Key Takeaways

• U.S. District Court for the Western District of Pennsylvania remanded a Pittsburgh restaurant’s lawsuit seeking coverage for COVID-19-related losses back to state court

• The court cited questions about a lack of complete diversity among the parties and its own discretion to reject jurisdiction

• The court noted the complaint raised novel insurance coverage issues with respect to business interruption coverage, civil authority coverage, and other related commercial property coverages under Pennsylvania law

• Insurers seeking to remove matters to federal court should consider proactively addressing the Reifer factors identified below in their removal petitions

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:

1. The likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy;
2. The convenience of the parties;
3. The public interest in settlement of the uncertainty of obligation;
4. The availability and relative convenience of other remedies;
5. A general policy of restraint when the same issues are pending in state court;
6. Avoidance of duplicative litigation;
7. Prevention of the use of the declaratory action as a method of procedural fencing or as a means to provide another forum in a race for res judicata; and
8. In the insurance context, an inherent conflict of interest between an insurers’ duty to defend in a state court and its attempt to characterize that suit in federal court as falling within the scope of a policy exclusion.

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.

Goldberg Segalla remains committed to monitoring developments across the country to apprise our clients of COVID-19 legal developments as they occur. Visit our COVID-19 Hub for information about the minute-by-minute changes affecting business and individuals, or contact:

• Hillary N. Ladov
• Christian A. Cavallo
• Any member of our Coronavirus Coverage Team
• Or the co-chairs of Goldberg Segalla’s Global Insurance Services practice, David L. Brown and Jeffrey L. Kingsley