United States Court of Appeals for the Fourth Circuit Addresses Pendent Appellate Jurisdiction in Class Actions

United States Court of Appeals for the Fourth Circuit Addresses Pendent Appellate Jurisdiction in Class Actions

The United States Court of Appeals for the Fourth Circuit, while deciding Elegant Massage, LLC v. State Farm Mutual Automobile Insurance Company, No. 22-1853, – F.4th –, 2024 WL 995480 (4th Cir. Mar. 8, 2024) addressed and answered many questions revolving around its Pendent Appellate Jurisdiction. The Fourth Circuit Court of Appeals reviewed the district court’s denial of State Farm’s motion to dismiss in conjunction with the appealable class certification order and instructed the District Court to dismiss the whole case, relying on its own precedent set in Uncork & Create LLC v. Cincinnati Insurance Co.

Elegant Massage (Plaintiff) voluntarily closed to safeguard its employees and the public from the spread of the COVID-19 virus on March 16, 2020. It also filed a claim for loss of business income and extra expenses under its “all risk” commercial property insurance policy issued by State Farm (Defendant).

On March 26, 2020, Defendant State Farm Mutual Automobile Insurance denied the Plaintiff’s claims stating that the Plaintiff voluntarily closed its business before any executive order was issued and to qualify for the loss of income coverage, the suspension of business must be caused by accidental direct physical loss and the policy covers only that loss which is not subject to exclusions. The Defendants stated that there was no accidental direct physical damage to the property and closing of business as virus does not come under the purview of ‘restoration period’ as defined in the policy.

Plaintiff had filed a putative class action complaint on behalf of similarly situated vendors and businesses in the District Court. District Court that granted relief to the Plaintiffs on the ground that direct physical loss was ambiguous under Virginia law, and that it was plausible that such loss could mean that property is uninhabitable, inaccessible, or dangerous to use because of intangible, or non-structural sources. The Court also granted the Plaintiff class certification under Rule 23(b)(3) of Federal Rules of Civil Procedure.

Defendant moved the United States Court of Appeals for the Fourth Circuit against the District Court’s order relying on the judgement given by the Fourth Circuit Court in Uncork & Create LLC v. Cincinnati Ins. Co., 27 F.4th 926 (4th Cir. 2022).

Defendant urged the Fourth Circuit Court to apply its pendent appellate jurisdiction and dismiss the District Court’s class certification Order.

The first question the Fourth Circuit Court faced was whether they had the jurisdiction to consider the district court’s denial of State Farm’s motion to dismiss. The Court while answering the question relied upon Microsoft Corp. v. Baker, 582 U.S. 23, 30–31 (2017) and held that since they granted State Farm’s petition under Rule 23(f), they have appellate jurisdiction to consider State Farm’s arguments challenging the class certification order but they lack jurisdiction under Rule 23(f) to consider the district court’s denial of State Farm’s motion to dismiss.

Thus, the Court followed the doctrine of pendent appellate jurisdiction to review an issue not otherwise subject to immediate appeal when the issue was “so interconnected” with an issue already before the court to “warrant concurrent review^”.

The Court while reviewing the District Court’s class certification relied upon TravCo Ins. v. Ward, 736 S.E.2d 321, 325 (Va. 2012) in the words “We consider each term in “the holistic context of the word within the instrument,” with each “word, clause, and provision” of the policy construed together to harmonize, when reasonably possible, any potentially conflicting words or terms. But if a term is subject to multiple interpretations, we construe the ambiguous policy language in favor of coverage and against the insurer.”

The Court held that the District Court erred in denying State Farm’s motion to dismiss the complaint and also reversed the District Court’s class certification order.

Looking into the above matter, it can be said that with the everchanging scenarios and new challenges faced by the business in form of legislations and regulations or policies imposed by the government which might force a business to close, Insurance Companies need to upgrade the purview of their policies and make the coverage provided under them more inclusive in nature.

The Legislature may also help by bringing out laws which suggest or direct Insurance companies to form policies in a way that they cater to vast number of ways which may harm or hinder a business or its income beyond physical damage.