By Jeannie O'Sullivan

Law360 (April 7, 2021, 4:02 PM EDT ) An iconic New Jersey entertainment venue on Wednesday urged a federal court to move its case against Zurich American Insurance Co. over coronavirus business loss coverage back to state court, noting that the largely unsettled legal question of pandemic-related policy limits deals with critical issues of state law.

During an oral argument, an attorney for Count Basie Theatre Inc. cited New Jersey federal court decisions granting remand motions in COVID-19 insurance coverage cases since government-mandated shutdowns were ordered in March 2020, as well as Third Circuit precedent weighing in favor of adjudicating the matter in state court.

"The [federal] courts should step back," said Michael J. Canning of Giordano Halleran & Ciesla PC.

The case — in which Count Basie alleges 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 pointed to coronavirus business loss insurance coverage cases with "identical procedural facts" that were moved back to state court from New Jersey federal court. U.S. District Judge Freda L. Wolfson in October remanded Mattdogg Inc. v. Philadelphia Indemnity Insurance Co. and Mark Daniel Hospitality LLC v. AmGuard Insurance Co. , while U.S. District Judge Anne E. Thompson followed suit in November with Grand Cru LLC v. Liberty Mutual Insurance Co.

In those cases, the judges found remand was appropriate under the Third Circuit's 2014 decision in Reifer v. Westport Insurance Corp. , which set forth factors to consider for remanding a case when there's no parallel state court proceeding involving the same parties and claims.

The judges were swayed by two of the Reifer factors: 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, according to Count Basie.

But Zurich attorney William D. Wilson of Mound Cotton Wollan & Greengrass LLP said the Reifer factors "do not outweigh the fact that there is no parallel state court proceeding" between Count Basie and Zurich.

Suggesting that state case law could still help decide the matter even if it stayed in federal court, Wilson noted that if it reached the appeals stage, the Third Circuit could certify a question of law to the New Jersey Supreme Court.

There have been seven pandemic insurance coverage cases decided in New Jersey state court, the parties said. Canning added that the cases are "coming down on opposite sides," thus leaving the matter unsettled and working its way through the appellate process.

Zurich has disputed that the topic is unsettled, arguing that numerous New Jersey state and federal courts have dismissed coronavirus insurance coverage cases.

U.S. District Judge Brian R. Martinotti instructed the parties to further brief the matter with respect to whether it is settled or unsettled.

According to its complaint, Count Basie hasn't been able 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 Zurich policy at issue insures multiple properties owned by the Red Bank entertainment venue, including its main theater, conservatory, a parking garage, a driveway and two valet parking lots.

The policy provides for a business income blanket limit of insurance in the amount of $1,900,001, as well as additional coverage for "communicable disease suspension of operations — business income" in the amount of $100,000 per occurrence.

Zurich has "wrongfully maintained that the policy provides total limits of only $100,000 for this insured loss," according to the complaint. Count Basie is seeking a declaration that it's entitled to recover the full policy limit of $1.9 million for business losses related to its theater, school and parking garage, and $100,000 per occurrence at the two valet parking lots and the driveway.

In a dismissal motion, Zurich argued that "unambiguous" language of the policy shows Count Basie is only entitled to coverage under the communicable disease provision. The theater failed to identify a covered cause of loss that led to "direct physical loss of or damage to property" that would trigger the blanket policy limits, according to Zurich.

The dismissal bid has been stayed pending the outcome of the remand motion.

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 Daniel King.

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