cases may have gone in favor of insurers in other states, he said that has no bearing on insurance contracts formed under Washington state law.

“That just the reality as each state gets to decide this on their own,” he said. “There’s no federal insurance coverage law that applies everywhere. It’s up to the states.”

A policyholder winning streak in Ohio continued Tuesday when Stark County Judge Frank G. Forchione denied a motion to dismiss a business-interruption lawsuit filed by McKinley Development Leasing Co. Ltd. against Westfield Insurance Co., the Tzangas Plakas Mannos law firm said in a press release. The developer owns commercial properties in North Canton, Ohio that housed a day-care center, restaurants, medical offices, clothing outlets, office spaces and beauty shops that had to shut down because of public health orders.

Forchione ruled that the language in the policy issued by Westfield was ambiguous because it did not define “loss of property.”

“At the motion to dismiss state, these allegations plausibly allege that access was prohibited to such a degree as to trigger the Civil Authority coverage,” Forchione said in his order.

Ohio case law is also “reasonably friendly” to policyholders, said K. James Sullivan, a partner with the Calfee law firm in Cleveland.

Sullivan said the large number of early dismissals outside of Ohio doesn’t mean the tide won’t turn. He said a large number of the early cases were filed by personal injury law firms who work on contingency. He said his law firm charges hourly rates and hasn’t filed a single lawsuit so far.

Sullivan said he has advised his clients to be aware of policy language that may establish filing deadlines and ensure that notice of losses are filed timely. But he said as of now he and his colleagues at Calfee are in no hurry to start litigating.

“All of our clients have the luxury of more time before investing large sums into coverage fights,” he said.

Insurers are well aware that they are winning 80% of cases in initial motions, Sullivan said. “We are not seeing insurance companies that are willing to negotiate.”

That is true even for Ohio policyholders despite the 10 rulings against insurers so far. Sullivan said many of those early victories were scored against Cincinnati Insurance Co., which uses policy language that varies from the standard forms used by many national insurers.

Sullivan said insurers may start “softening” once the Ohio Supreme Court answers a certified question put before it by U.S. District Judge Benita Y. Pearson for the Northern District of Ohio. Rather than ruling in a lawsuit filed by Neuro-Communication Services against Cincinnati Insurance, Pearson asked the Supreme Court rule on whether the presence of the coronavirus in a community, or a person who was present on a property, constitutes a “loss” as defined by the audiology practice’s insurance policy.

“When oral arguments occur before the Ohio Supreme Court, we may spring into action and try to negotiate claims,” Sullivan said.

Sullivan said he is an advocate for policyholders and believes generally that COVID-related business-interruption costs should be covered.

“I also like to think I’m a pragmatist,” he said. “When the dust settles, I think you are going to have more states than not come down on the side of insurance companies on these issues. On the other hand, I think you will have a patchwork of states that come down in favor of policyholders.”

About the photo: Perry Street Brewing in Spokane was an early winner in a COVID-19 business-interruption lawsuit against its insurer. Photo courtesy of TripAdvisor.com.