In what may be a first decision of this type, a San Antonio federal district court recently granted a policyholder’s motion to remand a COVID-19 business interruption case to state court because the policyholder had joined an in-state adjuster, preventing complete diversity of citizenship.  In Jada Restaurant Group, LLC, v. Acadia Ins. Co., No. SA-20-CV-00807-XR, 2020 WL 5362071 (W.D. Tex. Sept. 8, 2020), a group of restaurants sued their insurer, alleging Acadia improperly rejected their claims for business interruption coverage resulting from the March 2020 shutdown of all dine-in restaurant service in Texas.

Jada also sued Acadia’s adjuster, a Texas citizen.  On receipt of Jada’s pre-suit notice, Acadia promptly elected to accept responsibility for the adjuster.  When Acadia was later sued, it removed the suit to federal court, arguing the adjuster must be dismissed under Texas Insurance Code §542A.006 because of its pre-suit election to accept responsibility for the adjuster.

Chapter 542A on its face applies to claims “caused, wholly or partly, by forces of nature, including an earthquake or earth tremor, a wildfire, a flood, a tornado, lightning, a hurricane, hail, wind, a snowstorm, or a rainstorm.”  The question, then, was whether a worldwide pandemic caused by a highly infectious virus is a “force of nature.”  Jada argued the statute was referring solely to weather.

Acadia argued a force of nature is equivalent to an act of God, meaning “an operation of natural forces so unexpected that no human foresight or skill could reasonably be expected to anticipate it.”  Acadia also argued against applying the interpretive doctrine of ejusdem generis, because the list of specific weather phenomena mentioned in the statute was not followed by a broader catch-all phrase, but rather preceded by it.

The court chose to apply a similar but more general doctrine, noscitur a sociis, or “a word may be known by the company it keeps.”  Thus, it concluded that because all the examples given in the list were weather events, the statute must have intended weather to be the limit of its scope, regardless of where the catch-all phrase “forces of nature” appeared.  The court also noted that the legislative history of Chapter 542A shows the legislature was concerned with weather-related claims when it enacted 542A, not infectious disease claims.

Under this ruling, Acadia had to win a traditional improper joinder argument to beat remand, and the court found Jada’s pleading alleged specific wrongful claim handling acts by the adjuster that were sufficient to support a facially plausible Insurance Code claim against him. Thus, he was not improperly joined, diversity was not complete, and the case was remanded to state court.

Editor’s Note: A ruling by a single district court is not the last word on this important issue, and we have seen the federal courts of Texas widely diverge on the interpretation and operation of Chapter 542A before.  Because remand orders are not subject to interlocutory appeal, this question of statutory interpretation is not likely to be resolved soon.  But the flood of litigation and large business interruption claims resulting from the COVID-19 shutdown likely means it will eventually make its way either to the Supreme Court of Texas or to the Fifth Circuit.  Meanwhile, the legislative history that showed the Texas Legislature was not considering a possible pandemic when enacting Chapter 542A might demonstrate the very lack of foreseeability that is the hallmark of an act of God.  This issue will have a significant effect on COVID-19 coverage litigation in Texas, and we will watch it closely for further developments.

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