PHILADELPHIA – A federal judge in Philadelphia has declined jurisdiction for and dismissed without prejudice a case to see if any insurance coverage exists to protect an Arizona business from income losses and expenses sustained during state-ordered shutdowns, resulting from the COVID-19 pandemic.
U.S. District Court for the Eastern District of Pennsylvania Judge Gerald A. McHugh issued his opinion on Jan. 27, dismissing i2i Optique LLC’s litigation against Valley Forge Insurance Company (doing business as “CNA”).
The plaintiff, i2i Optique LLC, is an Arizona company that operates, manages, and owns an optical goods store in Scottsdale, Ariz. The defendant, Valley Forge Insurance Company (doing business as “CNA”), based in Pennsylvania, issued an insurance policy to plaintiff for the period of Aug. 31, 2019 to Aug. 31, 2020. Plaintiff’s optical goods store is covered under the policy.
In mid-March 2020, plaintiff’s store shut down to customers as a result of a string of executive orders issued by Arizona Governor Doug Ducey, which declared a Public Health Emergency in response to the COVID-19 pandemic, limited the operation of certain businesses, and mandated that non-essential businesses cease in-person operations.
Due to the orders, the plaintiff incurred substantial loss of business income and additional expenses, and alleged such losses are covered under its “all-risk” policy. Based on its reading of these provisions, the plaintiff contacted its insurance agent to make a claim under the policy but was informed that the defendant would reject the claim – leading to the lawsuit being filed.
McHugh said the absence of controlling law from Arizona leans toward his refusing to exercise jurisdiction over the case.
“I am persuaded that the absence of a settled body of case law in Arizona weighs heavily in favor of declining jurisdiction. On a general level, neither party has presented this court with controlling Arizona case law construing the controlling language of the policy, such as ‘physical loss,’ which is critical to the outcome here. In that regard, no Arizona court has addressed plaintiff’s contention that ‘loss of use’ is encompassed within the controlling provisions,” McHugh said.
“At a more granular level, the parties have provided no Arizona precedent dealing with insurance coverage for COVID-19 related losses, as these issues were working their way through the Arizona courts. Significantly, the Supreme Court of Arizona has held that ‘if a clause appears ambiguous, we interpret it by looking to legislative goals, social policy, and the transaction as a whole.’ The parties were asked to address that standard in supplemental briefing, but upon review, the parties’ submissions simply underscored why the issue is more properly decided by Arizona courts.”
In examining eight separate precedential factors from Reifer v. Westport Insurance Corp., McHugh ultimately did decline to exercise jurisdiction over the case.
“In the final analysis, the importance of the issues, the complete absence of relevant Arizona law, and the pendency of cases there that will provide definitive guidance weigh heavily against assumption of jurisdiction, where all this Court could do is predict what Arizona law might prove to be. I therefore join the numerous district courts in this circuit that have found it most appropriate to ‘step back’ and allow state courts to decide these critical issues,” McHugh stated.
U.S. District Court for the Eastern District of Pennsylvania case 2:20-cv-03360
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com