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Dentist’s COVID-19 Coverage Suit Sent Back to State Court

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Law360 (October 8, 2020, 6:44 PM EDT) —
A Texas federal judge remanded a dentist’s COVID-19 coverage suit against Allstate Insurance Co. back to state court, ruling that the insurer failed to show that a claims adjuster was wrongly joined, defeating the suit’s diversity of jurisdiction required in federal court.

U.S. District Judge Richard B. Farrer said Wednesday that Orsatti DDS PC, a dental office of Bexar County, Texas, sufficiently showed that it properly included an insurance claims adjuster in the suit, which lacks complete diversity of citizenship to stay in the district court.

Orsatti suspended business and could operate only for dental emergencies due to government closure orders amid the COVID-19 pandemic in March. The office claimed that it lost income and filed a coverage claim to Allstate. The Illinois-based carrier then assigned commercial property adjuster Blessing Sefofo Wonyaku — a Texas citizen — to investigate the claim.

Allstate subsequently denied coverage, asserting a virus exclusion and a lack of physical damage to Orsatti’s property. In June, the dental office sued the insurer in Bexar County state court before the insurer removed the case to federal court a month later.

Orsatti alleged that the insurer and its adjuster failed to conduct a proper investigation of its claim because they never asked for any documents or information relating to its claim. The office contended that both Allstate and Wonyaku “conspired to delay and deny or underpay its claim”

Allstate had argued that Wonyaku was improperly joined because Orsatti failed to show Wonyaku engaged in any conduct separate from the coverage denial. On Wednesday, Judge Farrer said Allstate’s arguments “lack merit.”

Orsatti “has properly stated a claim against [Wonyaku] for h[er] conduct as an individual adjuster,” and has plausibly alleged that she engaged in “an outcome-oriented investigation” and “unfair settlement,” the judge said.

Judge Farrer pointed out that Orsatti had adequately alleged that Wonyaku never asked “any questions upon learning [the dental practice] had to close business” due to government closure orders but “immediately” sent over a denial letter stating no coverage.

“Had Wonyaku requested additional information, as she was obliged to do, Orsatti’s amended petition suggests that Wonyaku would’ve found the virus exclusion provision inapplicable in this context,” the judge said.

Additionally, Judge Farrer said, although Allstate argued that it was not required to investigate the claim because the policy bars coverage for virus loss and mandates coverage denial, its argument “is more properly an attack on the merits of the claim, rather than an inquiry into the propriety of the joinder of the local party,” the judge said.

Allstate failed to demonstrate that