Hawaii Federal District Court Remands COVID-19 Business Interruption Case to State Court

    The federal district court for the district of Hawaii determined the insured’s COVID-19 claims were novel and undecided by Hawaii state courts and remanded the case. Hawaii Theatre Center v. Am. Ins. Co., 2022 U.S. Dist. LEXIS 152836 (D. Haw. Aug. 25, 2022). 

    The Theatre sought coverage under its commercial property policy for business losses caused by the COVID-19 pandemic. American Insurance denied the claim. The Theatre filed suit in state court seeking a declaratory judgment on the coverage issues. American Insurance removed the case to federal court and the Theatre sought a remand because the case involved a determination of novel and important issues of insurance law not yet addressed by Hawaii courts. American Insurance countered that many federal courts had addressed similar issues and that no other relevant factors supported remand.

    The court determined that it had subject matter jurisdiction based upon diversity, but had discretion in deciding whether to grant jurisdiction in a declaratory relief action based on diversity. The court’s discretion was governed by the factors in Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942). 

    In apply the factors, the court found there was no parallel state proceeding. However, the state law issues were novel and unsettled, having yet to be decided by Hawaii courts. If the court retained jurisdiction, it would be required to determine whether the Theatre’s alleged losses and damages from COVID-19 constituted “direct physical loss of or damage to property” as contemplated by the policy. Nevertheless, American Insurance urged the court to retain jurisdiction and denied the issues because other district courts had done so when faced with similar arguments about the novelty of the COVID-19 pandemic. The cases cited by American Insurance, however, did not demonstrate that courts regularly rejected requests to remand cases addressing novel and unsettled issues related to the pandemic. Some of the courts exercised jurisdiction because non-declaratory relief claims were joined, and in other cases, the courts did not conduct a Brillhart analysis. 

   Finally, the court found there was no compelling federal interest, forum shopping or duplicative litigation in state court.

    Consequently, the court granted the Theatre’s motion for remand.