Court filing
Society's Opposition to Limited Fund Class Certification — In re Society Insurance COVID-19 MDL
Record facts
| Court | U.S. District Court for the Northern District of Illinois |
|---|---|
| Filed | 2021-08-10 |
U.S. District Court for the Northern District of Illinois · No. 1:20-cv-05965 · Doc. 240 · 2021-08-10 · Docket on CourtListener
Summary
Defendant Society Insurance’s memorandum of law in opposition to a motion for certification of a limited fund class under Fed. R. Civ. P. 23(b)(1)(B), filed August 10, 2021 as Document 240 in In re: Society Insurance Co. COVID-19 Business Interruption Protection Insurance Litigation, MDL No. 2964, Master Docket No. 20-cv-5965, in the U.S. District Court for the Northern District of Illinois. The memorandum argues that the plaintiffs have not carried their burden under Rule 23 on numerosity, commonality, typicality and adequacy, that the limited fund device does not fit insurance coverage claims, and that the value of the claims has not been established. It also argues that the proposed nationwide class would include policyholders who never submitted a pandemic-related claim. The 22-page filing asks the court to deny the motion or hold it in abeyance pending discovery.
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UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
IN RE: SOCIETY INSURANCE CO.
COVID-19 BUSINESS INTERRUPTION
PROTECTION INSURANCE
LITIGATION
This Document Relates to All Cases
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MDL No. 2964
Master Docket No. 20-cv-5965
Judge Edmond E. Chang
Magistrate Judge Jeffrey I. Cummings
DEFENDANT SOCIETY INSURANCE’S MEMORANDUM OF LAW
IN OPPOSITION TO MOTION FOR CERTIFICATION OF
A LIMITED FUND CLASS PURSUANT TO FED. R. CIV. P. 23(B)(1)(B) AND
APPOINTMENT OF CLASS REPRESENTATIVES AND CLASS COUNSEL
Michael D. Sanders
PURCELL & WARDROPE, CHTD.
10 South LaSalle Street, Suite 1200
Chicago, IL 60603
(312) 427-3900
(312) 427-3944 (facsimile)
msanders@pw-law.com
Laura A. Foggan (admitted pro hac vice)
April N. Ross (admitted pro hac vice)
CROWELL & MORING LLP
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 624-2500 (telephone)
lfoggan@crowell.com
aross@crowell.com
Counsel for Defendant Society Insurance
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Defendant Society Insurance Company (“Society”), by and through its undersigned
counsel, respectfully submits this memorandum in opposition to the Motion for Class Certification
of a Limited Fund Class Pursuant to Fed. R. Civ. P. 23(b)(1)(B) and Appointment of Class
Representatives and Class Counsel.1
INTRODUCTION
With their improper and premature bid for a “limited fund” class, Plaintiffs and Co-Lead
Counsel seek to preempt the independent claims of other policyholders and place themselves in
sole control of all litigation concerning Society’s COVID-19 coverage, both within and outside
this MDL.2 They also purport to lay claim to all of Society’s assets, substituting their judgment
for the determination of the Wisconsin Insurance Commissioner, which oversees Society’s
financial condition, ignoring the existence of state guaranty funds, and otherwise attempting to
elevate their interests above those invested in the ongoing operation of Society’s business and the
rights of other policyholders.
Despite their ambitions, Plaintiffs’ motion fails for multiple reasons:
1 In anticipation of this motion, Plaintiffs specifically asked whether Society would consent to certification
in the MDL litigation of a Rule 23(b)(1)(B) limited fund class consisting of all Society property
policyholders nationwide, whether or not a claim for COVID-19 related business income loss has been
submitted to Society. Having considered Plaintiffs’ specific request and its parameters, Society advised
Plaintiffs that it did not agree that such a class should be certified. There was no discussion of any other
possible definition of a class, nor have Plaintiffs moved for certification of any alternative formulation to
their request for a single nationwide class of all property insurance policyholders. Society reserves the right
to evaluate, and respond to, any other possible class proposal, which will necessarily present its own
calculus of the numerosity, commonality, typicality and adequacy of representation, as well as other
considerations.
2 Besides being a blatant power-grab, Plaintiffs’ motion is improper. Society pointed out the significant
procedural and substantive issues with the proposed Master Complaint in its opposition to Plaintiffs’ motion
for leave (D.E. 166). Although the court granted Plaintiffs leave to file a modified Master Complaint,
significant questions remain regarding the propriety of certifying a mandatory class under a complaint
where Plaintiffs themselves represented that other individual plaintiffs were not waiving their “right to
proceed with [their] individual claims on a parallel track notwithstanding any class(es) which may be
certified” (D.E. 153-1 at Preamble) (emphasis added). This is an independent basis for denying class
certification.
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•
First, Plaintiffs have not come close to carrying their burden of proving—as a
factual or legal matter—that certification of any class consisting of all Society
property insurance policyholders nationwide is warranted, based on Rule 23’s
prerequisites of numerosity, commonality, typicality and adequacy of
representation;
•
Second, Plaintiffs attempt to invoke a limited fund class vehicle that is
inappropriate and inapplicable to the context of insurance coverage claims;
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Third, Plaintiffs have not established, nor begun to establish by any reliable
evidence, the value of the purported claims, or that Society has insufficient funds
to satisfy valid claims; and
•
Fourth, Plaintiffs improperly seek to include within the proposed class tens of
thousands of Society policyholders who never submitted a pandemic-related
insurance claim to Society, and who therefore lack Article III standing;
Plaintiffs’ motion should be denied because they have not made the necessary showing under Rule
23 to certify a limited fund class consisting of all Society property insurance policyholders
nationwide, regardless of whether they submitted a claim to Society for COVID-19 related
business income loss.3
ARGUMENT
“The class-action device was designed as ‘an exception to the usual rule that litigation is
conducted by and on behalf of the individual named parties only.”” Gen. Tele. Co. v. Falcon, 457
U.S. 147, 156 (1982). Plaintiffs have not carried their burden of demonstrating the need for an
exception to the usual rule in this case, and have not established the propriety of their specific
request for certification of a limited fund class under Rule 23(b)(1)(B). Plaintiffs’ motion for
certification of a limited fund class should be denied.
3 Plaintiffs suggest that the class should also include any policyholder that had extra expense coverage,
sought to minimize the suspension of business at a covered premises, and was denied extra expense
coverage. The Court dismissed the extra expense coverage claims in the bellwether cases (and proposes to
apply that dismissal against all Master Complaint Plaintiffs and “identical coverage claims in other non-
bellwether actions”), and should not permit a class based on extra expense allegations to be certified here.
D.E. 131 at 25-29; D.E. 229 at 17.
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I.
PLAINTIFFS HAVE NOT MET THEIR BURDEN OF PROOF.
As an initial matter, Plaintiffs’ class certification motion must be denied because it is
predicated on nothing more than the unsubstantiated, untested, and conclusory allegations in
Plaintiffs’ Master Complaint. Plaintiffs bear the burden of proving that class certification is
warranted, and must do so by a preponderance of the evidence. Bell v. PNC Bank, Nat’l Ass’n,
800 F.3d 260, 373 (7th Cir. 2015). This burden is higher than “a mere pleading standard” and
requires Plaintiffs to “affirmatively demonstrate [their] compliance with” all Rule 23 requirements;
“that is, [they] must be prepared to prove that there are in fact sufficiently numerous parties,
common questions of law or fact, etc.” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011)
(italics in original). “[E]videntiary proof” is required, and “mere allegations are insufficient.”
Langendorf v. Skinnygirl Cocktails, LLC, 306 F.R.D. 574, 578 (N.D. Ill. 2014).
District courts evaluating class certification “may not simply assume the truth of the
matters asserted by the plaintiff.” Messner v. Northshore U. HealthSystem, 669 F.3d 802, 811 (7th
Cir. 2012). Rather, the court “must make whatever factual and legal inquiries are necessary to
ensure that requirements for class certification are satisfied before deciding whether a class should
be certified, even if those considerations overlap with the merits of the case.” Am. Honda Motor
Co., Inc. v. Allen, 600 F.3d 813, 815 (7th Cir. 2010). The Seventh Circuit will vacate an order
granting class certification that is not sufficiently supported with admissible evidence. Id. at 819.
Plaintiffs fall far short of meeting their burden under Rule 23. Rather than submit
admissible evidence, their motion is replete with generic and conclusory statements of “fact”
supported by nothing more than citations to Plaintiffs’ Master Complaint. See, e.g. D.E. 215 at
11-13. On some key points, Plaintiffs do not bother citing any support at all, such as when they
declare that the proposed “Class Representatives’ interests align with other Class members’
interests” (D.E. 215 at 13). The same is true of Plaintiffs’ limited fund arguments, which are based
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on “back of the envelope” musings about claim value and are otherwise unsupported. Because
Plaintiffs failed to carry their evidentiary burden, the Court should deny the motion.
II.
PLAINTIFFS HAVE NOT ESTABLISHED THE REQUIREMENTS FOR CLASS
CERTIFICATION.
Plaintiffs’ motion must also be denied because they cannot demonstrate the prerequisites
for certification of a limited fund class under Rule 23(a) and (b)(1). The Supreme Court and
Seventh Circuit have both “cautioned strongly against overuse of (b)(1) classes” due to the
mandatory, non-opt out nature of such classes, and warning that “[t]oo liberal an application of the
mandatory-class device risks depriving people of one of their most important due process rights:
the right to their own day in court.” Spano v. The Boeing Co., 633 F.3d 574, 587 (7th Cir. 2011).
The proposed class here is precisely the type of overreach courts reject, and the motion should be
denied.4
A.
The Rule 23(a) Prerequisites Are Not Met.
As the party seeking certification, Plaintiffs “assume[] the burden of demonstrating that
certification is appropriate.” Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584, 596
(7th Cir. 1993). Plaintiffs do not come close to meeting their burden.
1.
Plaintiffs Have Not Proven Numerosity.
Plaintiffs declare that the 25,249 businesses with Society policies in 2020 “are all proposed
Class members.” D.E. 215 at 10. The Rule 23(a)(1) numerosity requirement is not a counting
exercise, but rather, focuses on the infeasibility of joining all members of the proposed class and,
4 Plaintiffs’ separate request to enjoin state court proceedings (D.E. 233), filed after the motion to certify a
limited fund class, similarly threatens fundamental constitutional rights of state court litigants and seeks to
upend long-standing principles of comity between the federal and state courts. Plaintiffs’ attempt to enjoin
state litigation legitimately filed by putative class members also raises questions about whose interests
Plaintiffs and Co-Lead Counsel intend to promote and whether they meet the Rule 23(a)(4) adequacy
requirement
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thus, the practicality of the class vehicle. Here, Society’s policyholders can be identified and
served. Cf. Tipton v. CSX Transportation, Inc., No. 3:15-CV-311-TAV-CCS, 2017 WL 10398077,
at *7 (E.D. Tenn. Sept. 26, 2017) (Rule 23(a)(1) not satisfied with “speculative evidence” given
“ease of identifying and serving all potential plaintiffs”).
Moreover, Plaintiffs’ bare assumption that all 2020 Society policyholders fall within the
proposed class definition is entirely unsubstantiated and non-credible. Plaintiffs’ proposed class
definition requires, inter alia, that a policyholder “suffered a suspension of business related to
COVID-19” and that they “were denied coverage” (D.E. 215 at 9).5 Plaintiffs offer absolutely no
proof respecting how many policyholders meet either criteria, let alone both. The Court need not—
and should not—accept their speculative conjecture. Indeed, Plaintiffs’ speculation is
demonstrably false. For instance, a large number of businesses remained open as essential
businesses under state and local regulations with no interruption in operations throughout the
Pandemic. Most regulations expressly stated that stores that sell groceries, medicine, consumer
goods (such as cleaning and personal care products), and alcoholic and non-alcoholic beverages
could remain open with no suspension of operations throughout the Pandemic. Regulations also
varied substantially by locality in terms of duration and scope. Plaintiffs have made no effort to
identify what state and local regulations may have been applicable to Society’s policyholders, or
whether particular businesses suffered any suspension of business related to COVID-19.
Plaintiffs cannot meet the numerosity requirement of Rule 23(a)(1) without some proof of
which, and how many, Society policyholders meet the proposed class definition. Plaintiffs’
5 Plaintiffs inaccurately contend that Society announced a blanket denial of all claims arising from COVID-
19 under property insurance policies. In fact, Society expressly stated that each claim would be evaluated
based on its individual facts and circumstances, and advised policyholders that they could present claims
under property insurance policies for individual evaluation. For example, the March 16, 2020 memorandum
from Society’s CEO, Rick Parks, “encourage[s] any policyholder or third-party claimant who wishes to
present a [COVID-19-related] claim to do so.” D.E. 153_1 at 75.
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suggestion that the 25,249 businesses with Society policies in 2020 “are all proposed Class
members” is erroneous speculation.
2.
Plaintiffs Have Not Proven Commonality.
Rule 23(a)(2)’s commonality requirement does not simply ask whether there is a common
question to be litigated (D.E. at 10-11). As the Supreme Court explained, “[w]hat matters to class
certification… is not the raising of common ‘questions’ – even in droves – but rather, the capacity
of a class-wide proceeding to generate common answers apt to drive the resolution of the
litigation.” Dukes, 564 U.S. at 350 (citation omitted; italics in original). The existence of
“dissimilarities within the proposed class…have the potential to impede the generation of common
answers.” Id.
Plaintiffs’ own arguments show that dissimilarities abound. The COVID-19 orders cited
by Plaintiffs varied by state and locality and, even within the same order, by type of business (e.g.,
essential vs. non-essential). D.E. 215 at 4; D.E. 151_1 at ¶¶ 62-107. Whether a particular business
suffered any suspension of its operations, and what impact COVID-19 had on its ongoing
operations are not questions amenable to class-wide answers, nor are they issues that can be
resolved for all class members “in one stroke.” Dukes, 564 U.S. at 350. Further, Plaintiffs argue
that policy interpretation turns on extrinsic evidence (D.E. 206 at 1), which necessarily depends
on the record of each individual policyholder’s insurance policy procurement. Plaintiffs also cite
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the “installing [of] safety features” (D.E. 215 at 11), 6 which necessarily depends on facts regarding
what, if any, safety features each individual policyholder allegedly installed and why.7
One of Plaintiffs’ Co-Lead Counsel conceded that significant dissimilarities exist among
Plaintiffs. Before the Joint Panel on Multidistrict Litigation (the “JPML”), the Big Onion plaintiffs
(represented by Shelby S. Guilbert, Jr.) urged that the impact of COVID-19 “on businesses varies
significantly by region of the country and by the scope and length of each state’s ‘stay-at-home’
order (assuming any given insured’s state even has one) which, as is common knowledge, also
vary dramatically on a state-by-state, business-by-business basis.” MDL No. 2942, D.E. 198 at
4.8 The Big Onion plaintiffs also specifically noted that the question of “how to calculate the
policyholder’s damages” is “of necessity…a highly-fact-intensive inquiry.” Id. at 3. That is
because “myriad, intensive factual inquiries…will drive the different types and amounts of
recovery available (e.g., some plaintiff-restaurants being unable to mitigate their losses by serving
take out).” Id. at 14.
Thus, as their own counsel concedes, Plaintiffs cannot establish commonality.
6 With respect to extra expense claims, the lack of common facts is evident. Those claims, which turn on
individualized determinations of what steps may have been appropriate to minimize the suspension of
business at a particular location for a particular business, cannot meet the commonality requirement.
7 While these issues remain to be determined, this Court also preliminarily noted that a handful of Plaintiffs’
claims may not rest on facts common to the other Plaintiffs’ allegations where they plead either (a) that the
civil authority orders prohibited all access to their premises; or (b) that their premises had in fact been
contaminated or shut down due to the possibility of contamination. D.E. 229 at 19-20 & 22-23. As the
Court noted, these were the Court’s impressions on “an initial review” of the subject complaints. Id. at 19.
Accordingly, Society reserves the right to challenge this view in later motions to dismiss, as the Court’s
order expressly provides. Id. at 23.
8 Mr. Guilbert also contended that: “If anything, conducting epidemiological modeling of the spread of
COVID-19 across a number of different geographic areas is more likely to devolve into granular and
dissimilar inquiries, rebutting the claim that the presence of the virus is a ‘pure’ and ‘basic’ question of
fact easily resolvable by coordination among dozens of plaintiffs.” Id. at 12-13 (emphasis added).
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3.
Plaintiffs Have Not Proven Typicality.
Plaintiffs also fail to demonstrate that the claims and defenses of their proposed class
representatives meet the typicality requirement. Society’s insureds encompass a variety of
business classifications. Plaintiffs have not shown that the essential characteristics of the claims
of the class at large are the same as the claims of the proposed class representatives, all of which
are restaurants. Restaurant claims will not be typical of claims by construction companies, grocery
stores, hotels, or retail stores. Plaintiffs provide no evidence that all putative class members are
similarly affected by different COVID-19 regulatory orders, or even that all putative class
members suffered suspension of their businesses, much less that all Society policyholders
presented claims, were subject to blanket refusals, or suffered business losses due to COVID-19.9
Further, not all businesses were “similarly affected” by the myriad orders issued by state
and local governments. Some businesses never closed or suffered business income loss, while
others may have voluntarily restricted their operations beyond the extent required under applicable
orders. These differences exist even among businesses that fall within the same broad category
(e.g., restaurants). Plaintiffs argue policyholders that did not file insurance claims are also
members of the proposed Class because Society allegedly made a “public denial and repudiation
of its coverage obligations” (D.E. 215 at 9). Even if Society had denied all claims on a blanket
basis (it did not), policyholders who did not file claims are subject to unique defenses that are
atypical of those policyholders who did file claims, such as the proposed class representatives (e.g.,
the implications of not filing a claim, why each policyholder elected not to file a claim, etc.). These
unique issues defeat the typicality prong of Rule 23(a), and thus defeat plaintiffs’ motion for class
9 The “lockdown” orders caused differing economic outcomes across industries. Weinstock, Lida, COVID-
19: Employment Across Industries, Congressional Research Service Report IN11564, at 4 (Jan. 5, 2021),
available at https://crsreports.congress.gov/product/pdf/IN/IN11564.
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certification. See, e.g., Mullins v. Direct Digital, LLC, 795 F.3d 654, 671 (7th Cir. 2015) (class
action defendants have a due process right to raise individualized defenses against each class
member); see also Romberio v. UnumProvident Corp., 385 F. App’x 423, 431-32 (6th Cir. 2009)
(typicality requirement not met because “[t]hat all of the plaintiffs may have been subjected to
some or all of Unum’s alleged wrongful practices does not eliminate the need for an individualized
assessment as to the ultimate propriety of the benefits decisions affecting each and every class
member”).
4.
Plaintiffs Have Not Proven Adequacy of Representation by the
Proposed Class Representatives or Counsel.
For the proposed class representatives, Plaintiffs merely make the ipse dixit proclamation
that their “interests align with the other Class members’ interests….” (D.E. 215 at 13). However,
there is simply no evidence on this point. To adequately represent a class, proposed representatives
must be more than mere figureheads with no knowledge about the case and excessive reliance on
counsel. See, e.g., Shiring v. Tier Techs., Inc., 244 F.R.D. 307, 316 (E.D. Va. 2007); Scott v. N.Y.
City Dist. Council of Carpenters Pension Plan, 224 F.R.D. 353, 356 (S.D.N.Y. 2004).
Here, Plaintiffs have provided no evidence of, inter alia, what, if anything, the proposed
class representatives know about this litigation; their commitment to prosecuting this case on
behalf of a class; what potential conflicts exist within the class; any credibility issues or unique
defenses that apply to their claims, such as receipt of PPP loans or other relief; their relationship
with proposed class counsel; and any incentives offered for their service as class representative.
See In re Payment Card Interchange Fee & Merchant Discount Antitrust Litig., 827 F.3d 223,
233-34 (2d Cir. 2016) (adequacy of representation not met where class members had divergent
interests); CE Design Ltd. v. King Architectural Metals, Inc., 637 F.3d 721, 726 (7th Cir. 2011)
(“A named plaintiff who has serious credibility problems or who is likely to devote too much
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attention to rebutting an individual defense may not be an adequate class representative.”). At the
very least, the commonality and typicality issues discussed above raise questions about whether
the proposed class representatives can adequately represent absent class members, including, for
example, those subject to different and unique defenses.
Very real questions also exist about whether proposed class counsel can adequately
represent absent class members. Counsel’s motive for seeking certification of a limited fund class
is disclosed at the very beginning of their motion – namely, Co-Lead Counsel wish to control all
settlement discussions, to the exclusion of other proposed class members and their counsel (D.E.
215 at 1-2). Counsel further tipped their hand by their recent motion seeking to enjoin all state
court class actions and foreclose any settlement or compromise discussions other than their own
(see D.E. 233). There is a clear conflict of interest between Co-Lead Counsel’s desire to enjoin
state litigation and the interests of policyholders who elected to file their own lawsuits in state
court with counsel of their choosing.
The conflict between the interests of proposed class counsel and individual class members
is further underscored by the fact that one of the Co-Lead Counsel has broken ranks. Mr. Guilbert
and his clients wish to proceed as individual plaintiffs (D.E. 215 at 13, n. 13). This confirms the
fact that some policyholders wish to continue controlling their own lawsuits, and is an
acknowledgement that proposed class counsel will not fully and adequately represent the interests
of all individual class members. See Creative Montessori Learning Centers v. Ashford Gear LLC,
662 F.3d 913, 918 (7th Cir. 2011). Disregarding these putative class members’ preferences and the
work performed by their attorneys and those courts, Plaintiffs ask this Court to sweep aside all
state court litigants and their selected counsel in favor of Co-Lead Counsel, and a limited fund
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class in this Court. This should give this Court great pause, particularly because the cases before
the court are premised on diversity jurisdiction and the parties’ claims are subject to state law.
Counsel’s proposal for a limited fund class also elevates the interests of some policyholders
over others. This self-serving proposal would harm proposed class members that may have non-
COVID property claims, such as losses from fire, windstorm, civil commotion or vandalism.
Plaintiffs are attempting to seize what they characterize as all of Society’s net capital and its
property reinsurance limits solely to fund their unproven COVID-related property claims, leaving
nothing to be allocated to legitimate, non-COVID property claims. Of course, property claims
unrelated to COVID-19 orders continue to exist; fires and tornados are still occurring. By seeking
to divert all of Society’s funds to pay for one type of claim to the exclusion of all others, proposed
class counsel seek to elevate not only their own interests in controlling settlement discussions, but
the interests of policyholders with COVID-related property claims (but not other property losses)
above the interests of all other Society policyholders. This would harm proposed class members
that suffer non-COVID related losses in addition to business interruptions due to COVID. This
directly contravenes the fundamental “equitable” purpose of limited fund classes and the adequacy
of representation requirement. Cf. Spano v. The Boeing Co., 633 F.3d 574, 587 (7th Cir. 2011)
(“It is not enough to say that the named plaintiffs want [certain] relief…if the class is defined so
broadly that some members will actually be harmed by that relief.”).
B.
Plaintiffs Do Not Meet the Requirements of Rule 23(b)(1)(B).
1.
Subjecting Insurance Coverage Claims to “Limited Fund” Class
Certification under Rule 23(b)(1)(B) Is Inappropriate.
Plaintiffs specifically seek certification of a Rule 23(b)(1)(B) “limited fund” class. Their
motion is fatally flawed because a Rule 23(b)(1)(B) limited fund class cannot apply to policyholder
claims seeking coverage from an insurance company.
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Insurers are regulated entities, subject to state regulator oversight – particularly with
respect to their payment of policyholder claims and, ultimately, their solvency. The state insurance
commissioner is charged by law with overseeing the financial condition of licensed insurers. By
asking a court to determine that possible claims for COVID-related coverage exceed the available
funds set aside by the insurer to satisfy its obligations, Plaintiffs are seeking to have this Court
displace and assume the responsibilities of the existing state insurance regulatory system, which
is designed to ensure policyholder interests are protected, and all policyholders are treated fairly
in the event of an insurer’s insolvency. See, e.g., Skokie Castings, Inc. v. Illinois Ins. Guar. Fund,
375 Ill. Dec. 777, 784 (2013) (purpose of the Illinois Insurance Guaranty Fund is to “place
claimants in the same position that they would have been” absent their insurer’s insolvency);
Stecher v. Iowa Ins. Guar. Ass’n, 465 N.W.2d 887, 888 (1991) (the Iowa Insurance Guaranty
Association is “empowered by statute to assume certain obligations of insolvent insurers”). The
suggestion that this Court should put a “hold” on the capital assets of Society to preserve them for
one designated class of policyholders – here, policyholders that have not even established that
coverage exists under commercial property policies for COVID-related claims – is deeply
problematic. See, e.g., Daskalea v. Washington Humane Soc., 275 F.R.D. 346, 366 (D.D.C. 2011)
(declining to certify limited fund class constituting a “significant and inappropriate departure
from” the “historical model” of limited fund classes). It would deprive all other Society
policyholders—e.g., those whose established property claims arise from proven covered causes
such as fire or windstorm or tornado, and those with covered claims under other lines of
coverage—of the ability to obtain payment for any claims that exceed the amounts set aside in
reserves, and through the authorized control level of risk-based capital that Society must have on
hand by law.
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Indeed, the premise that a disputed theory of insurance coverage can open the door to a
limited fund class is fundamentally flawed. If this were permissible, aggressive plaintiffs’ counsel
could freeze the ability of insurers to respond to valid claims in the aftermath of virtually any
disaster resulting in mass property damage, where plaintiffs suffering harm to their property or
income contest policy terms and claim coverage should exist. For instance, in the aftermath of
Hurricane Katrina, policyholder advocates sought to invalidate or avoid the application of flood
exclusions. Had their arguments been accepted, the value of their claims would have exceeded the
amounts set aside by insurers for covered property claims. Accepting disputed coverage claims at
the pleading stage as a basis for certification of a limited fund class would disrupt the insurance
mechanism in the aftermath of significant catastrophes or losses, freezing insurers’ operations
based on unsubstantiated coverage theories precisely when insurers are most needed to respond to
valid covered claims. The limited fund class action, designed for the vastly different mass tort
setting, is inapplicable to insurance coverage claims and the regulated context of the insurance
industry. The Court should deny class certification here.
2.
Plaintiffs Have Not Established that Society Has Insufficient Funds to
Satisfy the Claims at Issue.
Plaintiffs’ class certification motion also fails because Plaintiffs cannot establish the
fundamental predicate of a limited fund class. In Ortiz v. Fibreboard Corp., the Supreme Court
explained that “[t]he first and most distinctive characteristic” of a limited fund class is “that the
totals of the aggregated claims and the fund available for satisfying them…demonstrate the
inadequacy of the fund to pay all the claims.” 527 U.S. 815, 838 (1999). Here, Plaintiffs have not
made any reliable showing of the amount of their purported claims, have not begun to show that
Society has insufficient funds to pay valid claims, and have ignored the regulatory system through
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which the satisfaction of valid policyholder insurance claims is protected by state regulatory
regimes.
As an initial matter, Plaintiffs’ proffered “support” for the limited fund concept is their
positing the amount of the “average claim,” which is stated as fact without evidentiary support and
purportedly based on year-over-year net income declines for just 17 chosen restaurants in five
states. There is no evidence that these figures are accurate or these restaurants are representative
of all restaurants,10 or of other types of businesses, that the applicable shutdown orders affected
these restaurants’ businesses or how they were affected, or that the alleged declines in net income
are attributable wholly or in part to the pandemic. Plaintiffs cannot obtain class certification by
employing “back of the envelope” calculations that simply multiply the total number of Society
policyholders (many of whom did not suspend operations or present any claim)) by what Plaintiffs
contend (without anything nearing legal or factual support) are the average losses for their
seventeen self-selected and atypical plaintiffs. (D.E. 215 at 16).
Plaintiffs made no attempt to demonstrate that these plaintiffs are a fair proxy for all
putative class members, or to provide detail about the nature of their operations and areas in which
losses were experienced (e.g., labor costs, food cost, inventory loss, rent and utility expense
marketing expense), whether the losses were “typical,” and whether mitigation efforts were made
and what impact they had on each business’s bottom line. As the Big Onion plaintiffs explained,
“myriad, intensive factual inquiries…will drive the different types and amounts of recovery
available….” MDL No. 2942, D.E. 198 at 14.
10 Performance of individual restaurants during the Pandemic differed substantially, depending on
numerous business-specific factors, including the nature of the restaurant (e.g., fast casual vs. fine dining),
the ability of management to pivot to take-out menus and delivery services, the percentage of income from
alcohol sales, and myriad other considerations.
Case: 1:20-cv-05965 Document #: 240 Filed: 08/10/21 Page 15 of 22 PageID #:4080
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Further, a decline in net income is not the measure of a claim. Restaurants are volatile
businesses, and an assessment of each business’s historical trends as well as the changes in the
economy (uninsured loss of market), among many other factors would be necessary to determine
the amount of damages, even if coverage were found. And, among other things, Plaintiffs have
not shown the effect of, and their accounting for, other relief received (e.g., government assistance
or grants).11 None of this is close to the required showing of the value of the aggregated claims.
Plaintiffs’ unsupported assertions about Society’s ability to fund valid claims fare no better.
See, e.g., In re Trans Union Corp. Privacy Lit., 211 F.R.D. 328, 347 (N.D. Ill. 2002) (rejecting
limited fund class action purportedly justified by plaintiffs’ statutory damages claims theoretically
“exceeding Trans Union’s net worth”). Society was examined by the Wisconsin Office of the
Commissioner of Insurance (“the Commissioner”) in November 2020. The Commissioner’s report
notes that Society’s admitted assets increased by 21.5%, earned premiums increased by 10.3%,
and its surplus increased by 28.2%, since its prior examination in 2014. (D.E. 215_4 at 26). The
Commissioner also found that Society’s surplus exceeded the regulatory requirement by more than
$123 million. Id. at 20. Society is not under the “supervision” of any regulatory authorities, nor
did the Commissioner’s examination recommend any operational changes. Id. at p. 25. Plaintiffs’
unsupported “back of the envelope” calculations and assertions are no substitute for the careful
examination of Society’s solvency and financial strength undertaken by its regulator.12
11 Plaintiffs’ 0.50 “risk adjustment” (D.E. 215 at 16) is also flawed, unexplained, and wildly optimistic.
According to a University of Pennsylvania analysis, federal courts have dismissed approximately 96% of
policyholder
lawsuits
seeking
COVID-19-related
business
income
coverage.
See
https://cclt.law.upenn.edu/. The Eighth Circuit, the sole circuit court to have decided these issues, affirmed
the dismissal of the claims before it. See Oral Surgeons, P.C. v. Cincinnati Ins. Co., No. 20-3211, 2021
WL 2753874, at *1 (8th Cir. July 2, 2021).
12 Society Insurance recently had its overall financial strength affirmed as A- (Excellent) with Stable
Outlook by international rating agency A.M. Best Rating Services. Society has maintained this rating and
outlook since 2007. For the latest Best Credit Rating, see www.ambest.com.
Case: 1:20-cv-05965 Document #: 240 Filed: 08/10/21 Page 16 of 22 PageID #:4081
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Plaintiffs also make sweeping generalizations about reinsurance, but Society’s reinsurance
program is described in its Report on Examination and, again, is subject to regulatory
oversight. Of course, whether and to what extent the reinsurance contracts may indemnify or
reimburse Society for, or pay on its behalf, damages that Plaintiffs and putative class members
seek depends on the application of retentions, terms, conditions, exclusions, and limits of the
reinsurance contracts and the applicable facts, including – if any – the ultimate basis for and
amounts of liability under the insurance policies at issue in this proceeding, individually and
collectively. Plaintiffs’ unsupported assertions about the value of their claims and the resources
available to Society to fund valid claims are inaccurate and unreliable.
Finally, all fifty states “have a guaranty mechanism in place for the payment of covered
claims” arising from the insolvency of licensed insurers.13 See In re Liquidation of American
Eagle Ins., 704 N.W.2d 44 (2005). These guaranty associations are funded by assessments against
solvent insurers, and “ensure the stability of the insurance market” by protecting policyholders of
insolvent insurers. Id. Thus, even if Plaintiffs were correct on all coverage and damages issues,
and on the value of their claims, the number of proposed class members, and the sufficiency of
Society’s available financial resources (which they are not), the state guaranty funds would provide
a “safety net” that will “step in to pay covered claims in accordance with state law.”14 As a result,
Plaintiffs cannot show the “insufficiency” of funds to satisfy claims that is needed for a limited
fund class.
13 See https://content.naic.org/cipr topics/topic guaranty associationsfunds.htm.
14 See https://www.ncigf.org/.
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III.
POLICYHOLDERS WHO DID NOT FILE A CLAIM LACK STANDING.
Plaintiffs expressly include within their proposed class “all persons and entities with
covered losses who did not make a claim under their policy” (D.E. at 215 at 9) (emphasis added).
But, as most recently articulated in TransUnion LLC v. Ramirez, No. 20-297, 141 S. Ct. 2190
(2021), 2021 WL 2599472 (S. Ct. June 25, 2021) (hereafter, “TransUnion”), each putative class
member must have Article III standing—which requires a materialized, concrete injury fairly
traceable to the defendant. Putative class members who never filed claims suffered no such injury
because Society never rejected or denied their claim.
“Article III of the Constitution limits federal courts’ jurisdiction to certain ‘Cases’ and
‘Controversies.’” Clapper v. Amnesty Int’l USA, 468 U.S. 398, 408 (2013). To meet this
requirement, Plaintiffs must show, inter alia, that they suffered a “concrete and particularized
injury” traceable to Society. Access Living of Met. Chicago v. Uber Tech., Inc., 958 F.3d 604, 608
(7th Cir. 2020). This is no less true for members in a class action. In TransUnion, the named
plaintiff filed a class action lawsuit under the Fair Credit Reporting Act against credit reporting
agency TransUnion regarding its placing of “alerts” on the credit reports of consumers whose
names matched a U.S. Treasury Department list of terrorists, drug traffickers, and other serious
criminals. TransUnion, 2021 WL 2599472, at *1, *5. TransUnion, however, only actually
disclosed credit reports to third parties for 1,853 of the more than 8,000 class members. Id. The
Supreme Court ruled that class members whose reports were not disclosed lacked Article III
standing because they suffered no concrete materialized injury, i.e., TransUnion had not
represented them to others as potentially dangerous criminals. Id. at *12. Although plaintiffs
argued that members with undisclosed credit reports faced a significant risk of future harm because
their alert-containing reports could be disclosed, the Court explained that, in an action for damages,
“the mere risk of future harm, standing alone, cannot qualify as a concrete harm” for Article III
Case: 1:20-cv-05965 Document #: 240 Filed: 08/10/21 Page 18 of 22 PageID #:4083
18
standing. Id. at *13. The Court further confirmed that Article III’s materialized concrete injury
requirement is especially salient in class actions because “every class member must have Article
III standing in order to recover individual damages.” Id. at *10. Accordingly, federal courts lack
subject-matter jurisdiction to hear class actions involving uninjured class members.
Here, Plaintiffs seek to certify a class including all of Society’s 25,249 policyholders with
business interruption coverage during the course of the Pandemic regardless of whether they filed
a claim for COVID-19 related losses (D.E. at 215 at 9). Plaintiffs have presented no evidence on
how many of the 25,249 policyholders in their proposed class action actually submitted claims;
Society submits that the vast majority did not. None of these policyholders have standing to sue
because Society caused them no concrete materialized injury: Society cannot have wrongly
handled or denied an insurance claim that was never made.15 See Weaver v. Aetna Life Ins. Co.,
370 F’Appx. 822, 823 (9th Cir. 2010) (plaintiff-insured in putative class action lacked standing to
sue under group life insurance policy where she “did not allege that she made a claim for which
payment was not received during the time that she paid premiums”); Impress Communications v.
Unumprovident Corp., 335 F. Supp. 2d 1053, 1062 (C.D. Cal. 2003) (class action “[p]laintiffs have
not suffered an injury until they have sought and been denied benefits” under disability insurance
policies); Anderson v. Nationwide Ins. Ent., 187 F. Supp. 2d 447, 455 (W.D. Pa. 2002) (spouse of
insured seeking uninsured motorists coverage lacked standing to sue insurer for breach of contract,
bad faith, and unfair trade practices because spouse did not file an insurance claim); Kincaid v.
Erie Ins. Co., 128 Ohio St. 3d 322 (2011), op. mod., 127 Ohio St. 3d 1550 (“Unless and until the
15 Plaintiffs will likely respond that Society’s March 27, 2020 correspondence, attached to the Master
dissuaded certain class members from filing otherwise purportedly covered COVID-19 claims. (D.E. 153-
1, Ex. C). Plaintiffs offer no evidence, however, that any such putative class member exists. None are
among the proposed class representatives. Plaintiffs also attach another Society letter dated March 16, 2020
in which Society specifically “encourage[d]” policyholders to file a claim. (D.E. 153-1, Ex. A).
Case: 1:20-cv-05965 Document #: 240 Filed: 08/10/21 Page 19 of 22 PageID #:4084
19
insured has presented a claim to his or her insurer…and the insurer has either (1) denied the claim
or (2) failed to respond to the claim…then there is no controversy and the insured has no standing
to file a complaint in litigation.”). See also Atlanta Int’l Ins. Co. v. Atchinson, Topeka, & Sana Fe
Ry. Co., 938 F.2d 81, 83-84 (7th Cir. 1992) (insurer lacked standing to pursue declaratory judgment
against insured because insured had not submitted a “claim for payment”); Northland Ins. Co. v.
Crane, Case No. 02C7388, 2005 WL 831282, at *2 (N.D. Ill. Apr. 7, 2005) (same). Accordingly,
this Court should decline to certify the class because it lacks jurisdiction over the vast majority of
putative class members.
IV.
AT A MINIMUM, CERTIFICATION CANNOT BE GRANTED WITHOUT
ALLOWING SOCIETY A MEANINGFUL OPPORTUNITY TO OBTAIN
CERTIFICATION-RELATED DISCOVERY.
The existing record and Plaintiffs’ complete failure of proof fully support the denial of
class certification. Indeed, Plaintiffs’ inadequate discovery responses to date have left them unable
to carry their burden in connection with this requested relief. See Parko v. Shell Oil Co., 739 F.3d
1083, 1085 (7th Cir. 2014) (noting that courts “must receive evidence… and resolve the disputes
before deciding whether to certify” a class) (emphasis added). If, however, the Court does believe
Plaintiffs have provided an evidentiary basis for their motion, then Society requests that Plaintiffs
be required to provide discovery on these issues to allow Society an opportunity to obtain
information that would further demonstrate why class certification must be denied. See, e.g., In re
Brand Name Prescription Drugs Antitrust Litig., Case No. 94 C 897, MDL No. 997, 1995 WL
240534 (N.D. Ill. May 27, 1994) (denying conditional class certification so that defendants may
conduct discovery into class issues).
CONCLUSION
For the foregoing reasons, the Court should deny the motion for class certification or, in
the alternative, hold the motion in abeyance pending discovery.
Case: 1:20-cv-05965 Document #: 240 Filed: 08/10/21 Page 20 of 22 PageID #:4085
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Dated: August 10, 2021
Respectfully submitted,
By: /s/Laura A. Foggan
Laura A. Foggan (admitted pro hac vice)
April N. Ross (admitted pro hac vice)
Crowell & Moring LLP
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 624-2500 (telephone)
lfoggan@crowell.com
aross@crowell.com
Michael S. Sanders
PURCELL & WARDROPE, CHTD.
10 South LaSalle Street, Suite 1200
Chicago, IL 60603
(312) 427-3900
(312) 427-3944 (facsimile)
msanders@pw-law.com
Counsel for Defendant Society Insurance
Case: 1:20-cv-05965 Document #: 240 Filed: 08/10/21 Page 21 of 22 PageID #:4086
CERTIFICATE OF SERVICE
I hereby certify that on August 10, 2021, I electronically filed the foregoing with the Clerk
of the Court for the United States District Court for the Northern District of Illinois by using
the CM/ECF system. I certify that all participants in the case are registered CM/ECF users and
that service will be accomplished by the CM/ECF system.
By: /s/ Laura A. Foggan
Laura A. Foggan
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