By Mike Curley

Law360 (October 7, 2020, 6:51 PM EDT) -- A Texas federal judge on Wednesday tossed a suit by a Dallas eatery group alleging The Cincinnati Insurance Co. stiffed it on coverage of losses stemming from COVID-19, saying the eateries' allegations weren't enough to sustain a breach of contract claim.

U.S. District Judge Sidney Allen Fitzwater sent Vandelay Hospitality Group LP back to the drawing board, saying because the complaint had been filed in state court before its removal, the group should get the chance to replead it to meet federal court standards.

According to the order, the allegations in the amended petition were "factually conclusory and/or legal conclusions" that did not plausibly plead that the restaurants had suffered physical loss or damage that would be covered by the policy, and without such an allegation, they can't allege a breach of contract on Cincinnati's part.

The rest of Vandelay's claims against Cincinnati, such as breach of good faith and fair dealing and violations of the Prompt Payment Act and the Texas Insurance Code, also fail, as they're premised on Cincinnati's alleged failure to live up to its end of the insurance policy, the judge wrote.

Likewise, the judge wrote, Vandelay's bid for a declaratory judgment also fails, since it's based on identical arguments and hinges on the court finding Cincinnati was in breach of contract.

The judge made no determination as to whether Vandelay could plausibly allege such a breach, and granted the group leave to amend the complaint to remedy its deficiencies and meet federal pleading standards.

Jason H. Friedman of Friedman & Feiger LLP, representing Vandelay, told Law360 the group intends to replead the complaint with details it included in its opposition brief.

"We are not deterred by the court's opinion, and we believe we have a very strong case against Cincinnati," he said Wednesday. "Based upon other district courts' opinions in other cases against Cincinnati with the identical all-risk policy provisions, we believe we will prevail against any subsequent motions to dismiss that Cincinnati may file."

The eatery group, which owns three restaurant brands with multiple locations, sued Cincinnati and its registered agent, Baron Cass of Swingle Collins, in April, asking a Texas state court to rule that its business interruption policy should cover the more than $1 million in damages it experienced from government closures due to COVID-19. Vandelay alleges Swingle Collins negligently misrepresented that the policy would cover its pandemic loss.

Vandelay submitted a coverage claim to Cincinnati through Cass in early March and heard back from Cincinnati a few weeks later that the pandemic is not covered. Cincinnati moved the case to a Texas federal court in May. The insurer and its broker had argued Vandelay "fraudulently" joined Swingle Collins to move the case back to state court, saying the coverage dispute is entirely between Cincinnati and the eatery group.

Judge Fitzwater dismissed Swingle Collins from the suit in August, finding Vandelay Hospitality Group LP failed to identify any misrepresentations Swingle Collins or its agents made about the scope of the group's policy with Cincinnati Insurance Co.

Representatives for Cincinnati could not immediately be reached for comment Wednesday.

Cincinnati is represented by Susan Jan Hueber of Litchfield Cavo LLP.

Vandelay is represented by Shauna A. Izadi and Jason H. Friedman of Friedman & Feiger 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 Janice Carter Brown.

For a reprint of this article, please contact reprints@law360.com.