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Belcamp company seeks Supreme Court intervention in COVID-19 insurance case

A Belcamp company denied insurance for lost business during the pandemic has urged the U.S. Supreme Court to order the federal court considering the business’s appeal to ask Maryland’s top court for its interpretation of the state’s insurance law before issuing a ruling.

Bel Air Auto Auction Inc. told the justices that the 4th U.S. Circuit Court of Appeals abused its discretion by denying the company’s request that it ask the Maryland Court of Appeals to resolve outstanding state law issues critical to Bel Air’s claim that its lost business was covered under its policy with Great Northern Insurance Co.

Bel Air stated in papers filed with the Supreme Court this month that it should exercise its supervisory authority over lower federal courts and direct the 4th Circuit to ask the Maryland high court to rule on the applicability of state law to policy provisions related to lost business due to a gubernatorial order that businesses limit customer access due to COVID-19.

Great Northern, whose denial of coverage was upheld by the U.S. District Court in Baltimore, has waived it right to respond to Bel Air’s request for Supreme Court review. The justices are scheduled to vote on the review request Dec. 3.

The case is docketed at the Supreme Court as Bel Air Auto Auction Inc. v. Great Northern Insurance Co., No. 21-694.

In Bel Air’s request for review, the company’s lead attorney said a Supreme Court call for state court input in the insurance case is not only important for his client but for the more than 2,000 similar insurance claims pending in federal courts nationwide in light of the pandemic.

Lawrence J. Gebhardt noted that insurance cases are litigated in state court as well as federal court, provided the insurer and insured are based in different states and the amount in controversy exceeds $75,000. Because they are not bound by federal court interpretations of state insurance law, state courts can and have issued decisions contrary to federal court rulings in separate cases with similar issues, Gebhardt wrote.

To avoid such conflicting decisions, the justices must make clear to federal courts that they should submit “certified questions” to state high courts for their input on state laws regarding insurance, which is largely state regulated, Gebhardt wrote.

“This case is not a one-off case between an insurance company and its insured, where the focus is only on the appellant and the appellee,” wrote Gebhardt, of Gebhardt & Smith LLP in Baltimore. “This is a case of national importance where the rights of many insurance companies and their insureds are at issue.”

The request for the Supreme Court’s supervisory intervention, rare in itself, is especially unusual in that the 4th Circuit has yet to rule on the merits of Bel Air’s appeal.  Bel Air filed its “petition … before judgment” after the 4th Circuit, without explanation, denied the company’s request that the questions be asked of Maryland’s top court.

Gebhardt, in his Supreme Court filing, said an early Supreme Court order that the 4th Circuit seek answers from the Court of Appeals is necessary to provide uniformity for Maryland litigants in insurance-related litigation in federal and state courts.

Without Supreme Court intervention now, “a decision by the Maryland Court of Appeals could contradict the decisions of the 4th Circuit and the other federal cases but leave the losing parties in those federal cases without a remedy under Maryland law that has been resolved by Maryland’s highest court in their favor and contrary to the rulings of the federal courts,” Gebhardt wrote. “This is an outcome that may likely occur if the Supreme Court does not require the 4th Circuit to issue a certification order and the 4th Circuit rules against Bel Air on the merits.”

Bel Air, which holds a weekly car auction, sued Great Northern in Harford County Circuit Court in August 2020 seeking a declaratory judgment that the insurance policy’s business-interruption provision covered Bel Air’s lost business amid Gov. Larry Hogan’s announcement in March 2020 of a state of emergency to stanch the pandemic.

Hogan ended the state of emergency last summer.

Bel Air said its losses came from cancellation of its live in-person auctions and the closure of its on-site restaurant during the governor’s stay-at-home and safer-at-home orders.

New Jersey-based Great Northern moved the case to federal court in October 2020, citing its diversity in citizenship with Maryland-based Bel Air and an amount in controversy exceeding $75,000.

The company argued in U.S. District Court that its policy coverage did not apply because the pandemic did not result in physical loss or damage to Bel Air’s property and the emergency order did not prohibit all access to the property, as company employees were permitted to work.

U.S. District Judge Richard D. Bennett ruled in favor of Great Northern based on what he called a straightforward application of “basic principles of Maryland contract law” that did not require a certified question to the state’s high court.

“Quite simply, this court is unpersuaded that the COVID-19 virus in some way physically altered Bel Air’s covered properties or the surrounding areas in a manner that triggers coverage under the plain language of the policy,” Bennett wrote in April. “A mere loss of use of property is not ‘physical damage’ within the meaning of Maryland law.”

Bel Air then appealed to the 4th Circuit, which rejected the company’s request that it ask the Maryland Court of Appeals whether property loss and access must be total to be covered under Maryland insurance law pertaining to policy interpretation.

“Only the Maryland Court of Appeals can conclusively state what Maryland law is and have its pronouncement constitute binding precedent in all federal or state cases based on Maryland law,” Gebhardt wrote in Bel Air’s request to the Supreme Court.

Gebhardt was joined in the filing by his law firm partner Gregory L. Arbogast.

Great Northern is represented by Jonathan D. Hacker, of O’Melveny & Myers LLP in Washington.