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Law360 (November 4, 2020, 2:23 PM EST ) An Illinois federal judge has thrown out a suit by State Auto Property and Casualty Insurance Co. aiming to avoid covering claims from a group of Denny's and Ruby Tuesday owners for business interruption insurance stemming from COVID-19, saying the insurer's suit covers the exact same legal ground as the restaurants' own suit in state court.
In a two-page order Tuesday, U.S. District Judge John Robert Blakey sided with the restaurateurs, led by Classic Dining Group LLC, saying the court would be indulging in "gratuitous interference" by keeping the federal case alive and dismissed the suit without prejudice.
Judge Blakey cited court doctrine that holds that a federal court should abstain when it's called on for a declaratory judgment where another suit is pending in state court presenting the same issues, between the same parties, that isn't governed by federal law. This case, he said, is a "classic example" of one that fits the doctrine.
"Both this case and the Ohio state court case involve the same parties," Judge Blakey said. "Additionally, the Ohio case requires the court there to consider the 'same precise legal question' as this court would here in adjudicating plaintiff's declaratory claims: whether plaintiff owes defendants coverage under the relevant policies."
Representatives for the restaurants and State Auto could not immediately be reached for comment Wednesday.
The eatery group — which owns 31 Denny's and Ruby Tuesday restaurants in Illinois, Indiana and Wisconsin — sued State Auto in Ohio state court in June asking for a declaration that the insurer should cover the restaurants' coronavirus-related business losses.
State Auto, which had denied coverage asserting a virus exclusion, demanded the opposite declaration in Illinois federal court in July, saying its insureds' losses don't qualify for coverage under their policies.
The insurer urged the Ohio state court to toss the restaurants' suit the same day it sued them in Illinois, saying it would be unfair and inconvenient for it to have to litigate in its home state of Ohio because some of the policies were issued in Illinois, according to court records.
State Auto has argued that its policies were "rooted in a much narrower risk" that covers business losses resulting from "direct physical loss of or damage to property," and were not designed to cover "economic fallout from a global pandemic," according to court records.
In August, the restaurants urged the Illinois court to dismiss State Auto's suit, arguing the claims there "completely mirror" its own suit in Ohio state court, making the federal suit redundant.
Allowing the insurer's suit to proceed in Illinois while the Ohio suit is pending would create a substantial financial hardship to the restaurants, which are already struggling to survive, the group argued.
State Auto is represented by Adam Fleischer, David Buishas and Elise Allen of BatesCarey LLP.
The restaurants are represented by Christopher O'Malley of King & Spalding LLP.
The case is State Auto Property and Casualty Co. v. Classic Dining Group LLC et al., case number 1:20-cv-04434, in the U.S. District Court for the Northern District of Illinois.
--Additional reporting by Daphne Zhang and Lauraann Wood. Editing by Alyssa Miller.
For a reprint of this article, please contact reprints@law360.com.
