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Unprecedented: COVID-19 Litigation Trends - Issue 17, 2020
July 27, 2020
This 17th edition of Unprecedented, our weekly update on COVID-19-related litigation, discusses everything from insurance coverage disputes to statewide shutdown orders. Despite an uphill climb towards liability, businesses continue to challenge their insurers' denials of COVID-19-related claims. At the same time, they are looking to Congress for help against potentially ruinous liability claims while also trying to shift current COVID-19-related litigation to the federal courts. On the government side, Pennsylvania Governor Wolf is locked in a battle over a recalcitrant county’s entitlement to federal relief funds. And, in a case that’s likely to re-energize the debate over shutdown orders, the Supreme Court of the United States just denied a Nevada church’s request for an injunction in a one-line order that prompted three separate dissents from the Court’s conservative bloc.

We hope you find these cases, and the questions they raise, to be informative.
Will businesses continue to look in vain for relief from their insurance companies?

Ethan Stowell's Seattle, Washington restaurant group, ES Restaurant Group ("ESR"), has filed a lawsuit in state court against its California-based insurance company, Fireman's Fund Insurance (owned by Allianz), alleging that the insurance policy in place should cover lost income due to the pandemic. ESR alleges that takeout nets them only about 20 percent of their normal revenue, which caused ESR to lay off about 90 percent of its staff in response to the initial March stay-at-home order. Since then, some employees have been rehired, but with business so slow, the restaurants are still desperately hurting. ESR claims their policy, as written, covers income lost as a result of disease, presumably including disease caused by a pandemic, and seeks the coverage denied by Fireman's Fund Insurance. Also alleged is that the insurance company is issuing form denials without actually investigating claims. Click here for news coverage.

ESR’s predicament is far from unique: the hospitality sector, and particularly the dining sector, has been hard hit by government shutdown orders and consumer anxiety. And so, while industry observers predict that most insurance coverage claims will face a near-vertical climb, and even as early decisions go against plaintiffs, efforts to force insurance coverage are unlikely to abate.
Will employee and customer liability continue to make an impact regarding litigation?

Employers faced with wrongful death claims related to COVID-19 are asserting novel arguments to remove cases, originally filed in state court, to federal court. As the COVID-19 death rate continues to rise across America, families of the pandemic’s victims are increasingly blaming employers’ unsafe working conditions for their loved one’s deaths and filing claims against employers to recover damages for the wrongful death of their loved-ones. These types of wrongful death claims rely on state tort law and would historically be heard in state court. But, there is a growing trend of employers that argue these COVID-19 related wrongful death claims should be heard in federal court.

Employers assert that the myriad of executive orders and OSHA guidance demonstrate a unique federal interest in the safe operation of businesses, which demand uniform interpretation in federal court. These employers argue that whether they violated a duty to an employee will largely depend on their compliance with President Trump’s executive orders and OSHA’s safety guidance. This hands-on guidance, the employers contend, demonstrates the federal government’s unique interest in the safety precautions businesses take to protect their employees from COVID-19. Historically, the federal government’s direct involvement in a specific area has proven enough to establish federal question jurisdiction.

It remains to be seen whether the various COVID-19-related executive orders and OSHA guidance will implicate a sufficient federal interest to establish federal question jurisdiction. The majority of federal courts have yet to rule on the challenges to employers’ notices of removal, but we can expect a decision in the near future. These decisions will have significant implications on the importance of employers’ compliance to the President’s executive orders and OSHA guidance, and these decisions will dictate where employees and their loved ones should look to hold negligent employers liable.

More information related to employers’ attempts to establish federal question jurisdiction for COVID-19-related wrongful death claims can be found here.
Will businesses find any protection from COVID-19 liability?

For months, businesses have been calling upon lawmakers at the state and federal level to provide them with liability protection from COVID-19-related lawsuits. Their concern stems from the evolving understanding of the novel coronavirus, which complicates efforts to identify and follow the standard-of-care that is necessary to avoid basic tort liability. On the other side, however, are employee and consumer advocates, who argue that liability protection would relieve businesses of the obligation to provide basic safety measures. The issue is now ready to come to a head as part of Congress’ negotiation of a new stimulus package. Urged on by a letter from 21 Republican governors, Senate Majority Leader McConnell has called liability protections a red line, whereas House Speaker Pelosi has likewise insisted that the majority-Democratic chamber will not support any liability protections for essential workers.  News coverage can be found here and here.
Will students continue to push back when it comes to in-person versus online tuition?

Since closing their doors to students in March, around 100 colleges and universities have been sued by students trying to recover refunds for tuition and fees after their education went online. The lawsuits generally allege that the institutions breached contracts with students by failing to offer in-person educational services, experiences, and opportunities throughout the spring 2020 semester due to COVID-19. For example, two Kansas State students recently filed a class action lawsuit against the school seeking tuition refunds. News coverage is available here.

Even as these lawsuits challenge past conduct, they set the tone for colleges and universities’ risks as they plan for the fall semester. Colleges that have already decided on fully remote instruction, for instance, have undoubtedly considered what effect that should have on tuition (if any). And colleges that are planning in-person instruction are surely keeping a close eye on employers’ experiences with safety protocols for face-to-face interactions. At bottom, though, there is no single solution that can satisfy every constituent or eliminate every risk, and so colleges and universities must be prepared for additional litigation come fall.
Can Pennsylvania’s governor withhold federal funds from a county that defied his shutdown orders?

A lawsuit recently filed in Pennsylvania will test whether a governor can impose financial sanctions on counties or communities that defy state-level COVID-19 orders. Lebanon County has sued Governor Tom Wolf to force him to release over $16 million of federal funding for COVID-19 relief. Previously, several GOP-held counties publicly threatened to defy the Democratic Governor's COVID-19 orders, and Governor Wolf responded with his intent to withhold COVID-19 funding from any counties that did so. Governor Wolf then made good on his promise by passing guidelines through the Department of Community and Economic Development that “any noncompliant county will be ineligible for funding.” Ultimately, this led to the denial of federal aid to Lebanon County, making it the only county in the state to not receive a share.

In the lawsuit, the Lebanon County commission claims its vote was merely "symbolic" and denial will unfairly hurt its innocent citizens, while Governor Wolf maintains there must be "consequences" for local governments that choose to disobey COVID-19 orders and mandates. It will therefore be left in the hands of a Commonwealth Court judge to decide whether the funds are to be distributed, or represent a valid financial sanction. With the federal Congress contemplating additional COVID-19 relief and calls for another shutdown in response to record-breaking infection numbers, it will be critical to see what authority (if any) a state's governor has to distribute or withhold federal funds based on non-compliance with state, federal, or CDC regulations regarding COVID-19. Click here for news coverage.
Are shutdown orders still surviving judicial scrutiny?

As our past issues of Unprecedented have noted, most challenges to state shutdown orders have found little success. The one exception has been in free-exercise cases, where courts have split over whether mass-gathering restrictions unconstitutionally infringe on the free exercise of religion. As a recent stay application before the Supreme Court of the United States shows, the justices are no less split.

By a 5-4 margin, on July 20 the Supreme Court denied Calvary Chapel Dayton Valley’s request for an injunction against Nevada Governor Sisolak’s shutdown order pending appeal. The majority offered no reasoning for its decision, but the Court’s conservative bloc—made up of Justices Alito, Thomas, Kavanaugh, and Gorsuch—generated three separate dissents. Beyond the First Amendment doctrinal issues governing the Court’s decision-making process, the dissents reflect a deep discomfort with an environment in which Las Vegas casinos can host hundreds of patrons in close proximity but religious organizations are limited to far smaller gatherings, as well as an environment where large protests are tolerated but large religious services were not. Justice Alito’s dissent even suggests a willingness to limit the Court’s precedents authorizing a broad exercise of police powers in response to public health emergencies—a willingness that is sure to raise new arguments and perhaps new cases, as well. News coverage is available here, and the Court’s order and dissenting opinions are available here.

The Justices’ disagreement, however, should not be allowed to hide the larger point: shutdown orders have largely survived judicial scrutiny. Even while the Justices were deciding the Nevada case, for instance, a federal court denied a waterpark’s challenge to Washington Governor Inslee’s shutdown order. Not only did it find that Governor Inslee had the statutory authority to issue the order, it found that the waterpark’s substantive due process claims were foreclosed by Supreme Court precedent that tolerates broad measures to protect public health. News coverage is available here, and the Court’s order is available here.

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.
Litigation Joseph A. (Jay) Ford
304.720.5650 Chelsea E. Thompson