The U.S. District Court for the Western District of Pennsylvania wasted no time in remanding a Pittsburgh restaurant’s lawsuit seeking coverage for COVID-19-related losses back to state court. Within five days of receiving the defendant insurer’s petition for removal, the district court, on its own motion, declined to exercise jurisdiction over the coverage action, citing questions about a lack of complete diversity among the parties and the court’s discretion to reject jurisdiction under the Declaratory Judgment Act.
The plaintiff restaurant, DiAnoia’s Eatery in Pittsburgh, followed state directives for the closure of physical locations of non-life-sustaining businesses. As a result, the restaurant filed a coverage action in Pennsylvania state court seeking insurance coverage for COVID-19-related business interruption losses under the “All Risks” policy issued by defendant insurer. The defendant then removed the case to federal court pursuant to 28 U.S.C. §§ 1441(b) and 1332 based upon alleged diversity jurisdiction.
Even where the requirements of diversity jurisdiction are met, federal courts have the ability to reject jurisdiction over coverage actions. As the district court noted, the Third Circuit has held that “where state law is uncertain or undetermined, the proper relationship between federal and state courts requires district courts to ‘step back’ and be ‘particularly reluctant to exercise Declaratory Judgment Act jurisdiction.’” Further, the court recognized that the fact district courts are limited to predicting rather than establishing state law requires “serious consideration” and is “especially important in insurance coverage cases.” The court, citing to Reifer v. Westport Ins. Corp., 751 F.3d 129 (3d Cir. 2014), identified the following factors to be considered, to the extent they are relevant, when deciding whether to reject jurisdiction for coverage actions:
Reifer, 751 F.3d at 146. Upon consideration of these factors and other precedent, the District Court for the Western District of Pennsylvania concluded that the plaintiff’s complaint raised novel insurance coverage issues with respect to business interruption coverage, civil authority coverage, and other related commercial property coverages under Pennsylvania law. The court acknowledged that “any declaration by the District Court 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 found support for its holding in the recent decision by the Supreme Court of Pennsylvania to deny a King’s Bench petition seeking consolidation of all COVID-19 business interruption litigation, leaving such cases to be decided by state courts.
While the Western District of Pennsylvania has a reputation for aggressively declining jurisdiction over coverage actions since State Auto Ins. Co. v. Summy, 234 F.3d 131, 136 (3d Cir. 2000), the district court’s decision here may cause federal courts in other jurisdictions to question whether they should hear COVID-19 coverage actions and exercise their discretion to reject jurisdiction over the lawsuits, particularly where state law on the coverage issues is undeveloped. It is also possible that policyholders will seize on this decision and begin to file their own petitions to remand, or that district courts themselves will remand matters previously removed on similar grounds. Alternatively, policyholders who are considering motions to dismiss may cite this decision in conjunction with the abstention doctrine. In light of these possibilities, insurers seeking to remove matters to federal court may consider proactively addressing the Reifer factors identified above in their removal petitions, as they may not get the opportunity to do so before the federal court rejects jurisdiction.
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