3rd Circuit punts COVID-19 coverage cases back to lower courts - Reuters

• Summary
• Law firms

• Question is where insurance coverage cases should be heard
• Insurers seek to keep cases in federal court
• Dissent criticizes delay decision will cause

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Aug 18 - A divided panel of the 3rd U.S. Circuit Court of Appeals on Tuesday told federal judges in New Jersey and Pennsylvania to reconsider their decisions to send COVID-19 insurance coverage lawsuits against Encova and Berkshire Hathaway divisions back to the state courts, where three restaurant groups had filed them.

The 3rd Circuit declined to say where the cases filed by DiAnoia’s Eatery and Umami Pittsburgh in Pennsylvania and INC in New Jersey ultimately should land. However, the majority agreed with the insurers’ argument that it was not enough to find that they involve “novel and important issues” of state law that should be determined in the first instance by state courts.

The lower-court judges “misinterpreted some of the non-exhaustive factors that our own Court has stated should be considered” in declining to exercise jurisdiction, “did not squarely address the alleged novelty of state law issues or did not create a record sufficient to permit thoughtful abuse of discretion review,” Chief Circuit Judge D. Brooks Smith wrote, joined by Circuit Judge Peter Phipps.

Circuit Judge Jane Roth dissented, saying the majority was taking an “overly technical” view of its own precedent, with “the unfortunate result of delaying for months, if not for years, decisions on…the validity of these insurance policy exclusions.”

The question of where COVID-19 business income interruption cases should be heard has become increasingly important as a divide has emerged between rulings by state and federal courts. According to Penn Law’s Covid Coverage Litigation Tracker, federal courts have granted motions to dismiss about 95 percent of the time, while state courts have allowed about 30 percent to proceed.

Attorneys for the restaurant groups – James Haggerty of Haggerty Goldberg Schleifer & Kupersmith for DiAnoia’s and Umami, and Ralph Ferrara of Ferrara Law Group for INC – each said they have no plans to seek further review of the 3rd Circuit’s decision.

“The District Court will address the issues on remand,” Haggerty added in an email. “Following that review, we believe that the matters will be properly remanded to state court.”

Encova’s Motorist Mutual Insurance companies were represented by Clyde & Co and Burns White, while Berkshire’s AmGUARD Insurance was represented by Simpson Thacher & Bartlett and Brown & Connery. Patrick Hofer of Clyde & Co declined to comment “as the matter remains in litigation.” AmGUARD’s attorneys did not immediately respond to requests for comment.

The decision was not a complete win for the insurers. The court rejected their argument that the cases were contractual disputes “masquerading” as actions for declaratory relief, which would have precluded any possibility of sending them back to state court.

Rather than sue for breach of contract or bad faith, the Pennsylvania plaintiffs sought declarations that ongoing losses from the pandemic are covered under their insurance policies’ business income interruption, civil authority, extra expense and contamination provisions.

The New Jersey action focuses primarily on the effect of government shut-down orders, but also seeks a declaration that a virus exclusion – added to many commercial property-insurance policies in the aftermath of the SARS epidemic of 2002 – is void as against public policy.

The lead case is DiAnoia’s Eatery Inc. v. Motorists Mutual Insurance Company, 3rd U.S. Circuit Court of Appeals No. 20-2954.

For DiAnoia’s Eatery and Umami Pittsburgh: James Haggerty of Haggerty Goldberg Schleifer & Kupersmith; John Goodrich of Goodrich & Associates. For INC: Ralph Ferrara of Ferrara Law Group.

For Motorists Mutual Insurance Company: John Gerstein and Patrick Hofer of Clyde & Co.; Matthew Meyers of Burns White. For AmGUARD: Daniel Feder of Simpson Thacher & Bartlett and Susan Leming of Brown & Connery

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