By Jeff Sistrunk

Law360 (July 31, 2020, 4:20 PM EDT) -- The Judicial Panel on Multidistrict Litigation's much-anticipated hearing on whether to centralize hundreds of COVID-19 insurance cases produced many memorable remarks, including one attorney saying "five simple words" are at the heart of the policies and a panel member questioning whether a lack of consolidation may cause a "nightmare" for courts.

Here, Law360 recaps six key moments from Thursday's arguments.

'Five Simple Words'

The 90-minute hearing before the JPML, held via Zoom due to the pandemic, featured 15 attorneys weighing in on dueling transfer petitions filed in April by two groups of businesses looking to secure insurance coverage for their losses following COVID-19 stay-at-home orders. One of those is seeking to centralize federal business interruption cases in the Northern District of Illinois in Chicago, while the other is asking for the disputes to be centralized in the Eastern District of Pennsylvania in Philadelphia.

Early in the hearing, Mark Lanier of The Lanier Law Firm PC, who represents the Chicago petitioners, told the seven-member JPML that many insurers have asserted the same arguments in motions to dismiss policyholders' suits, including that COVID-19 did not cause requisite "direct physical loss or damage" to the insured property. Those "five simple words" are a common thread running through these coverage disputes, he argued.

"So you are telling me the state laws of all 50 states interpret those five words in the context of every insurance policy the same way?" U.S. District Judge Catherine D. Perry queried Lanier.

Lanier replied that he would not say "quite that, totally," but that "by and large, every state has the same basic principle of contract interpretation, that you give plain and ordinary meaning to contractual terms."

"I don't think the courts are going to find this to be that different in terms of each state, and I think that is why insurance companies are seeking a national legislative solution," he said.

Two Visions of a 'Nightmare'

The insurance industry is uniformly opposed to the creation of any kind of MDL, a point that was articulated at the hearing by Richard Goetz of O'Melveny & Myers LLP, who argued on behalf of more than 30 insurers.

Following up on Goetz's arguments, U.S. District Judge Matthew Kennelly — who is the Chicago petitioners' preferred pick to preside over a potential MDL — pointed out that about 200 of the nearly 450 pending federal business interruption cases identified in court filings are putative class actions.

"Isn't that going to be kind of a nightmare to reconcile and resolve if there isn't some form of consolidation? If not, how is it going to get worked out?" Judge Kennelly asked.

Goetz replied that, "Your Honor, I think it is consolidation that creates the nightmare." He suggested it would make the most sense for the judges currently overseeing the proposed class actions to evaluate each individual motion for class certification on its merits.

"It is hard to imagine how the motions could be the same," Goetz said. "First off, nationwide class allegations are not favored, generally, so you are looking at state-specific classes. And the facts and theories vary hugely."

Questions of Efficiency

Multiple members of the JPML expressed doubt that a single nationwide MDL would be feasible, due to numerous differences among businesses' insurance policies and claims.

U.S. District Judge R. David Proctor encapsulated that position in an exchange with Shanon J. Carson of Berger Montague PC, who represents several policyholders that favor centralization in Philadelphia.

"We have spectacular transferee judges," Judge Proctor said. "If we have one who is working on 17 different policy categories, with 50-plus different precedents, different forum selection clauses, different choice-of-law provisions, different tests on a state-by-state basis, fact-specific analyses on each plaintiff's case and each defendant's policy in that particular case, and different factors and various tests, how in the world is one judge going to get through all this with any type of efficiency?"

Carson replied that efficiency could be achieved through "management tools that are available to the judge," but signaled that his clients would also support the creation of several smaller MDLs against individual insurers facing high volumes of cases.

"If the panel thinks it would be better for that purpose to consolidate individual MDL cases against, for example, The Hartford, Cincinnati and Travelers, before three different judges as opposed to one, we would support that decision as well," he said.

'Facts on the Ground'

Ben Widlanski of Kozyak Tropin & Throckmorton LLP, who urged the JPML to reject centralization in Chicago or Philadelphia and instead form a nationwide MDL in the Southern District of Florida in Miami, told the panel that the "facts on the ground across the country are materially the same" from policyholder to policyholder.

"COVID is everywhere, and judges are dealing with the same facts," he said.

But U.S. District Judge Ellen Huvelle, who presided over the hearing, told Widlanski that, "in terms of the property damage, I don't quite understand how everything on the ground is the same."

"Isn't it going to vary about how much COVID there was somewhere, how long the exposure was, how much interruption there was, what the state order said, etc.? I don't understand how it is a common issue across all cases," Judge Huvelle said.

Widlanski replied that the questions of whether and to what extent the virus was present at a policyholder's property, and the length of the business's closure, are "more issues that go to damages, as opposed to the coverage issues."

"Damages issues, if there are problems consolidating those, can be sent back to the transferor judges, as is often the case with MDLs, or they can be resolved through some sort of claims process," he said. "The damages being divergent is not a reason not to consolidate."

'Makes Absolutely No Sense'

While some attorneys for policyholders told the JPML they support the formation of some type of MDL, others expressed staunch opposition to centralization.

One of those lawyers was Shelby S. Guilbert Jr. of King & Spalding LLP, who represents a group of 55 Chicago-based restaurants, bars and theaters in suits against Society Insurance Co.

Guilbert asserted that federal courts have "handled similar waves of insurance coverage litigation arising from national emergencies before, like Hurricane Katrina or 9/11, without centralization."

"And here, our nation's decentralized response to COVID-19, the pandemic's uneven impact on businesses in different parts of the country and in various stages of reopening, and the differences between the types of businesses making claims and the thousands of different policies at issue illustrates why an MDL makes absolutely no sense here," he said.

A 'Middle Ground'

Eric Gibbs of Gibbs Law Group LLP, who represents a San Francisco-based children's clothing boutique in a coverage suit against Travelers, proposed that the JPML take a "middle ground" approach and form several smaller MDLs in states where high volumes of business interruption cases have been filed. For example, he noted, at least 22 cases are pending in California federal courts.

A state-by-state approach could avoid the "questions of different COVID-19 orders and state laws" that would overwhelm any individual court, Gibbs argued.

"A state-by-state approach also eliminates the risk of inconsistent rulings, which can quickly result in delays, collateral litigation, an increase in litigation costs, and a strain on the courts," he said.

--Editing by Kelly Duncan.

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