PHILADELPHIA – A federal judge has dismissed a motion for judgment on the pleadings in a tavern’s case against its insurance carrier for the time being, as the Court felt the motion invokes the rule against one-way intervention.
U.S. District Court for the Eastern District of Pennsylvania Judge John R. Padova ordered the dismissal of the motion on Oct. 30, in Spring House Tavern, Inc.’s lawsuit versus American Fire and Casualty Company.
The complaint alleges that American Fire issued a commercial general liability policy to Spring House, which owns and operates the Spring House Tavern in Montgomery County. The American Fire Policy includes coverage for Business Income, Extra Expense, Contamination, and Civil Authority.
The American Fire Policy was in effect and provided coverage to Spring House from June 1, 2019 to June 1, 2020, while the COVID-19 pandemic has affected the ability of the public to congregate and gather in places such as restaurants.
In March, Gov. Tom Wolf issued orders requiring all non-life sustaining businesses in the Commonwealth to cease operation and to close all physical locations, which the plaintiff did and caused them to furlough employees.
“Consequently, Spring House’s business operations have been directly and adversely affected by the COVID-19 pandemic and it ‘and other similarly situated businesses, have suffered Business Income, Extra Expense, Civil Authority and other related losses which it avers are covered by policies of insurance issued by defendant American Fire,” Padova said.
“Spring House has made a claim pursuant to the American Fire policy, seeking to recover its losses arising from the COVID-19 pandemic and the governor’s COVID-19 orders. American Fire has denied Spring House’s claim, as well as claims made by all similarly situated persons and entities.”
Believing the coverage denials to be contrary to the terms of the American Fire policy, Spring House commenced the instant action seeking a remedy for itself and also seeking to represent a class of Pennsylvania citizens who sustained covered losses caused by the COVID-19 pandemic, the governor’s COVID-19 orders and the refusal of American Fire to provide coverage.
The complaint asserted two claims for relief on behalf of Spring House and the putative class: Count I seeks a declaration that Spring House and all members of the putative class are entitled to coverage under the applicable policy issued by American Fire for the losses they have suffered as a result of the COVID-19 pandemic and the Governor’s COVID-19 orders; Count II seeks an order enjoining American Fire from continuing to deny coverage to Spring House and the putative class for their losses caused by the COVID-19 pandemic and the governor’s COVID-19 orders.
After American Fire answered the complaint, Spring House filed the instant motion for judgment on the pleadings.
“It asks that we enter judgment in its favor on both counts of the complaint, declare that it is entitled to Business Income and Civil Authority coverages for ‘continuing normal operating expenses’ under the American Fire policy, and enjoin American Fire from continuing to deny its claim for coverage. American Fire opposes the motion, arguing, that the motion violates the rule against one-way intervention,” Padova said.
The rule against one-way intervention pertains to class actions brought pursuant to Federal Rule of Civil Procedure 23. The U.S. Supreme Court has noted that, prior to the 1966 amendments to Rule 23, potential class members could take advantage of the Rule’s failure to include a time limitation for seeking class certification by “awaiting developments in the trial or even final judgment on the merits in order to determine whether participation would be favorable to their interests.”
The 1966 amendments to Rule 23 required a district court to make “a determination whether an action shall be maintained as a class action…as soon as practicable after the commencement of an action brought as a class action.”
American Fire did not waive the rule against one-way intervention in this case and argued that the rule is implicated here, because Spring House asks the Court to decide issues that would be common to members of the putative class in connection with the instant motion.
Further, American Fire contended that the relief Spring House seeks through the instant motion would be applicable to the putative class, as well as to Spring House’s individual claims.
“For example, Spring House specifically seeks a determination as to the meaning of the term ‘loss’ in the American Fire policy. It also asks us to rule that the American Fire policy covers losses that resulted from the governor’s COVID-19 orders. We conclude that the rulings Spring House seeks with respect to the American Fire policy could be generally applicable to members of the putative class and would be relevant to the merits of the claims of the putative class members and implicate the rule against one-way intervention,” Padova said.
“Plaintiff argues that the rule against one-way intervention is not implicated in this case because it has brought this case pursuant to Federal Rule of Civil Procedure 23(b)(2), rather than 23(b)(3). The difference between these subsections of Rule 23 is that individual class members in a Rule 23(b)(3) class may seek to opt-out from the class in the event of an unfavorable pre-certification decision, whereas individual class members in a Rule 23(b)(2) class cannot opt-out.”
Padova stated if the Court decided the instant motion before class certification, and “denied [the motion], that unfavorable decision will not bind the currently absent class members, and plaintiff could simply decide not to pursue class certification, allowing other members of the class to try again by filing their own lawsuits,” a possibility that the rule against one-way intervention seeks to prevent.”
Padova added that the rule against one-way intervention was implicated by Spring House’s motion for judgment on the pleadings, which seeks a ruling on the merits of issues relevant to the claims of the putative class members prior to class certification, even though it has brought the instant action pursuant to Rule 23(b)(2).
“Spring House also asserts that we should decide the motion for judgment on the pleadings even if it implicates the rule against one-way intervention, because deciding the motion early in the litigation ‘will advance the litigation while serving the interests of judicial economy and fairness,” Padova said.
“In support of this argument, Spring House suggests that, if we were to determine that there is no coverage under the American Fire policy for losses due to the COVID-19 pandemic and the governor’s COVID-19 orders and deny the motion, ‘the case would be over for all intents and purposes for Spring House and all persons with the same insurance policy’ because ‘no rational counsel, or their clients, would bring another action based on the same insurance policy.”
But Padova explained the Court couldn’t predicate its ruling on hypotheticals.
“However, we cannot base our decision on plaintiff’s conjecture as to what other counsel might do. As defendant points out, a ruling in favor of American Fire on the merits of plaintiff’s claims would not act as a legal bar to the other 686 policy holders, who could decide to take their chances in new lawsuits brought before other judges in other courts.”
Padova concluded that the plaintiff’s motion for judgment on the pleadings implicates the rule against one-way intervention and dismissed the motion without prejudice, in order for the plaintiff to file a new motion for judgment on the pleadings after the issue of class certification is addressed.
U.S. District Court for the Eastern District of Pennsylvania case 2:20-cv-02872
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com