Contract Interpretation is a Matter of State Law
Post 4918
Read the full article at https://www.linkedin.com/pulse/federal-jurisdiction-requires-issue-barry-zalma-esq-cfe-xudpc, see the full video at https://rumble.com/v5jxznx-federal-jurisdiction-requires-a-federal-issue.html and at https://youtu.be/Blh_2tALXVE and at https://zalma.com/blog plus more than 4900 posts.
Lititz Mutual Insurance Company sought a declaratory judgment that it is under no obligation to defend or indemnify Steve Wilson in the underlying/related action. The USDC issued a rule to show cause why the instant case should not be dismissed for lack of subject matter jurisdiction.
In Lititz Mutual Insurance Co. v. Steve D. Wilson, et al., No. 5:24-cv-0155, United States District Court, E.D. Pennsylvania (October 22, 2024) the court resolved the question of subject matter jurisdiction.
BACKGROUND
Steve Wilson is an insured under a homeowner’s policy issued by Lititz Mutual Insurance Company. Lititz, sued Wilson seeking a declaratory judgment that it is under no obligation to defend or indemnify him pursuant to that policy in the underlying/related action.
The Complaint premised the Court’s jurisdiction on 28 U.S.C. § 2201 and because Plaintiffs in the underlying matter allege violations of the United States Constitution.
Lititz moved for Summary Judgment arguing that there exists no issue of material fact that the underlying claims arose outside of the Policy period and that the Policy excludes coverage for the intentional acts alleged in the underlying suit.
Analysis – The Court has no subject matter jurisdiction over this suit.
Lititz bears the burden of proving subject matter jurisdiction exists.
In its Complaint, Lititz seeks two counts of declaratory relief. However, the Declaratory Judgment Act does not provide an independent basis for subject-matter jurisdiction; it merely defines a remedy. The controversy must have its own jurisdictional basis.
Lititz invoked federal question jurisdiction because Plaintiffs in the underlying matter allege violations of the United States Constitution. In the declaratory judgment context, federal courts have regularly taken original jurisdiction over suits in which, if the declaratory judgment defendant brought a coercive action to enforce its rights, that suit would necessarily present a federal question.
However, there is no federal question where, in a hypothetical suit bringing a coercive action to enforce his rights, Wilson would be asserting a state law breach of contract claim against Lititz, not violations of the United States Constitution.
Since breach of contract does not arise under the Constitution or any federal law, Lititz failed to establish federal question jurisdiction.
Special Limited Federal Question
In special and limited federal question cases, explaining that federal jurisdiction over a state law claim will lie if a federal issue is:
necessarily raised,
actually disputed,
substantial, and
capable of resolution in federal court without disrupting the federal-state balance approved by Congress.
The question faced by the court is “would the hypothetical breach of contract suit necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities?” The USDC held that it does not.
Lititz’s first argument is that the conduct alleged in the underlying complaint occurred before the policy was in effect. This plainly does not necessarily raise a federal question. It is simply a matter of timing regarding the intended harm exclusion.
Contract interpretation is a matter of state law and thus does not necessarily raise a federal issue. Resolving the hypothetical breach of contract suit does not turn on substantial questions of federal law, it merely requires comparing the four corners of the insurance contract to the four corners of the complaint.
In this context, that would require a court to determine whether Wilson’s alleged actions were expected or intended within the meaning of the policy exclusion, not whether a constitutional violation occurred.
Since Lititz failed to establish the Court’s subject matter jurisdiction over the case, it was dismissed.
ZALMA OPINION
Insurance companies seem to prefer dispute resolution to happen in federal court. Lititz failed to allege facts that would raise federal jurisdiction for its declaratory relief action. Jurisdiction was clear in any state court and this waste of time will arise in a state court shortly after this decision. The duty to defend can be resolved in state court by bringing the same cause of action where jurisdiction resides.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Detail Charging Defendant for Fraud is Sufficient
Post 5242
Read the full article at https://lnkd.in/g_HVw36q, see the video at https://lnkd.in/gpBd-XTg and at https://lnkd.in/gzCnBjgQ and at https://zalma.com/blog plus more than 5200 posts.
Charges that Advises the Defendant of the Crime Cannot be Set Aside
In United States Of America v. Lourdes Navarro, AKA Lulu, No. 25-661, United States Court of Appeals, Ninth Circuit (December 4, 2025) Lourdes Navarro appealed the district court’s denial of her motion to dismiss the indictment and enter final judgment was in error.
FACTUAL BACKGROUND
The indictment alleged that insurers reimburse only for medically necessary services. Navarro performed unnecessary respiratory pathogen panel (RPP) tests on nasal swabs collected from asymptomatic individuals for COVID-19 screening.
Navarro billed over $455 million to insurers for those additional RPP tests that she knew to be medically unnecessary. These allegations constituted a plain, concise, and definite written ...
Louisiana Statute Prevents Enforcement of Contract Term Requiring Arbitration of Disputes
Post 5241
Read the full article at https://www.linkedin.com/pulse/international-convention-requiring-enforcement-award-barry-sttdc, see the video at and at and at https://zalma.com/blog plus more than 5200 posts.
In Town of Vinton v. Indian Harbor Insurance Company, Nos. 24-30035, 24-30748, 24-30749, 24-30750, 24-30751, 24-30756, 24-30757, United States Court of Appeals, Fifth Circuit (December 8, 2025) municipal entities including the Town of Vinton, et al sued domestic insurers after dismissing foreign insurers with prejudice. The insurers sought arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”) but the court held Louisiana law — prohibiting arbitration clauses in such policies—controls, as the Convention does not apply absent foreign parties who ...
Refusal to Provide Workers’ Compensation is Expensive
Post 5240
Read the full article at https://lnkd.in/guC9dnqA, see the video at https://lnkd.in/gVxz-qmk and at https://lnkd.in/gUTAnCZw, and at https://zalma.com/blog plus more than 5200 posts.
In Illinois Department of Insurance, Insurance Compliance Department v.USA Water And Fire Restoration, Inc., And Nicholas Pacella, Individually And As Officer, Nos. 23WC021808, 18INC00228, No. 25IWCC0467, the Illinois Department of Insurance (Petitioner) initiated an investigation after the Injured Workers’ Benefit Fund (IWBF) was added to a pending workers’ compensation claim. The claim alleged a work-related injury during employment with the Respondents who failed to maintain workers’ compensation Insurance.
Company Overview:
USA Water & Fire Restoration, Inc. was incorporated on January 17, 2014, and dissolved on June 14, 2019, for failure to file annual reports and pay franchise taxes. It then operated under assumed names including USA Board Up & Glass Co. and USA Plumbing and Sewer. The business ...
The Professional Claims Handler
Post 5219
Posted on October 31, 2025 by Barry Zalma
An Insurance claims professionals should be a person who:
Can read and understand the insurance policies issued by the insurer.
Understands the promises made by the policy.
Understand their obligation, as an insurer’s claims staff, to fulfill the promises made.
Are competent investigators.
Have empathy and recognize the difference between empathy and sympathy.
Understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
Understand how to repair damage to real and personal property and the value of the repairs or the property.
Understand how to negotiate a fair and reasonable settlement with the insured that is fair and reasonable to both the insured and the insurer.
How to Create Claims Professionals
To avoid fraudulent claims, claims of breach of contract, bad faith, punitive damages, unresolved losses, and to make a profit, insurers ...
The History Behind the Creation of a Claims Handling Expert
The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
The History Behind the Creation of a Claims Handling Expert
The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
