As predicted, the fallout of the Covid pandemic in the US has included a large wave of insurance coverage litigation, directed primarily at the issue of whether the business interruption coverage included in commercial insurance policies extends to the trillions of dollars in losses flowing from the virus.
What conclusions should, and shouldn’t, clients and lawyers draw from the record to date? As discussed below, the raw numbers are a starting point, and may seem to indicate momentum, but they don’t provide a sound basis for predicting the final outcome of what is sure to be a long and costly battle.
More than 1,900 Covid insurance cases are pending or have already been resolved in the state (about 650) and federal (about 1,300) courts.¹ Trial courts have issued merits rulings on more than 400 of them— roughly 85% of which have favored the insurers. New cases continue to be filed almost daily.
The forum factor
Interestingly, insurers have fared significantly better in dismissing policyholder claims in the federal courts (to which insurers have removed a number of cases originally filed in state court). Whereas the state court dismissal rate is around 57%, roughly 93% of federal cases have been dismissed at the early motion stage. Federal courts thus seem to be appreciably more aggressive in disposing of these cases at the pleading stage.
This trend is a bit surprising, on at least three grounds. First, insurance policy interpretation is, under the Erie doctrine, governed by the contract law of the different states. Second, the coverage issues presented have thus far not been addressed by most state courts. Third, many federal judges have lived through the great environmental insurance coverage wars that began in the 1980s and continue to the present, and so are well aware that the insurance industry will litigate defenses to coverage claims to the highest court of virtually every jurisdiction. Notably, federal district judges have thus far not shown much eagerness to certify those dispositive questions of state insurance law to those state supreme courts, as the rules of court in nearly all states permit them to do. (At least three federal Courts of Appeals have now done so.)
Why are at least the lower federal courts seemingly reaching out to decide novel questions of state law to dismiss cases at the pleading stage?