A federal appeals court overturned lower court rulings Wednesday and agreed with insurers that COVID-19 business interruption cases could be heard in federal district courts rather than state courts.
The divided precedential ruling by the 3rd U.S. Court of Appeals in Philadelphia, which concerned insurance disputes over COVID-19-related closures of various Pennsylvania and New Jersey restaurants, did not address coverage issues, but marks another win for insurers in the swathe of litigation in state and federal courts over pandemic-related losses
While court decisions have varied depending on policy wordings and other issues, federal courts have generally issued rulings that are consistently more favorable to insurers than state courts.
The appeal involved three cases: Dianoia’s Eatery LLC, dba Dianoia’s and Pizzeria Davide v. Motorists Mutual Insurance Co.; Umami Pittsburgh LLC dba Umami v. Motorists Commercial Mutual Insurance Co.; and Mark Daniel Hospitality LLC, dba INC v. Amguard Insurance Co.
The restaurants sought declaratory rulings that losses related to forced COVID-19 closures were covered under commercial insurance policies. The suits were filed in state courts and then removed to federal courts at the request of the insurers. Each of the federal courts returned the cases to the state courts citing discretion provided to them under the U.S. Declaratory Judgment Act.
The appeals court ruling said that under the law a district court can abstain from hearing a declaratory judgment action that is within its subject matter jurisdiction but “a district court’s discretion under the DJA is not absolute.”
The court cited its 2014 ruling in Reifer v. Westport Ins. Corp. on the issue.
According to the appeals ruling “the Courts either misinterpreted certain Reifer factors, failed to squarely address the alleged novelty of state law issues, or did not create a record sufficient to enable us to effectively conduct abuse of discretion review.”
The court remanded the cases for further consideration.
Lawyers representing Motorist Commercial Mutual declined to comment. The law firm representing Dianoia’s Eatery said it was disappointed in the ruling but would not seek a rehearing. Law firms representing Umami, INC and Amguard did not immediately respond to requests for comment.