CLM National: February 2021

An Ohio district court judge rules that a business-interruption policy must cover losses from COVID-19 shutdown orders, the 5th Circuit sets a new standard for Fair Labor Standards Act collective actions, and, in Washington, D.C., the U.S. Court of Appeals for the District of Columbia rebukes the Trump administration’s Affordable Clean Energy rule.

Ohio

Judge Finds BI Coverage Due to Shutdown Orders

U.S. District Judge Dan Aaron Polster, in Henderson Road Restaurant Systems, Inc. v. Zurich American Ins. Co., ruled that a business-interruption policy must cover losses to a group of restaurants stemming from COVID-19 shutdown orders. Defendant Zurich argued there was no “physical loss or damage to property,” and also pointed to a microorganism exclusion. Judge Polster said the language in the policy is open to more than one interpretation, and that plaintiffs had shown that they incurred loss of “business income” due to the necessary suspension of their operations during the period of restoration “caused by direct physical loss of or damage to property at a ‘premises.’” Regarding the microorganism exclusion, Judge Polster said the plaintiffs’ restaurants were not closed because there was an outbreak of COVID-19 at their properties; they were closed as a result of governmental orders.” The court granted summary judgment to the plaintiffs with respect to insurance coverage, but denied summary judgment on a bad-faith claim.—From Managing Editor Phil Gusman

Louisiana

Ruling Sets New Standard for FLSA Collective Actions

The U.S. 5th Circuit Court of Appeals issued a landmark ruling in Swales v. KLLM Transport Servs. LLC, wherein the court did away with the two-step Lusardi framework that most Fair Labor Standards Act (FLSA) collective actions have followed for the last 33 years, and established a clarified—albeit more demanding—new process to bring claims as a class. The 5th Circuit concluded that “a district court must rigorously scrutinize the realm of ‘similarly situated’ workers….’” A district court must (1) identify for itself, at the outset of the case, what facts and legal considerations will be material to determining whether a group of employees is similarly situated; and (2) authorize preliminary discovery necessary to make that determination, which will vary by case. The initial determination must be made as early as possible, and the district court, not the standards laid out in Lusardi, should dictate the amount of discovery needed to determine if and when to send notice to potential opt-in plaintiffs.—From CLM Members Adam C. Gutmann and David L. Barron, Cozen O’Connor

Florida

Breach-of-Contract Action Limited to Damages Set Forth in Policy

The Florida Supreme Court unanimously affirmed the longstanding principle that extra-contractual and consequential damages are not available to an insured who has not brought a bad-faith action against their insurer. Instead, when an insured has only alleged that an insured has breached the terms of the policy, the insured is only entitled to recover the “amount owed pursuant to the express terms and conditions of the policy.” As a consequence of its decision, the Supreme Court rejected the lower appellate court’s finding that an insured could seek “consequential damages” for its lost rents even when the policy did not provide coverage for lost rental income so long as such those damages were “contemplated” or foreseen at the time the policy was issued. This decision is important because the court clarified one of the central tenants of first-party insurance law in the state—that an insured in a breach-of-contract action is limited in seeking only those damages set forth in the policy.—From CLM Member Alex Busvek, Wood Smith Henning & Berman

Washington D.C.

Court Rebukes Trump Administration EPA Rule

The U.S. Court of Appeals for the District of Columbia rebuked the Trump administration’s deregulatory agenda in its Jan. 19, 2021 decision in American Lung Assoc. v. EPA, which rejected the EPA’s Affordable Clean Energy (ACE) rule. The court called the ACE rule a “fundamental misconstruction” of the nation’s environmental laws, devised through a “tortured series of misreadings” of legal statute. Notably, the decision did not reinstate a 2015 Obama administration EPA regulation that would have forced energy utilities to move toward renewable energy to reduce greenhouse gas emissions. However, the court negated the Trump administration’s primary argument that the only possible way to interpret the Clean Air Act of 1970 is that the federal government does not have the authority to set national restrictions on emissions or force states to move away from fossil fuels. The Trump administration’s regulation could have prevented future presidential administrations from attempting to remedy the impacts of climate change caused by power plants without new Congressional legislation.—From CLM Member Larry Mason, Goldberg Segalla

New Jersey

Cannabis Program Takes Shape

After New Jersey voters approved a state constitutional amendment legalizing cannabis for adult use, the legislature passed NJ A21 to establish six classes of licenses to cultivate and distribute cannabis. The bill was criticized for limiting availability to just 37 licenses total over the next two years for both medical and recreational cultivators, and for failing to create strict protections for employers if their employees test positive for cannabis. A21 would distribute at least 70 percent of tax revenues from retail sales of cannabis products to investments in impact zones, which are largely in minority communities adversely affected by the criminalization of cannabis. Gov. Phil Murphy declined to sign A21, citing the need for civil penalties for individuals under 21 caught with cannabis. A new “clean-up” bill, A5211 and S3320, was proposed to address his concerns. Gov. Murphy has yet to sign the clean-up bill after the monetary-penalty provisions were harshly criticized for disproportionately impacting racial minorities if they are underage and caught with cannabis.—From CLM Member Rohan Mohanty, Cozen O’Connor

New York

Court Upholds Denial of Summary Judgment in Asbestos Case

In Morgan v. Am. Home Assurance Co., plaintiff brought Labor Law § 200 and common law negligence claims against the Port Authority of N.Y. and N.J. (PA). The decedent alleged he developed malignant pleural sarcomatoid mesothelioma as a result of occupational exposure to asbestos at JFK International Airport while he worked for Pan American World Airways in the 1970s. The decedent passed away before he was able to be deposed. Judge Manuel Mendez, former New York Asbestos Litigation coordinating judge, denied PA’s summary judgment motion. The Appellate Division, 1st Dept., affirmed, stating an issue of fact existed regarding whether PA “had the authority to control the activity bringing about the injury.” The Appellate Division also rejected PA’s argument that portions of decedent’s co-worker’s testimony contained inadmissible hearsay, and said a party may present inadmissible evidence at the summary-judgment stage as long as it is not the “sole basis for the finding that there are issues of fact.”—From CLM Member Elizabeth M. Lautenbach, Goldberg Segalla