Policy holders and insurance companies are increasingly sparring over whether business interruption coverage lawsuits brought on by the coronavirus pandemic should take place in federal versus state courts.
Much of the jockeying for preferred venues boils down to long-held expectations of how different judges will view coverage disputes, litigation watchers say.
“A lot of insurers feel they’ll get a fairer shake in federal court,” said Daniel Schwarcz, a professor at the University of Minnesota Law School. Federal judges aren’t elected, and “are perceived as being more removed from any politics” that could influence a decision, he said.
The opposite is often true for policy holders, including restaurants, car dealers, and other businesses with strong ties to local communities. It’s assumed that state and local judges, who are often elected, will be more sympathetic to their arguments that insurers should be on the hook for claims of property loss or lack of property access during the pandemic.
The battle for the strategic high ground adds another wrinkle to the hundreds of lawsuits—with many more expected in the coming months—that were triggered by mandatory business closures and other restrictions to combat the spread of the virus.
Here or There?
While many policy holders have filed would-be class actions in federal court with the hope of drawing more businesses into the fold and winning class certification, others have filed individual actions in state and local courts.
Several of those standalone cases have been removed to a federal venue by the insurer’s counsel, and policy holders have begun to mount challenges against those moves.
10E LLC, which manages a Mediterranean-style restaurant in Los Angeles, filed a motion June 12 to remand its case to L.A. Superior Court, which services L.A. county and is the largest trial court in California, after Travelers Indemnity Co. of Connecticut removed it to a federal district court a month earlier.
Travelers, in its motion to remove the case, said it’s located in a different jurisdiction than 10E and thus has diversity of citizenship. Such diversity can allow parties to remove cases on their own, leaving opposing parties to fight the move in the new venue. A status conference and hearing on Travelers’ motion to dismiss the case are set for late July.
Bowser Automotive Inc., a group of car dealerships in Western Pennsylvania, saw its lawsuit against insurer Chubb Ltd. removed to U.S. District Court in the Western District of Pennsylvania on May 21. It filed a motion to remand a few weeks later.
Fights over venues are uncommon in insurance litigation, particularly when a similar issue or question underpins cases in many states. But the sheer volume of coronavirus-related insurance coverage cases and the threat of one big ruling impacting the outcome of a large group of similar lawsuits has meant that parties are seeking any edge they can find.
Some law firms representing small businesses in virus coverage disputes are bracing for their own fights over venues.
“We do think it’s a possibility,” Daniel Schlessinger, a partner at Chicago-based Jaszczuk P.C. said. He pointed to a recent ruling that could help plaintiffs fend off motions to move suits to federal court.
Judge Nora Barry Fischer of the U.S. District Court for the Western District of Pennsylvania, in a May 19 order, held that DiAnoia’s Eatery LLC, a Pittsburgh restaurant, raised “novel insurance coverage issues under Pennsylvania law which are best reserved for the state court to resolve in the first instance.”
The restaurant had sued Motorists Mutual Insurance Co. in Pennsylvania state court over denied coverage for business interruption losses suffered during mandatory business closures and stay-at-home orders in the initial months of the pandemic.
Motorists moved the case to federal court, but in her order Fischer said state court was the appropriate venue to address the issue. There’s “not yet a body of case law developed by Pennsylvania courts on these issues due to the relative recency” of the pandemic, Fischer wrote, suggesting states should take the first crack at these cases.
The Pennsylvania Supreme Court denied a petition to consolidate similar litigation before their bench, she noted, leaving these cases to be decided by state trial courts. Fischer also questioned whether the parties were actually located in different jurisdictions, which could give federal court oversight of the case.
The case highlights the challenging nature of ongoing pandemic-related venue fights. After Fischer’s order, Motorists again filed a motion to remove the case to federal court, saying it addressed deficiencies in the prior motion.
The insurer also said that other, similar business interruption cases are pending in federal court, so litigation of the insurance coverage issues arising out of the pandemic in federal court “is almost certain to occur.” DiAnoia’s Eatery has challenged Motorists’ second removal by filing a motion to remand the case back to state court.
Choice of Law
For businesses suing their insurers and seeking declaratory judgments, state courts may offer more consistency and might be easier to navigate, insurance attorneys and law professors say.
It’s sometimes more likely that a federal court judge will pick a different law to apply when conducting a choice of law analysis, said Christopher French, a law professor at Penn State University and former commercial litigator. Federal courts can be more inclined to select a different state’s insurance law, and in practice “that makes a difference.”
And while policyholders will often have a particular state venue in mind, they must have a solid understanding of the insurer’s corporate structure to reduce the likelihood of the case being removed to federal court, he added.
“Some plaintiffs might be confused as to what the insurer’s corporate structure is,” said French. “It’s not always clear who to sue,” given the complex makeup of many large insurance companies.
Speed might also play a factor in the fights for more favorable venues, especially for companies flirting with bankruptcy and unable to spend heavily on drawn-out litigation.
“A lot of these small businesses are under horrible financial pressure,” Schlessinger said. “Their desire is to get a decision as quickly as possible, and delays and disputes over venues just exacerbate their situation.”
Venue disputes can often take a couple of months to resolve, Schlessinger continued. Federal courts tend to be somewhat speedier than state courts, although most courts have slowed down in the wake of the pandemic.
“It’s an unprecedented situation,” he said.