The coronavirus pandemic has had a massive impact on the insurance industry, specifically on the business front. One of the outcomes was the increase of bad faith insurance claims against business interruption insurance providers. As with most things regarding the pandemic, the surges in business interruption coverage claims and lawsuits against insurers that fail to pay up are unprecedented. So, to better serve policyholders and business owners, motions were passed to centralize bad faith insurance lawsuits.
Haffner Law explains what centralized lawsuits mean, and why federal courts rejected the motions involving business interruption insurance claims.
The Pandemic and Its Impact on Businesses
When the outbreak first started and state and city governments imposed lockdowns in an effort to stop the spread of the virus, small and medium businesses were the first to experience significant declines in their daily and monthly revenues. Brick-and-mortar businesses in the leisure and hospitality industries, in particular, were severely affected by social distancing regulations and the widely implemented work-from-home employment arrangements.
As is the practice of sound business ownership, the owners of these small and medium businesses religiously paid insurance premiums for business interruption coverage. They have every right, therefore, to file insurance claims when business declined thanks to the economic ramifications of the COVID-19 pandemic.
Acts of “Bad Faith”
Under normal circumstances, businesses will have no issue claiming what they’re due from their insurance companies. Unfortunately, the overwhelming number of businesses that went under during the pandemic has put a strain on the insurance industry as a whole. As business entities themselves, insurers are also looking out for their own interests. Hence, reports about an increasing number of insurers denying business interruption coverage claims increased, and along with them, the bad faith insurance claims against insurance companies.
Motion to Centralize Lawsuits
A milestone ruling in August 2020 put an end to several plaintiff’s motions to centralize lawsuits filed by businesses seeking fair business interruption coverage against insurance companies.
Seeing that many of their peers have been victims of “bad faith” acts by insurers, many business owners (the plaintiffs) and law firms that do not specialize in insurance coverage lawsuits thought it beneficial to have coordinated, multidistrict litigation (MDL) in federal court. This motion is based on the premise that business interruption insurance claims related to the pandemic, the structure of the insurance policies, and the insurance laws governing them are broadly the same around the country.
MDLs are usually applied to lawsuits involving vehicular crashes, defective medical devices, drugs, etc. that involve many people. MDL proceedings allow courts to manage cases with a common issue better and more efficiently by centralizing or consolidating them into one case.
The Problems with Centralizing Business Interruption Insurance Lawsuits
The federal courts decided to decline the motion to establish an MDL for business interruption insurance lawsuits for these reasons:
- The common core issues raised by the plaintiffs that sought centralization were superficial.
- There are still too many unique variables for each lawsuit, and litigating them as one case might undermine the excess coverage that some plaintiffs are justly entitled to receive.
- Forms and policy language between insurers may be similar, but each might have unique terminologies that would make each coverage different from one another.
The federal courts advise businesses to pursue claims and lawsuits individually instead. It is the most optimal approach to recovering claims considering the factors that make each business interruption claim unique.
Pursue Your Just Compensation with Haffner Law
These times have surely been difficult for you and your business. We can help ease your financial burden with our bad faith insurance claims services.
Assert your right to receive the compensation your business interruption insurance policy promises. Hire Haffner Law’s bad faith insurance attorneys to defend your claims and negotiate an optimal payout from your insurance company. Call us at 213-514-5681 or fill out the contact form on our website.
(This is an attorney advertisement by Joshua Haffner)