Commercial Litigation Update

On June 28, 2023, the U.S. Department of Justice (“DOJ”) and the U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), along with other federal and state law enforcement partners, announced a nationwide health care fraud enforcement action targeting a variety of alleged health care fraud schemes. As has been the case over the last few years, DOJ and HHS-OIG have moved away from categorizing the enforcement action as a “takedown”. The government has not explained the naming change, but one explanation is that it is no longer properly considered a true “takedown” because the enforcement activity (charges, arrests) occurs over many weeks leading up to the day it is announced.  

Given the volume of funds that were quickly dispersed during the COVID-19 pandemic, there were plenty of new areas for fraud and abuse. The Department of Justice (“DOJ”) initially set its sights on targeting the borrowers of such funds. Now, the DOJ is ramping up enforcement with the first ever False Claims Act (“FCA”) settlement with a lender of Paycheck Protection Programs (“PPP”) funds.

The October term of the Court began yesterday, with a sitting that marked the very active debut of Justice Ketanji Brown Jackson and predictions that this term will be even more controversial than last, although it is difficult for me to imagine a more incendiary decision than Dobbs.

On April 20, 2022, the U.S. Department of Justice (“DOJ”) announced a nationwide coordinated law enforcement action to combat health care-related COVID-19 fraud. In line with the announcement, the federal government has continued throughout this year to focus its enforcement on fraud in the COVID-19 space, particularly on misuse of Provider Relief funds and COVID-19 testing fraud.

Due to the large-scale shutdowns triggered by the Coronavirus pandemic (“COVID-19”), many businesses were unable to operate fully, or not at all. Litigants across the country have sought to be relieved of their obligations under contracts as a result of the pandemic-related disruptions, under legal theories including impossibility, frustration of purpose, and force majeure. As recently decided cases demonstrate, proponents of these theories have faced uphill battles.

Many employers have granted their white collar workers increased flexibility to work remotely in response to the pandemic. As a result, some employees have moved away from the areas surrounding their offices and into places with lower costs or higher quality of living. In cases where an employee with a non-compete moves to a state such as California, which has a prohibition against any “contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind,” that can present potential problems for a Company. Cal. Bus. & Prof. Code. § 16600.

The Court didn’t waste time getting to a controversial matter, the applications for stays of the Occupational Safety and Health Administration’s (“OSHA’s”) COVID-19 mandate concerning alternatives of mandatory testing, masking, or vaccination directed at employers and the Department of Health & Human Services (“DHHS”) mandate directed at health care facilities and their workers.

Readers of SCOTUS Today, especially employers, might appreciate seeing an article that I co-wrote concerning the Supreme Court's rejection of a petition to enjoin New York State's vaccine mandate applicable to health care workers: “Supreme Court Lets New York’s Vaccine Mandate for Health Care Workers Stand.”

This action is consequential on its face because while future litigation by health care workers and others is certain, no fewer than six Justices have indicated support for a major mandate that allows for very limited exemptions. This marks the second time that the Court has rejected such a petition.

As we previously reported, Judge Bough of the U.S. District Court for the Western District of Missouri denied an insurance carrier’s motion for summary judgment in K.C. Hopps Ltd. v. The Cincinnati Ins. Co. Inc., No. 20-cv-00437-SRB (W.D. Mo. Sept. 21, 2021) and sent the case to trial.

On October 28, after a three day trial, the jury returned a verdict in favor of the insurer. The case involved claims by a group of restaurants under their insurance policies’ business income (and extra expense) coverage form. Under that coverage, the insurer is obligated to pay for the insured’s ...

Although insurers largely have continued to have success in federal court defeating COVID-19 business interruption lawsuits, one judge – Judge Stephen Bough of the United States District Court for the Western District of Missouri – continues to be pro-policyholder. As we previously reported, last year he refused to dismiss several suits brought by policyholders seeking business interruption coverage for COVID-19 related losses.

Last week, in K.C. Hopps Ltd. v. The Cincinnati Ins. Co. Inc., No. 20-cv-00437-SRB (W.D. Mo. Sept. 21, 2021), Judge Bough gave policyholders ...

Our colleague Lauren Petrin of Epstein Becker Green has a new post on Health Law Advisor that will be of interest to our readers:  "DOJ's Recent Telehealth Enforcement Action Highlights Increased Abuse of COVID-19 Waivers."

The following is an excerpt:

On May 26, 2021, the Department of Justice (“DOJ”) announced a coordinated law enforcement action against 14 telehealth executives, physicians, marketers, and healthcare business owners for their alleged fraudulent COVID-19 related Medicare claims resulting in over $143 million in false billing.[1] This coordinated ...

We blogged last October (here) about the Third Circuit’s decision in FTC v. AbbieVie Inc., holding that Section 13(b) of the Federal Trade Commission Act, which expressly gives the FTC authority to obtain injunctive relief, does not allow a district court to order disgorgement or restitution. We also noted that the Supreme Court had granted certiorari to hear an appeal of the 9^th Circuit’s decision in AMG Capital Management, LLC v. FTC, where the 9^th Circuit upheld the Commission’s right to seek equitable monetary remedies pursuant to Section 13(b) of the FTC Act, while the 3^rd

As we have written here previously, businesses across the country have brought lawsuits against their insurers seeking coverage for losses related to COVID-19. According to the COVID Coverage Litigation Tracker at the University of Pennsylvania Carey Law School, over 1,500 suits have been filed since March 2020 in state and federal court. Some interesting statistics based on that information:

• Over one third of the cases have been filed by food services establishments.
• Almost one quarter of the cases were brought as class actions.
• Approximately one third of the cases involved ...

EBG attorney William O. Stein recently obtained a complete defense verdict in one of the few jury trials to be tried during the pandemic. I recently sat down with him for a Q&A regarding his experience trying a “socially distanced” jury trial during the pandemic and how it differed from a regular jury trial.

Q: What was it like trying a “socially distanced” jury trial case during the pandemic?

Following up on our prior discussion of Studio 417, Inc., et al. v. The Cincinnati Ins. Comp., a different federal judge in the Western District of Missouri recently ruled in Zwillo V, Corp. v. Lexington Insurance Co. that a Kansas City restaurant could not recover for COVID-19 business interruption losses under an insurance policy and, in the process, questioned the reasoning of Studio 417, Inc. and other recent decisions.

The owner of a restaurant in Kansas City (the “Insured”), purchased a commercial property insurance policy from Lexington Insurance Company (the ...

In September 2020, the U.S. Department of Justice (“DOJ”) and the U.S. Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) announced its annual healthcare-related “takedown.” The takedown, which involved enforcement actions that actually occurred over numerous months preceding the press event (and as such, the reference to a “takedown” is a misnomer”) targeted alleged schemes that related to opioid distribution, substance abuse treatment facilities (“sober homes”), and telehealth providers, the latter of ...

Following up on our recent post about a business interruption insurance decision by a Washington D.C. court, a federal judge in Missouri ruled last month, in Studio 417, Inc., et al. v. The Cincinnati Ins. Comp., No. 20-cv-03127-SRB, that businesses can sue their insurance carrier for business interruption losses caused by COVID-19.

Plaintiffs, owners of a hair salon and various restaurants (the “Insureds”) purchased an all risks policy from Cincinnati Insurance Company (the “Insurer”). As a result of losses sustained due to COVID-19, the Insureds sought business ...

On August 6, 2020, in Rose’s 1 LLC, et al. v. Erie Insurance Exchange, a District of Columbia trial court granted an insurer’s cross motion for summary judgment on the issue of whether COVID-19 closure orders constitute a “direct physical loss” under a commercial property policy. Plaintiff insureds (“Insureds”) own several restaurants in Washington D.C. that were forced to close and suffered serious revenue losses stemming from the Mayor’s orders to close non-essential businesses and ordering people to stay home. As a result, the Insureds made claims to Defendant Erie Insurance Exchange (the “Insurer”) under their policies that included coverage for “loss of ‘income’ and/or ‘rental income’” sustained “due to partial or total ‘interruption of business’ resulting directly from ‘loss’ or damage” to the property insured. The policy also stated that it “insures against direct physical ‘loss.’”

Dictionary Definitions Open to Interpretation

As the Court framed the issue, “[a]t the most basic level, the parties dispute whether the closure of the restaurants due to Mayor Bowser’s orders constituted a ‘direct physical loss’ under the policy.” To support their argument, the Insureds relied on dictionary definitions of “direct” as “[w]ithout intervening persons, conditions, or agencies; immediate;” and “physical” as pertaining to things “[o]f or pertaining to matter, or the world as perceived by the senses; material as [opposed] to mental or spiritual.” The policy defined “loss,” as “direct and accidental loss of or damage to covered property.”

The Insureds relied on these definitions to make three arguments. First, they argued that the loss of use of their restaurant properties was “direct” because the closures were the direct result of the Mayor’s orders without intervening action. The Court rejected that argument because those orders commanded individuals and businesses to take certain actions and “[s[tanding alone and absent intervening actions by individuals and businesses, the orders did not affect any direct changes to the properties.”

Second, the Insureds argued that their losses were “physical” because the COVID-19 virus is “material” and “tangible,” and because the harm they experienced was caused by the Mayor’s orders rather than diners being afraid to eat out. The Court also rejected that argument because the Insureds offered no evidence that COVID-19 was actually present on their properties at the time they were forced to close and the mayor’s orders did not impact the tangible structure of the properties.

Third, the Insureds argued that the policy’s definition of “loss” as encompassing either “loss” or “damage,” required the insurer to “treat the term ‘loss’ as distinct from ‘damage,’ which connotes physical damage to the property,” and thus “loss” incorporates “loss of use.” The Court rejected that argument and held that the words “direct” and “physical” modify the word “loss” and therefore any “loss of use” must be “caused, without the intervention of other persons or conditions, by something pertaining to matter—in other words, a direct physical intrusion [onto] the insured property.” The Court held that the Mayor’s orders did not constitute such a direct physical intrusion.

On March 23, 2020, shortly after the Governors of California, New York, Connecticut and New Jersey issued orders closing non-essential businesses, we recommended that businesses review their insurance policies to determine if they had either business interruption coverage or civil authority coverage that might be available to lessen the economic blow of COVID-19.  As explained here, business interruption coverage generally allows a business to recover certain  losses in the event that the business suffers physical damage or loss that prevents it from operating its business ...

The COVID-19 pandemic has leveled a blow against businesses everywhere. The Governors of New York, California, Illinois, and Pennsylvania, for example, have ordered all non-essential businesses to close their physical locations and the California Governor has ordered all residents, except those performing essential functions, to stay home. Governors across the country have issued orders restricting various business activities. The trend is likely to continue in the coming weeks and to adversely impact the bottom line of many businesses.

Some businesses, however, may have ...

On March 10, 2020, the New York Department of Financial Services (“DFS”), which regulates a wide variety of financial institutions, including banks, insurance companies, and investment advisors doing business in New York, issued a series of letters regarding the response to the Novel Coronavirus (“COVID-19”). In addition to providing guidance, DFS has asked all regulated financial institutions to provide “assurance” that they have plans to address the operational and financial risks associated with COVID-19. A copy of the letter to regulated financial ...