By Joyce Hanson

Law360 (July 21, 2020, 5:50 PM EDT) -- The Cincinnati Insurance Co. has told a Texas federal court that a Dallas restaurant group suing over COVID-19 coverage fraudulently added two defendants solely to remand the case back to state court, where it thinks it stands a better chance of a favorable outcome.

Insurance agent Baron Cass and his brokerage, Swingle Collins Co. LLC, joined Cincinnati on Friday in opposing Vandelay Hospitality Group LP's June 16 motion to remand the case to the District Court of Dallas County, Texas, saying the restaurant group's counsel wrote in an email that it added the two defendants specifically to "defeat diversity" jurisdiction in the federal court and keep the case in state court.

Vandelay's counsel sent the April 21 email to restaurant group principal Hunter Pond, and the message was forwarded the following day to Cass, a Texas resident who works for the Dallas-based brokerage, according to the defendants' Friday response. On May 26, Cincinnati said, Cass consented to the insurance company's filing of a notice of removal to federal court based on the fraudulent joinder.

"This is textbook fraudulent joinder," Cincinnati argued. "Vandelay cannot establish a cause of action against Cass or Swingle Collins in state court. Vandelay cites no cases from Texas or from any court within the Fifth Circuit that hold that an individual insurance agent or its brokerage is a proper party to an insurance coverage dispute. And for good reason. There are none because the agent is not a proper party."

Vandelay first sued Cincinnati in Texas state court in late April before Cincinnati removed the case to Texas federal court in May. Vandelay had submitted a business loss claim to Cincinnati in March and heard back later that the pandemic is not covered under its policy. The group closed its three restaurants in response to state shutdown orders on March 17, according to court records.

Cincinnati moved on June 2 to dismiss the suit for failure to state a claim, saying the restaurant group's insurance policy only supplies property insurance coverage, such as in the case of a fire or storm, and "not for economic loss caused by efforts to protect the public from disease."

Vandelay shot back in a July 3 response that the insurer failed to point to any specific reasons why the more than $1 million in damages it suffered from the pandemic and state-mandated closures could not be covered. The restaurant group argued that civil authority orders have called COVID-19 a "disaster," meaning it is an "occurrence" covered under its policy terms.

"Unless specifically excluded from the policy, COVID-19 is a disaster that poses an imminent threat of severe damage, injury, or loss of property. As there is no express written exclusion for 'disaster,' 'virus' or 'pandemic' in this policy, plaintiff is substantially justified in obtaining coverage under its all-risk policy," Vandelay argued.

The restaurant group cited Texas Gov. Greg Abbott's declaration on June 26 that COVID-19 is a "disaster," saying that government code defines "disaster" as "the occurrence" of damage, injury, or loss of life or property.

And its all risk commercial policy with Cincinnati defines an occurrence as "disasters arising from a single happening," Vandelay said, claiming the COVID-19 pandemic is the same as other natural disasters that should be covered under property insurance.

"If, as Cincinnati posits, the presence of bacteria and viruses could never result in 'physical loss or damage,' then there would be no need for Cincinnati and others to promulgate, much less sell, policies with endorsements that specifically exclude them from the scope of coverage on a policy that insures against just that, 'physical loss or damage,''' Vandelay said.

Vandelay also said that COVID-19's actual physical presence in its properties prevents its restaurants from functioning fully. It alleged that Cincinnati has tried to ignore the loss its business has suffered due to COVID-19 and state-mandated closures.

Counsel for Cass and Swingle Collins declined to comment Tuesday.

Counsel for Cincinnati and Vandelay did not respond immediately to requests for comment.

Vandelay is represented by Shauna A. Izadi and Jason H. Friedman of Friedman Feiger LLP.

Cincinnati is represented by S. Jan Hueber and Nicholas Rodriguez of Litchfield Cavo LLP.

Cass and Swingle Collins are represented by Robert A. Bragalone and Nathan D. Pearman of Gordon & Rees LLP.

The case is Vandelay Hospitality Group v. The Cincinnati Insurance Co. et al., case number 3:20-cv-01348, in the U.S. District Court for the Northern District of Texas.

--Additional reporting by Daphne Zhang. Editing by Daniel King.

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