Court Declines Jurisdiction Over COVID-19 Insurance Dispute

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The recent procedural ruling by a Pennsylvania federal court highlights another area of uncertainty in the growing wave of insurance litigation related to COVID-19:  will these cases proceed in state or federal courts? The U.S. District Court for the Western District of Pennsylvania on its own volition remanded a Pittsburgh restaurant’s lawsuit seeking insurance coverage for business interruption losses stemming from the COVID-19 shutdown. The court questioned but did not determine whether it had diversity jurisdiction over the case, but instead exercised its discretionary authority to decline jurisdiction under the Declaratory Judgment Act, 28 U.S.C. s 2201(a). The court applied a balancing test, but the scale was tipped against federal court jurisdiction due to the novel insurance coverage issues under Pennsylvania law “best reserved for the state court to resolve in the first instance.” The court noted the lack of Pennsylvania caselaw due to the relative recency of the COVID-19 pandemic and concluded that “it is counterproductive for a district court to entertain jurisdiction over a declaratory judgment action that implicated unsettled questions of state law.” Given that insurance claims related to COVID-19 will raise novel issues of state law around the country, other federal courts may follow suit and decline to exercise jurisdiction over such insurance claims.

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