COVID-19 Coverage Litigation Heats Up: Two New Lawsuits Filed In Oklahoma
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COVID-19 Coverage Litigation Heats Up: Two New Lawsuits Filed In Oklahoma

Key Takeaways:

  • Two lawsuits seeking insurance coverage for damage to property and related business losses due to the COVID-19 pandemic were filed in the Oklahoma District Court

  • Lawsuits claim insureds’ property sustained direct physical loss or damage, rendering the property unusable for its intended purpose, as a result of the “pandemic and infection”

  • Lawsuits seek coverage under policies’ business interruption, civil authority, limitation on egress and ingress, and extra expense coverages

  • Lawsuits shed light on coverage issues likely to be litigated and policyholders’ potential arguments and litigation strategies

Two additional lawsuits were filed against insurers on Tuesday, March 24, seeking coverage for losses claimed as a result of the COVID-19 pandemic. The separate lawsuits were filed in the District Court of Oklahoma (Bryan and Pontotoc Counties) by the Choctaw Nation of Oklahoma and the Chicasaw Nation Department of Commerce, which the complaints identify as two distinct Native American tribes headquartered in different cities in Oklahoma (the “Nations”). The complaints, which are substantially similar, name 15 insurers and seek coverage under multiple “all risk” policies issued to the Nations for damage to property owned by the Nations in Oklahoma.

The complaints generally allege that the Nations’ property sustained and will continue to sustain direct physical loss and damage as a result of the coronavirus “pandemic and infection,” including business interruption, extra expense, interruption by civil authority, limitations on egress and ingress, and expenses to reduce loss. The complaints assert that these damages have made the properties unusable for their intended purposes, and allege that the damages are covered under the policies’ business interruption, civil authority, ingress/egress, and extra expense coverages. The complaints seek a declaration that the insurer defendants’ policies cover the Nations’ losses and expenses as a result of the COVID-19 pandemic.

These lawsuits provide further insight into the types of claims insurers can expect to see arising from COVID-19 and the coverages under which those claims will be presented.

Also of note is that in both lawsuits—like the coverage lawsuit filed last week in Louisiana—there is no allegation that the insurers have denied coverage to the Nations for their losses. Here, the Nations do not even allege they submitted claims, let alone complete claims, for coverage. Thus, this is another case where policyholders are seeking court intervention while the claims process is ongoing, potentially hoping to obtain early favorable rulings on key coverage issues. Those issues will include whether the presence of the Coronavirus disease within a building or structure constitutes direct physical loss and whether business losses due to civil orders requiring the closure of businesses to prevent the spread of the virus are covered.

Also notable is that, like the Louisiana lawsuit, both lawsuits filed by the Nations were filed in state court, indicating state courts may be policyholders’ preferred venue for coverage disputes arising from COVID-19. In fact, in their complaints, the Nations specifically disavow any claim based on federal law and assert that their claims are based on contract and insurance laws under Oklahoma law. These statements appear intended to deter insurers from removing the lawsuits to Oklahoma federal court, based on the federal court’s original jurisdiction over civil actions arising under the U.S. Constitution, laws, or treaties pursuant to 28 U.S.C.§ 1331. With respect to federal courts’ diversity jurisdiction under 28 U.S.C. § 1332, which is a common basis for insurers to remove coverage lawsuits to federal court where the parties are diverse, the complaints identify at least one of the insurer defendants as an “Oklahoma insurer,” presumably in an attempt to defeat the complete diversity requirement.

Each lawsuit filed as a result of the COVID-19 pandemic highlights how, where, and by whom the coverage issues arising from the virus will be litigated in the future. The increase in litigated matters, particularly in situations where a claim has not yet been denied, also may forecast the likely volume of coverage litigation on the horizon.

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