By Daphne Zhang

Law360 (April 22, 2021, 7:06 PM EDT) -- Zurich has urged a New Jersey federal judge to reject an iconic entertainment venue's bid to remand its pandemic coverage suit to state court, arguing Thursday that the theater's suit does not raise novel state law questions and there are no identical cases opening in state court.

Zurich American Insurance Co. fought Count Basie Theatre Inc.'s request to send its action back to state court, claiming that there is no need for the case to be decided at the state level as a growing body of federal cases in the Garden State weigh in on whether COVID-19 causes property damage and virus exclusions in policies bar coverage.

"Because Count Basie's complaint raises neither novel nor undecided questions of state law, there is little reason for the Court to defer to the state courts," the insurer said.

Earlier this month, Count Basie, an iconic New Jersey entertainment venue, told the court that the largely unsettled legal question of pandemic-related policy limits deals with critical issues of state law. The case — in which Count Basie alleges that Zurich wrongfully limited the coverage the theater is owed for pandemic-related losses — was originally filed in state court in December and removed by Zurich in January.

Count Basie has argued that public interest was best served by a state court applying and interpreting its own law to an unsettled issue, and because of the "general policy of constraint" federal courts should exercise when the same legal issues, if not between the same parties, are pending in state court.

Zurich disagreed on Thursday, saying no identical issues are pending in state court.

"While issues of insurance coverage for losses caused by the COVID-19 pandemic are currently pending throughout State and Federal Courts, each of those actions concerns different policy terms and different underlying factors," it said.

"An ever-growing body of case law has developed under New Jersey law" and holds that the coronavirus' presence on a property and government closure orders do not constitute direct physical loss of or damage to property, Zurich added.

According to the suit, Count Basie has been unable to conduct normal business operations since New Jersey Gov. Phil Murphy shuttered nonessential businesses in March 2020 and renewed the order multiple times. The theater claimed it sustained a business income loss, despite the modified order in October allowing nonessential businesses to operate on a "limited and restricted basis."

The policy provides up to $1.9 million in the business income provision, as well as additional coverage for "communicable disease suspension of operations — business income" in the amount of $100,000 per occurrence.

Zurich said in response that the court should follow the overwhelming majority of federal courts throughout the country and rule that the theater's pandemic-related business losses are covered under its commercial property policy.

Count Basie is not entitled to business income coverage or civil authority additional coverage because it has failed to identify direct physical loss or damage to insured property, the insurer said. The definition of the policy's microorganisms exclusion is also unambiguous and specifically bars virus-related losses, it added.

Representatives for the parties could not be immediately reached for comment on Thursday.

Count Basie is represented by Michael J. Canning of Giordano Halleran & Ciesla PC.

Zurich is represented by William D. Wilson, Craig R. Rygiel and Philip C. Silverberg of Mound Cotton Wollan & Greengrass LLP.

The case is Count Basie Theatre Inc. v. Zurich American Insurance Co., case number 3:21-cv-00615, in the U.S. District Court for the District of New Jersey.

--Editing by Peter Rozovsky.

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