Jason A. Levine, Gillian H. Clow, and Giles Judd, Alston & Bird LLP
This week’s top COVID-19 litigation developments are decisions on several dispositive motions: the denial of motions to dismiss filed by British Airways and Southwest Airlines in ticket refund class actions; the dismissal of two business interruption insurance class actions; and the dismissal of a tuition refund lawsuit against Santa Clara University.
1. Refund Class Actions Against British Airways and Southwest Airlines Survive Dismissal Attempts
Overview: Two federal courts – one in New York and one in Pennsylvania – have allowed proposed class actions against British Airways and Southwest Airlines, respectively, to move forward. Both cases seek refunds for cancelled flights as a result of the COVID-19 pandemic.
Background: In the Southern District of New York, plaintiffs claim that British Airways required customers seeking a cash refund to call a customer service line, which took hours, and modified its website to mislead customers into accepting travel vouchers.
In Pennsylvania, Southwest Airlines faces a proposed class action similarly alleging that it breached contracts with consumers after flights were cancelled by not providing refunds.
Decision: In the British Airways case, the court found that plaintiffs stated a claim for breach of contract. Specifically, the court concluded that the “general conditions of carriage” that apply to all British Airways tickets provide that upon cancellation of a flight, a customer can choose one of three available remedies: (1) immediate rescheduling; (2) rescheduling at the customer’s convenience; or (3) a refund. Plaintiffs allege that they were unable to secure the remedy of their choice. The court also found that although plaintiffs’ claims were not preempted by the Airline Deregulation Act of 1978, that Act does limit recovery to compensatory damages. Thus, the court dismissed any claims for punitive or exemplary damages.
The court in Pennsylvania likewise denied Southwest Airlines’ motion to dismiss, finding that plaintiffs similarly stated a valid claim for a breach of contract because they did not receive a refund and instead received future travel credits.
Our Take: These two opinions suggest that airlines will be held to the express terms of their contracts with consumers, but the available remedies for breach will be limited to compensatory damages only. For airlines, this may suggest a path forward in structuring any settlements with purported class members.
2. Courts in New Jersey and Pennsylvania Dismiss Business Interruption Claims Against Selective Insurance Group and American Automobile Insurance Co.
Overview: Two recent decisions in the District of New Jersey and the Eastern District of Pennsylvania add to the growing number of court rulings dismissing pandemic-related claims against insurance companies.
Decisions: In New Jersey, the court dismissed a putative class action filed by daycare center Quakerbridge Early Learning LLC against Selective Insurance Company of New England for its refusal to cover business interruption losses due to pandemic shutdowns. On March 9, 2020, New Jersey’s Governor ordered that all daycare facilities close except for those that offered services to essential workers and met “stringent measures.” Quakerbridge asserted that compliance with this order resulted in business interruption losses for which it was entitled to coverage under its policy. The court, however, sided with Selective, finding that the plain language of the policy’s virus exclusion provision barred coverage for Quakerbridge’s claims, and stating that it found “no reason to deviate from [a] growing line of recent opinions” holding the same.
In Pennsylvania, the court dismissed a putative class action’s claims, led by the owner and operator of Philadelphia-based wine bars, against American Automobile Insurance Co., on the grounds that pandemic shutdowns were not a “direct physical loss of or damage to” policyholder property under the plain language of the policies. In her decision, the judge noted that “the phrase ‘direct physical loss of’ property requires that the property be rendered unusable by some physical force.” Further, the phrase must be considered in the broader context of the policy as a whole. In the policies at issue, coverage for business income losses would be provided only during the “period of restoration,” which would end on the date when the property was “repaired, rebuilt, or replaced.” The judge stated that these terms “strongly suggest that the insured property must have suffered some negative change in its physical condition rendering the property unsatisfactory and requiring restoration.”
Our Take: These dismissals add to the growing number of federal decisions holding that coverage for business income losses is not triggered by pandemic shutdowns where an insurance policy either requires a “direct physical loss of or damage to” a property or contains a virus exclusion provision. In either instance, provided that the policy language is clear, courts are unlikely to fault an insurance company’s denial of coverage.
3. Santa Clara University Defeats Lawsuit Seeking Tuition Refunds
Overview: A California federal court dismissed a putative class action seeking tuition refunds from Santa Clara University as a result of instruction moving online in spring 2020.
Background: Plaintiffs filed a putative class action lawsuit against Santa Clara University alleging: (1) breach of an implied-in-fact contract; (2) violations of California’s Unfair Competition Law (UCL); and (3) unjust enrichment, based on the shift to an online learning platform. Plaintiffs claimed that the university promised in-person instruction in its various course materials, student bulletins, and website.
Decision: The court found that plaintiffs failed to plead a specific promise of an in-person experience. The complaint points out items such as the course catalog mentioning where on-campus courses would be held, the university website advertising “campus life,” and the course catalog suggesting students consider whether their “learning style is a good fit for online.” The court, however, found that none of these statements amount to a “definite, specific, or explicit” promise that Santa Clara University would continue on-campus instruction in the midst of a global pandemic. Because plaintiffs’ claims for implied-in-fact contract failed, their UCL and unjust enrichment claims failed as well.
Our Take:While we have written about some university tuition cases that have made it past the pleading stage, in those instances the courts held that claims could survive only to the extent plaintiffs could point to specific promises of in-person instruction. Courts across the country continue to reject refund claims relying on a general assumption or implied expectation that college classes would take place in person.
Jason Levine is a commercial and antitrust litigation partner in the Washington, D.C. office of Alston & Bird LLP. Gillian Clow and Giles Judd are litigation associates at the firm.
