May 26, 2020

Remand Order Underscores Federal Courts’ Reluctance to Enter COVID-19 Business Interruption Fray

On May 19, a federal judge in the Western District of Pennsylvania remanded a suit brought by a Pittsburgh restaurant seeking business interruption insurance coverage. The underlying suit, DiAnoia’s Eatery LLC v. Motorists Mutual Insurance Company, was brought in the Allegheny County Court of Common Pleas on April 28. The plaintiff alleges that its insurer owes proceeds under plaintiff’s all-risks insurance policy for losses sustained due to the COVID-19 pandemic. The insurer removed the case to the federal court on May 15. Four days later, the Honorable Nora Barry Fischer remanded the case sua sponte back to the state court.

In the remand order, Judge Fischer first held that she lacked subject matter jurisdiction under federal law because the insurer failed to fully allege complete diversity of citizenship as required by 28 U.S.C. § 1332(a). The Notice of Removal alleged the citizenship of the parties but did not allege the citizenship of each member of the LLC plaintiff.

Having already remanded the case for lack of jurisdiction, the court further noted that even if subject matter jurisdiction had been proper in this instance, it would have declined to exercise its jurisdiction because of the outstanding questions of state law at issue. Under Third Circuit precedent, courts consider eight factors when considering whether to decline jurisdiction over a declaratory judgment case. Those factors generally include:

  • the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy.
  • the public interest in settlement of the uncertainty of obligation.
  • a general policy of restraint when the same issues are pending in state court.

Judge Fischer found that these factors weigh against the exercise of jurisdiction in this instance because “any declaration issued by [the Western District of Pennsylvania] as to the parties’ rights under the insurance policy would be merely predicting how Pennsylvania courts would decide these novel issues arising from the COVID-19 pandemic, a matter of great public concern, with little persuasive authority from state courts on these issues.”

The court also referenced the recent Pennsylvania Supreme Court’s decision declining to expedite business interruption cases in the state directly to the Supreme Court as further evidence that this case should be resolved in state court. Because COVID-19 coverage actions often inherently involve questions of state law, the Pennsylvania Supreme Court’s unwillingness to fast-track a decision on those issues seems to add further weight to the idea that issues of first impression be resolved in state courts before the federal courts enter the ring. We will soon see whether other courts in this jurisdiction and across the country follow suit.

Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.

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