Member Article

This 18th edition of Unprecedented, our weekly update on COVID-19-related litigation, sees us return to what, even in these early days of the pandemic, must be considered as some of the hottest topics. Thus, we discuss new insurance coverage disputes from the owners of Cheers in Boston and the internationally known restaurateur Jose Andres in Washington, D.C. We also look at a challenge to a Colorado shutdown order brought by a separate group of bar and restaurant orders before turning to similar challenges brought against eviction moratoria by landlords in Pennsylvania and New York. Finally, we conclude with a look at Congress’s progress on promised liability protections for businesses and a recent lawsuit against the University of North Carolina system that challenges its plans for returning students to campus.
 
We hope you find these cases, and the questions they raise, to be informative.
 
 
Will the impact of business closures and insurance implications continue?
 
Insurance coverage litigation continues to drive much of the growth in COVID-19-related litigation. Many of the disputes focus on the applicability of so-called “all-risk” policies to losses from government shutdown orders. Businesses claiming coverage argue that “all-risk” policies should be interpreted broadly to encompass all risks, and they often point to so-called “civil authority” coverage for losses resulting from an "order of civil or military authority.” Insurance carriers, on the other hand, primarily argue that a virus’s presence in a building does not meet the policies’ physical damage requirements. In some cases, the insurance carriers even point to specific exclusions for virus-related damages.
 
In the few cases to be decided so far, courts have sided with the insurance carriers and denied businesses’ claims for coverage. Nonetheless, new claims continue to be filed, including by some well-known businesses.
 
The owners of Magic City Casino, for instance, have filed a federal lawsuit contending that four insurance companies have wrongfully denied claims for coverage of business interruption losses. It argues that its all-risk policy’s civil authority coverage includes the closure orders issued by Governor Ron DeSantis and local officials and contains no exclusions for pandemic-related losses. News coverage can be found here. 
 
The owner of Boston’s Cheers bars has sued its insurance carriers to contest denials of its business interruption claims. In addition to seeking a coverage determination however, Cheers also incorporates bad-faith arguments, alleging that the insurance companies failed to act in good faith by not investigating claims properly and by arbitrarily and summarily denying all pandemic related claims. It alleges that the insurance denials have been categorical and appear to be based, at least in part, on internally inconsistent or ambiguous language in the contracts. Click here for news coverage.
 
Other well-known restaurateurs have filed suits against their insurance carriers, as well. We reported in an earlier Unprecedented update about a lawsuit filed by celebrity chef Thomas Keller and, last week, his contemporary Jose Andres followed his lead by filing his own lawsuit. On behalf of his restaurant group, Andres argues that he was given no notice that coverage could depend on direct physical loss. And most interestingly, he alleges that his insurance carriers’ broker expressly disagreed with the carriers’ coverage position. News coverage is available here, and the complaint is available here.
 
 
Will restaurants and bars find relief from shutdown lawsuits in the courts?
 
The Tavern League of Colorado has filed an equal protection lawsuit against the state's Department of Public Health and Environment, arguing that the 200 bars and restaurants represented by the League have suffered violations of their 14^th Amendment rights. The suit challenges the June 30 executive order issued by director Jill Hunsaker Ryan, which limited capacity in businesses to no more than 50 percent, and capped "extra large establishments" to 100 patrons. In order to succeed on its constitutional claim, the League would have to show that the state's regulations are not rationally related to a legitimate government interest, which includes promoting public health. However, the League is asking the court to strike down the limitation on the number of individuals allowed to be seated in an establishment, arguing that only 4 percent of positive COVID-19 cases in employees have been attributed to restaurants. On the other hand, the CDC has stated that indoor dining carries a higher risk, and the Texas Medical Association has deemed bars as the most likely place to transmit the virus. Click here for news coverage.
 
 
How long will moratoria on evictions last?
 
Across the country, governments—sometimes the judicial branch, sometimes the executive branch—have placed moratoria on evictions, arguing that the associated upheaval would undermine public health efforts to control the novel coronavirus. Landlords have responded with legal challenges, including in Pennsylvania. And in that state, it appeared that the Supreme Court of Pennsylvania would exercise its King’s Bench jurisdiction to provide an answer. Last Friday, however, the Court dismissed a  group of Pennsylvania landlords’ legal challenge as having been improvidently granted, thus requiring the parties’ dispute to first wend its way through the lower courts. This one-line dismissal sparked a spirited dissent from Justice Wecht, who argued that “[s]omeone must answer the difficult constitutional questions” before asking, “If not us, then who? If not now, when?” At least for the moment, those questions remain unanswered in Pennsylvania. News coverage is available here.
 
Even if the landlords had succeeded in having the Supreme Court of Pennsylvania hear their claim, however, they could not have been sure of finding success. A recent decision from the U.S. District Court from the Southern District of New York, for instance, upheld New York Governor Cuomo’s executive order limiting evictions against takings, contracts clause, due process, and petitioning challenges. Key to the Court’s reasoning were two points: (1) the landlords were operating in a highly regulated area where new restrictions should have been foreseeable and (2) the landlords retained the ability to sue for back rent and other damages at some point in the future. The Court’s opinion is available here.
 
 
Will the government be able to shield companies from lawsuits?
 
As Congress continues to negotiate the details of another coronavirus relief bill, one of the sticking points is whether—or to what extent—the bill should shield businesses from COVID-19-related lawsuits. Proponents claim that without liability protections, businesses are forced to either stay closed and risk bankruptcy or reopen and risk being exposed to expensive litigation. Critics claim that the familiar negligence standard, which requires a business to take reasonable care to prevent injury on its premises, already strikes the appropriate balance between protecting customers from COVID-19 and protecting businesses from overwhelming liability. In the absence of congressional action, some businesses are asking customers to sign waivers or informed consent agreements. News coverage on the debate is available here.
 
The relief bill unveiled by the GOP last week includes provisions aimed to shield businesses from COVID-19-related liability. Under the proposal, businesses would be protected from coronavirus liability in all cases except where the business is “grossly negligent” or where it engages in intentional conduct. A plaintiff would further have to prove that the business was not making “reasonable efforts” to comply with local COVID-19 safety rules. News coverage on the GOP’s proposal is available here. While the extent of liability protections remains to be seen, it seems likely the next coronavirus relief bill will include some degree of liability protections for businesses.
 

As students prepare to go "back to school," will lawsuits impact what that means?

A new class action lawsuit filed by 30 professors against their employer, the University of North Carolina system, seeks to delay opening their campuses to students this fall. The UNC system encompasses 16 different campuses across the state, and each is developing its own unique rules and guidelines for opening in the fall. Most campuses are opening their dorms in some capacity, having varied types of classes (in person, virtual, and hybrid), requiring masks, and encouraging social distancing. The lawsuit argues that these preventative measures are insufficient to guarantee the safety of professors, staff, students, or local residents, particularly as information on COVID-19 changes so quickly and many parts of the country (where out-of-state students may hail from) are seeing surges in transmission. The lawsuit also alleges that the UNC system's plans to re-open violate state COVID-19 mandates and fails to comply with the CDC's COVID-19 guidelines for institutes of higher education. In particular, the CDC outlines different university re-opening plans according to their risk (low, more, or high). The lawsuit claims out that some of the system's plans fall into the "more risk" or "high risk" categories, thereby needlessly exposing staff and students to infection. To avoid such a risk, the professors seek to delay having students report to campus to live in dorms or attend classes. According to UNC's online academic calendar, new student convocation for the fall 2020 semester begins this week, on August 9, with classes to start the next day. We therefore expect to see this case progress quickly. News coverage can be found here.
 
 
Questions?
 
Spilman’s COVID-19 Task Force is monitoring litigation arising out of this pandemic to help keep our clients informed and in front of liability issues. Contact us with any questions or requests for tracking particular types of litigation arising out of the COVID-19 pandemic.