During the height of the pandemic, many business owners were effectively “put out of business” when the government ordered them to shut down. Eventually, the government allowed many to re-open but with severe COVID-related capacity limits.
Some business owners affected by these limitations submitted claims to their business interruption insurance carriers. But insurers balked at paying claims for what they did not consider to be covered losses. A recent ruling by a federal judge in Chicago may have changed the landscape for business owners and insurers alike.
Three Bellwether Cases Regarding Business Interruption Policies
Plaintiffs sometimes file similar lawsuits in more than one federal district court. A court may move all the cases to one multidistrict litigation court for pretrial proceedings. This means that pretrial motions, including motions to dismiss, will be heard by one court. Cases that survive discovery and pretrial motions return to their original district court for trial.
It’s important to note that the move to a multidistrict litigation court does not combine the cases into one mass tort or class action case. Each case remains separate unless the parties ask the court to combine them for some reason.
Often, a judge will designate several lawsuits as bellwether cases. The court’s decisions on the issues and arguments raised in these cases can help other litigants decide whether to proceed.
Several COVID-related insurance cases were filed, then transferred to a multidistrict litigation court. The judge recently ruled on several of these cases.
COVID-Related Capacity Limits and Direct Losses – the Arguments
U.S. District Judge Edmond Chang of the Northern District of Illinois considered three bellwether cases against one insurer – Society Insurance.
Plaintiffs in these cases argued that the COVID-19 existing in or around their premises constituted a direct loss covered by their business interruption insurance because:
- COVID-19 created a dangerous condition that made the premises unfit to use.
- This condition constituted physical damage to the property that was covered by their business interruption insurance.
- Society Insurance policies contained no specific language prohibiting losses caused by a virus or a pandemic.
Defendants disagreed, arguing that COVID-related capacity limits were not physical damage because:
- everything in the restaurant, including walls and floors, was still in good working order;
- the government’s shutdown orders created the losses, not COVID-19.
The judge actually disagreed with both parties in his decision.
The Court’s Ruling on Direct Losses Related to COVID
In denying the defendant’s motion to dismiss, Judge Chang found that “a reasonable jury could find that the virus was a proximate cause of the business interruptions.”
The judge also noted that the policy coverage was not limited to physical damage.
The decision, which also affects about 40 other cases against Society Insurance, does not mean that the plaintiffs won their case. The judge’s ruling was made in response to the defendant’s motion to dismiss the case. Since the motion to dismiss was denied, the bellwether cases can continue through discovery and pretrial proceedings.
Have Your Insurers Disputed Whether COVID-Related Capacity Limits Are Covered?
If so, you may need to take legal action. Before doing anything, we strongly encourage you to discuss your situation with an experienced Florida business lawyer.
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.