September 01, 2020

Brokerage Agency Triumphs in Dismissal From Suit Over COVID-19 Losses

Last week, a Texas federal judge decided Vandelay Hospitality Group v. The Cincinnati Insurance Company, et al, No. 3:20-cv-01348 (N.D. Tex. 2020), granting an insurance brokerage agency’s motion to dismiss in a business interruption suit filed as a result of COVID-19. The suit was filed by a Dallas-area restaurant group against its insurer, alleging that the insurer failed to pay for coverage on the alleged $1 million in damages the group’s establishments sustained after they were forced to close due to COVID-19. The insured initially sued only its insurer, but later amended to add the brokerage agency and its registered agent who had serviced the policies in question. In addition to claims against the insurer for breach of contract, breach of the duty of good faith and fair dealing, violation of the Texas Prompt Pay Act, and unfair claims settlement practices, and a request for declaratory judgment, the insured filed claims against the brokerage agency for negligently misrepresenting that the policy would cover pandemic-related losses.

The brokerage agency moved to dismiss the insured’s claims against it, arguing that the insured had failed to identify any conduct for which the brokerage agency could be held liable. The brokerage agency also sought dismissal of the declaratory judgment count on grounds that even if coverage were available, liability could not rest on the brokerage agency as a matter of law. In support thereof, the brokerage agency argued that the harm that the insured claimed — coverage on its insurance policy — could not be collected from the brokerage agency, as the brokerage agency played no role in the coverage decision.

Ultimately, the court dismissed the claims against the brokerage agency, holding that the insured had failed to demonstrate that the brokerage agency could be liable for any identifiable wrongdoing. The court further agreed with the brokerage agency that the damages supposedly attributable to the brokerage agency’s alleged negligent misrepresentations were not able to be differentiated from the other damages that the insured seeks under its insurance policy.

While considering the brokerage agency’s motion to dismiss, the court also considered the insured’s motion to remand the case to state court. The insured argued that because the brokerage agency’s registered agent was a Texas resident, the defendants could not establish diversity jurisdiction. The court rebuffed this argument, however, holding that the registered agent was merely a nominal defendant. Further, the court reasoned that because the insured was seeking damages that were unavailable on a negligent misrepresentation claim, there could be no reasonable basis for recovery against the brokerage agency in Texas state court. Therefore, the court held that the presence of the brokerage agency’s registered agent as a defendant in the action could not defeat diversity jurisdiction.

As brokers are named in other COVID-19-related suits, similar arguments and allegations will likely be raised in courts nationwide. And, as courts wrestle with purported losses arising from COVID-19 closure orders, the landscape of litigation will continue to evolve.

As the number of cases around the world grows, 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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