By Joyce Hanson

Law360 (May 11, 2021, 8:58 PM EDT) -- A Louisiana restaurant and catering group can send its COVID-19 business interruption suit against its insurer back to state court, a federal judge has ruled, saying the group has sufficiently shown it may recover damages against the local agency for wrongful conduct.

U.S. District Judge Barry W. Ashe's remand order on Monday found that Island Time Management LLC, the Orleans Parish-based operator of several southern Louisiana restaurants and a catering company, can proceed with its case in the state court where it originally filed suit against Eagan Insurance Agency LLC, also based in the parish.

Judge Ashe wrote that the allegations lodged by Island Time and four other related limited liability food-and-beverage companies "are sufficient to raise at least a possibility of recovery against Eagan, which is all the jurisprudence requires to find that a party is properly joined for the purposes of a motion to remand."

IT's initial petition for damages against Eagan on Oct. 14 in the Civil District Court for the Parish of Orleans alleged that it had acted as IT's agency since 2017 and knew the business model it shared with co-plaintiffs New Orleans Rum House, Rum House of Baton Rouge, The Red Dog Diner and Highlights Catering and Gourmet Shop.

Eagan negligently breached its duty as insurance agent by failing to properly advise IT about its AmGuard Insurance Co. business interruption policy when the agency recommended that IT renew the policy that was set to expire on March 15, 2020, according to the suit.

Agency vice president Jordan Eagan in discussions starting in December 2019 with IT representative Katie Buchert neglected to mention that the AmGuard policy had a virus exclusion, the suit alleged. The agency also improperly advised Buchert that a civil authority provision in the policy provided coverage in the event of a government-mandated shutdown, and failed to advise that a civil authority provision was limited to four weeks, the suit said.

"As part of these renewal discussions, Katie Buchert mentioned the COVID-19 crisis and the devastating impact any shutdown would have on IT," according to the Oct. 14 petition. "At this time, COVID-19 was still a Chinese issue with a small number of cases in the Northwest United States. Jordan Eagan advised her any government mandated shutdown would be covered by the civil authority provision in the proposed renewal policy. Additionally, Jordan Eagan never advised her there was a virus exclusion in the proposed business policy nor the ability to purchase virus coverage."

On March 11, 2020 — just four days before the renewed policy went into effect — Louisiana Gov. John Bel Edwards declared a state of emergency due to the COVID-19 outbreak, and 11 days later he imposed a stay-at-home order that has since been moving through various reopening phases around the state, according to Judge Ashe.

When Buchert contacted the agency about making a business-interruption claim in mid-March 2020, it was only then that Jordan Eagan informed her that IT's policy contained a virus exclusion, according to the petition. Eagan also said that he "believed" the business loss was covered by the civil authority provision, but when Eagan submitted a notice of claim to AmGuard on IT's behalf for the business-income loss, the insurer denied the claim, the petition said.

After IT sued, Eagan responded to its claims by telling the state court that AmGuard should also be named in the suit. The court then ordered IT to file an amended petition naming AmGuard as a co-defendant. IT's second petition against both the agency and the insurance company alleged that AmGuard breached the insurance contract and acted in bad faith by denying IT's business interruption claim.

On March 17, Pennsylvania-based AmGuard removed the state court suit to Louisiana federal court on the basis of diversity subject-matter jurisdiction, according to Judge Ashe's Monday order.

"Although AmGuard acknowledges that Eagan, like plaintiffs, is a Louisiana citizen, AmGuard argues that Eagan was improperly joined, and thus, its citizenship can be disregarded," the judge wrote. "According to AmGuard, the facts alleged in the complaint do not state a claim against Eagan."

But Judge Ashe in his order cited a 2010 Louisiana Supreme Court decision in Isidore Newman Sch. v. J. Everett Eaves Inc. , which held that an insurance agent owes a duty of reasonable diligence to its customer, which "is fulfilled when the agent procures the insurance requested."

"Plaintiffs allege that during the renewal process Buchert specifically discussed with Jordan Eagan plaintiffs' concerns regarding coverage for business losses resulting from government-mandated shutdowns due to the COVID-19 crisis," Judge Ashe wrote.

Eagan has minimized the shutdown discussion, asserting that IT only "mentioned" its concerns about virus-related closures, but that characterization "is too limited," the judge said.

"Reading the allegations of the complaint as a whole, and in context, they can be understood to plausibly assert that the renewal discussions encompassed Buchert's expression of plaintiffs' need for business-interruption insurance to guard against shutdowns mandated by the government, like Gov. Edwards's stay-at-home order, to deal with the COVID-19 crisis," according to Judge Ashe.

Counsel for the parties did not immediately respond Tuesday to requests for comment.

B&P Restaurant Group is represented by Richard B. Ehret and Ross A. Ledet of Boykin & Utley PLC.

Eagan Insurance Agency is represented by Christopher R. Teske, Laura S. Gravener and Lindsey M. Soboul of Pipes Miles Beckman LLC.

AmGuard Insurance Co. is represented by Celeste R. Coco-Ewing and Janelle E. Sharer of Barrasso Usdin Kupperman Freeman & Sarver LLC.

The case is B&P Restaurant Group LLC et al. v. Eagan Insurance Agency LLC et al., case number 2:21-cv-00555, in the U.S. District Court for the Eastern District of Louisiana.

--Editing by Ellen Johnson.

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