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Litigation News

Winter 2021, Vol. 46, No. 4

Brace for the Storm: The Tsunami of Pandemic-Related Litigation

Daniel S Wittenberg

Summary

  • The COVID-19 pandemic is expected to lead to more litigation than any other incident in U.S. history. 
  • While the pandemic is still unfolding, the wave of lawsuits is unprecedented.  
  • The effect of the coronavirus on business operations, consumer activity, economic forecasts, and everyday life makes clear that the filings to date are a precursor of what is to come.
Brace for the Storm: The Tsunami of Pandemic-Related Litigation
Paul Biris via Getty Images

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The COVID-19 pandemic is expected to lead to more litigation than any other incident in U.S. history. The coronavirus has in many ways forever changed our lives. And, while the pandemic is still unfolding, the wave of lawsuits is unprecedented. By late November 2020, over 6,300 pandemic-related complaints had been filed. As of October 2020, over 1,200 COVID-related lawsuits had been filed against insurers alone. It has been a tumultuous year, and the effect of the coronavirus on business operations, consumer activity, economic forecasts, and everyday life makes clear that the filings to date are a precursor of what is to come.

Warning Signs

Putting the number of COVID filings to date into perspective, a typical large hurricane will result in roughly 100 or less business interruption cases being filed within the first year. Hurricane Sandy resulted in around 150 business interruption cases within the first year. The Y2K bug produced no more than a few hundred lawsuits. Deepwater Horizon spurred no more than 1,000 individual lawsuits. But to be sure, a crisis of the magnitude of the coronavirus pandemic is having a global impact.

The 2008 financial crisis started in U.S. subprime mortgages and ultimately brought numerous economies to their knees. The long-term consequences of the pandemic will vary from location to location based in part on the vigilance with which social distancing and other public health interventions are implemented and adhered to. After the 1918 flu pandemic, U.S. cities that instituted social distancing just 10 days earlier than other comparable cities ended up doing materially better economically five years later. If the same holds true, there may be materially different outcomes between regions, which may drive differences in litigation patterns.

Moreover, crisis-related litigation will likely come in waves. In the aftermath of the 2008 financial crisis, institutions suffering the largest losses faced the first wave of lawsuits. Thereafter followed governmental investigations and then private litigation related to the mortgage market. There will likely be similar waves of litigation stemming from COVID. While we are beginning to see trends in the types of claims and lawsuits being filed, the full scope of the pandemic’s legal consequences may take time to emerge.

Categories of Impending Litigation Waves

COVID-19 litigation spans a multitude of practice areas and industries. Although no industry is completely immune to litigation related to COVID-19, certain business sectors—such as travel and entertainment, manufacturing, retail, and healthcare—have seen heightened litigation activity because of the pandemic. The top four areas for COVID-related litigation include insurance, civil rights, contracts, and labor and employment.

Insurance litigation currently accounts for the most suits and largest percentage of matters with allegations attributed to COVID-19. As businesses look to insurers to cover their losses due to shutdowns, they made a record number of business interruption claims in 2020. Generally, these matters assert that government-ordered closure, changing consumer preferences stemming from the pandemic, and disrupted supply chains compel the insurers to provide coverage either under policies’ civil authority provisions or because of a lack of specific virus exclusions.

Contract litigation is also prolific. Claims in this area include those for failure to refund in the single plaintiff, non-consumer setting, canceled or interrupted contract performance invoking force majeure or related common law principles, termination of supply contracts, failure to close a deal due to COVID-19, including claims related to force majeure and related common law principles, and “material adverse change in condition” clause cases. The pandemic has given rise to construction cases, event cancellation disputes, and False Claims Act litigation. Among contract cases, the largest share constitutes general contractual disputes where performance was affected by the pandemic. The second largest group consists of lawsuits against schools, primarily higher education, seeking refunds of tuition and fees. Next is litigation involving leases and events, tickets, or other refunds.

Labor and employment cases make up one of the more prodigious areas of COVID claims. As a market segment, employment filings have been steady year-over-year between 2010 and 2019, with approximately 21,000 to 23,000 cases filed each year during that time. By comparison, there were 14,078 employment cases filed in the first three quarters of 2020. In its Special Report: Impacts of COVID-19 on Employment Litigation in Federal Court, Lex Machina identified several significant COVID-specific trends. Particularly, at the time of the report, there were 309 employment cases directly attributed to the pandemic filed in federal court. Of those caused by COVID-19, retaliation claims accounted for most of the matters, followed by Family Medical Leave Act claims and Fair Labor Standards Act claims. The federal district courts with the most COVID cases were in Illinois, Michigan, New Jersey, New York, and Pennsylvania. Additionally, most federal pandemic employment cases involve employers in healthcare, transportation, and hospitality. In state court filings, California and New Jersey have more coronavirus-related employment cases than any other jurisdiction.

Regarding pandemic-related litigation overall, geographically, New York is at the top of the heap, followed by California, Florida, Texas, and New Jersey rounding out the top five.

Civil rights matters also make up a large percentage of claims. These include matters related to business closure, stay-at-home orders, and group-gathering-ban challenges. They also involve claims pertaining to other public safety measures, including private parties trying to enforce government bans.

Despite unprecedented court closures and changing procedural rules, COVID-19 class actions have steadily increased and are expected to expand across industries, jurisdictions, and areas of law. Plaintiffs’ lawyers and litigation funders have already begun capitalizing on the pandemic to bring a significant number of COVID-19–related class actions. The largest number of putative class actions filed in the United States are contract, insurance-related, and consumer protection claims, including refund cases against airlines, educational institutions, ticket sellers, and venues. Other cases have been filed arising from the federal CARES Act. The travel and transportation sector has been another frequent target, along with financial institutions, fitness companies, ticketing and event companies, manufacturers, retailers, technology companies, and other businesses, in an expanding wave of putative class actions.

Additional practice areas expected to see increased activity from the pandemic include consumer-oriented litigation and securities litigation. Consumer lawsuits have followed the interruptions and health risks caused by the outbreak. Actions alleging price gouging and failures of hand sanitizers, personal protective equipment, or cleaning products have been filed. So have claims over product labeling and marketing, refunds and cancellation policies, monthly or yearly memberships, automatic renewals, and failure to provide goods and services. This area is also a focus for regulators, and some companies are already garnering additional regulatory attention likely to generate litigation.

In the securities arena, stock drop lawsuits concerning statements regarding a company’s readiness for or response to the outbreak will likely be on the rise. Unlike the 2008 financial crisis, however, there is not yet a spate of cases claiming systemic deception with claims of misrepresentation and fraud on a large scale. Moreover, companies accepting government relief will face increased regulatory scrutiny and lawsuit exposure concerning their use of government funds.

When the Water Recedes

The scale of loss associated with the coronavirus pandemic has yet to be realized. Will a winter surge flood the courts with filings? While the prospect of multiple vaccines against the outbreak coming to market seems promising, there is certainly no ebb in sight for COVID-19 litigation.

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