The federal district court rejected a challenge to its diversity jurisdiction and rejected the insured's attempt to remand the COVID-19 claims back to state court. Vandelay Hospitality Group LP v. Cincinnati Ins. Co., 2020 U.S. Dist. LEXIS 149196 (N.D. Tex. Aug. 18, 2020).
Vandelay purchased a commercial property policy from Cincinnati through Swingle Collins, its registered broker, and its employee, Baron Cass. The policy was "all risk" and purported to insure three of Vandelay's restaurants for, amoung other things, direct physical loss and loss incurred due to business interruptions.
Vandelay had to close its restaurants in March 2020 when state and local officials issued emergency orders limiting dine-in restaurants to take-out service due to COVID-19. Vandelay closed its three restaurants and submitted a claim to Cincinnati. The claim was denied. Vandelay sued Cincinnati and Cass in state court for breach of contract and for a declaratory judgment that the policy covered the claimed losses. Vandelay amended its petition to join Swingle Collins.
Cincinnati removed the case based on diversity jurisdiction, contending Cass and Swingle Collins were fraudulently joined. Cincinnati was an Ohio corporation. Vandelay, Cass and Swingle Collins were all citizens of Texas.
A declaratory judgment was appropriate only if (1) a justiciable controversy existed and (2) the controversy would be resolved by the declaration sought. Duplicative relief could not be sought in a declaratory judgment action.
Vandelay sought a declaration that the forced closures of its restaurants denied access to the premises and was covered under the policy. Further, Vandelay sustained "direct physical loss to property" because of COVID-19 and the related state and local orders. Finally, Vandelay wanted to establish that the lost business income it sustained was due to the necessary suspension of operations.
Each of the declarations sought would be resolved in the context of Vandelay's breach of contract action. Therefore, the declaratory relief sought would add nothing to the action in that the request mirrored Vandelay's claims and duplicated its own claim for breach of contract. Because the court's adjudication of the breach of contract claim would determine whether there was coverage and thereby determine all parties' rights under the policy and any claims arising out of its formation, the declaratory judgment claims were duplicative and unavailable as a matter of law.
Consequently, defendants met their burden of demonstrating that there was no reasonable basis for predicting that Vandelay might be entitled to a declaratory judgment in state court. There was no reasonable basis for recovery against Swingle Collins and Cass, so Vandelay's motion for remand was denied.
