By Richard Lau, Manager, Production, LegalMation
Given the massive social and economic damage that is occurring and expected to occur due to the COVID-19 pandemic, it is little surprise that COVID-19 has already driven a large amount of litigation. Despite court shutdowns and closures, the actual number of cases filed in federal district courts nationwide has not dropped.[1] Rather it has just shifted, with the vast majority of these cases consisting of either contract or insurance-based COVID-19 cases. As discussed below, these claims comprise 78.7% of all coronavirus-related matters. This article provides a brief snapshot of the current state of litigation related to the COVID-19 pandemic and likely trends that will continue once all courts reopen.
Contracts
Not surprisingly, over the last few months there was a major spike in litigation where the defendant was unable to perform under a contract due to the pandemic. According to Lex Machina, contract cases represented far more COVID-19-related cases than any other practice area, comprising 44.6% of all COVID-19-related cases filed in federal court between March 1 and May 2, 2020.[2]
A sampling of these cases shows that they usually involve the plaintiff seeking a refund for products or services that were not provided due to the COVID-19 pandemic shutdowns and quarantines. Common examples include plaintiffs seeking a refund of tuition (for classes cancelled due to the pandemic), gym memberships (for gyms shut down due to social distancing orders), and tickets for conventions, concerts, or music festivals that were cancelled. There are also a significant number of lawsuits seeking a declaratory judgment (either in suit or countersuit) that performance of the contract is impossible or asserting the applicability of a force majeure clause due to the pandemic.[3]
We expect that the volume in this area will continue to grow while quarantine and other social distancing orders are in place, as defendants will continue to be unable to fulfill their contractual obligations. This trend may be disrupted, however, as jurisdictions start to set precedents for whether force majeure provisions apply to, or the doctrine of impossibility can be leveraged for, the COVID-19 pandemic.
Insurance
The next largest area of COVID-19-related litigation is insurance, which comprises 34.1% of all COVID-19-related cases. Unlike COVID-19-related contract cases that cover a variety of subject matters, insurance cases are more homogeneous: they almost universally involve a business attempting to invoke a business interruption provision of its insurance policy.[4] A number of businesses were deemed nonessential and shuttered by various state, county, and city shutdown orders. These nonessential businesses (covering everything from nail salons to dentists) with business interruption insurance could potentially have a claim if the pandemic meets the terms of their policy.
Two key developments lead us to believe, however, that the volume of COVID-19-related insurance litigation will slow in the coming months. First, multidistrict litigation is currently pending as to whether business interruption policies are covered by COVID-19-induced shutdown orders.[5] Due to the homogeneity of facts in these lawsuits, a decision in one will likely set precedents that will either foreclose future claims or encourage insurers to pay out claims without litigation. Second, many state legislatures are attempting to address this specific question via legislation. State legislators in Louisiana, Massachusetts, Michigan, New York, New Jersey, Ohio, Pennsylvania, and South Carolina have all introduced legislation that will require business interruption policies to cover COVID-19-related closures for small business claimants.[6] The pendency of this legislation may cause businesses in these states to wait to bring suit in anticipation of the adoption of their state’s legislation.
Employment
Employment cases comprised only 6.6% of all COVID-related cases so far, yet we expect this area to have significant growth in the coming months as unemployment continues to rise and state courts reopen. The current batch of COVID-related employment cases fit broadly into two categories: 1) an employee who was let go or had hours reduced in response to the pandemic claiming wrongful termination or unpaid wages; or 2) an employee who became sick or was exposed to COVID-19 due to unsafe working conditions.[7]
Wrongful termination and reduced pay suits arise when either the employee is let go due to a business reduction as a result of COVID-19 or when the employee is let go because he or she is suspected of having COVID-19 or being an asymptomatic carrier of COVID-19. The plaintiffs in the former type of cases are relying heavily on the Fair Labor Standards Act, while plaintiffs in the latter cases are using some novel strategies. The most notable of these strategies attempt to characterize asymptomatic carriers as disabled and, therefore, entitled to reasonable accommodations under the Family Medical Leave Act/Americans with Disability Act.
As noted above, we anticipate a strong rise in litigation in this area for several reasons. First, as with insurance litigation, various legislatures have attempted to preempt the question by creating COVID-19-related statutory protections. Most significant of these attempts is the U.S. Congress passing the Families First Coronavirus Act, and the Emergency Family Medical Leave Act. As these provisions become active, they will create new causes of actions against employers. Moreover, there are almost certainly numerous potential lawsuits where the plaintiff is waiting for standing to accrue or the courts to reopen. For example, a recently fired employee may need to wait until damages are more calculable before filing.
Medical
Surprisingly, there have been relatively few cases directly related to a plaintiff’s health or malpractice for their treatment. We expect that there will be a significant increase in this area as the initial uncertainty and chaos from the pandemic resolves and individuals and families are able to reevaluate their treatment and review guidelines and procedures issued by various medical authorities.
It would not be surprising to see an influx of these types of personal injury and tort claims as plaintiffs realize they may have been harmed.
What’s Next?
While we feel fairly confident in our predictions as to which practice areas will start or continue to see significant amounts of COVID-related litigation, there is a lot we still do not know and need to pay attention to as events develop. Over the next few months, as courts reopen and people attempt to return to normalcy, we will be able to get a much better picture of how COVID-19-related litigation will impact the legal system. As a vaccine is predicted to be at least 12 months away and the statutes of limitations for COVID-19-related claims can be up to 4-years, we expect the pandemic to have a significant impact for at least the next 5 years.
[1] In re: COVID-19 Business Interruption Insurance Coverage Litigation, No 90 before the USJML.
[2] “States Begin to Introduce Legislation: Business Interruption Policies Would Be Required to Cover COVID-19-Related Claims” https://www.venable.com/insights/publications/2020/04/states-begin-to-introduce-legislation-business
[3] See, e.g., “Coronavirus Coverage Litigation: the Week in Review” for weeks between April 17 to May 22 in Law 360.
[4] https://lexmachina.com/ongoing-impacts-of-the-coronavirus-on-litigation-activity-in-federal-district-court/
[5] https://lexmachina.com/tracking-new-litigation-caused-by-covid-19/
[6] See, e.g., “Coronavirus Coverage Litigation: the Week in Review” for weeks between April 17 to May 22 in Law 360.
[4] See, e.g., “Coronavirus Coverage Litigation: the Week in Review” for 7eeks between April 17 to May 22 in Law 360.
