MDL judge tosses COVID-19 biz-interruption claims against Erie Insurance

  • Dozens of plaintiffs in nine jurisdictions sought coverage under all-risk property policies
  • Court adopts majority view that virus harms people, not property

(Reuters) – Losses from the COVID-19 pandemic and related government shut-down orders don’t trigger coverage under the business-income interruption clauses in Erie Insurance’s commercial “all risk” property policies, a federal judge in western Pennsylvania has ruled.

Chief U.S. District Judge Mark Hornak rejected arguments by businesses in eight states and the District of Columbia, whose individual and potential class-action cases were consolidated into multidistrict litigation (MDL) in December 2020.

“As devastating as COVID-19 has been from a health and safety standpoint, property has not been lost or damaged by the presence of the virus, in the sense that people cannot access, use, or inhabit it due to its impaired physical condition,” Chief U.S. District Judge Mark Hornak wrote Friday, granting Erie’s motion to dismiss the policyholders’ breach of contract claims.

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Given the lack of coverage, Erie did nothing wrong by using form letters to deny policyholders claims in “blanket” fashion, Hornak added.

The plaintiffs’ additional claims for bad-faith and unfair trade practices “likely … fail as a matter of law” given the lack of coverage, the judge said. However, he gave both sides until Nov. 3 to weigh in on that question.

An attorney for Erie Insurance, Adam Kaiser of Alston & Bird, declined to comment on Monday because the matter is still in litigation.

The MDL plaintiffs’ leadership team, including co-lead counsel Kelly Iverson of Lynch Carpenter and Adam Moskowitz of the Moskowitz Law Firm, did not immediately respond to requests for comment.

The Erie MDL was the second one created by the Judicial Panel on Multidistrict Litigation for Covid-19 related business income interruption claims. The first, against Society Insurance, is pending in federal court in Chicago.

The JPML found MDL treatment was appropriate for the Erie litigation because it involved just two policy forms – one with a virus exclusion, the other without – and a defined geographical scope. Specifically, the plaintiffs raised claims under the laws of the District of Columbia, Illinois, Maryland, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia.

Of those jurisdictions, the Virginia Supreme Court has ruled that COVID contamination is not property loss or damage, and cases are pending before the high courts of Maryland, Ohio, and Washington, D.C.

However, most state- and nearly all federal-court rulings have sided with the insurers – including every federal appellate ruling so far. Hornak said the Erie policyholders had offered no “persuasive basis” to depart from the majority view.

The case is In re Erie COVID-19 Business Interruption Protection Insurance Litigation, MDL No. 2969, U.S. District Court for the Western District of Pennsylvania, No. 21-00001.

For the plaintiffs: Co-Lead counsel Kelly Iverson of Lynch Carpenter and Adam Moskowitz of the Moskowitz Law Firm

For Erie Insurance: Adam Kaiser, Tiffany Powers, and Kristin Shepard of Alston & Bird

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