Accepting the insured’s amended complaint, the federal district court of Hawaii remanded the coverage action to state court. Hale v. Lloyd’s, London, 2020 U.S. Dist. LEXIS 9061 (D. Haw. Jan. 17, 2020).
Hale purchased a policy for his home in Hilo, Hawaii, from Defendant Pyramid Insurance Centre. The policy was memorialized by a Lloyd’s Certificate issued by Defendant Lloyd’s. On September 19, 2017, Hale entered Chapter 7 Bankruptcy. Included in the bankruptcy proceeding was Hale’s home and a secured home mortgage loan now owned by Defendant Specialized Loan Servicing, LLC. The Bankruptcy Court issued a discharge order on January 18, 2018.
On May 9, 2018, Hale’s home was destroyed, being covered with lava from the Kilauea volcano eruption. Hale filed a claim with Lloyd’s based upon the loss of his home. The claim was denied. Subsequently, however, Lloyd’s issued a check for the full amount of the policy. Both Hale and Specialized Loan were listed as payees on the check.
Hale sued in state court for unfair and deceptive business practices and breach of the covenant of good faith and fair dealing. The complaint also alleged actions of the defendants violated the Bankruptcy Code. Specialized Loan removed the case to federal court. Hale filed a Motion to Remand the case back to state court. Attached to the Motion to Remand was a proposed Amended Complaint removing all references to federal law. At the hearing on Hale’s Motion to Remand, Hale’s counsel made an oral Motion to Amend his Complaint, as proposed in the attachment to his Motion to Remand.
In her decision, Judge Gillmor first granted the Motion to Amend. Lloyd’s argued that Hale’s five-month delay in moving to amend caused prejudice through increased litigation expenses. Litigation expenses incurred before a motion to amend was filed did not establish prejudice, however. In the absence of prejudice, there was a strong presumption in favor of granting leave to amend. The court also found there was no bad faith or futility in seeing to amend. Therefore, Hale was granted leave to file the proposed Amended Complaint
The court next considered whether the case should be remanded to state court. The original complaint alleged that defendants had violated the Bankruptcy Code. At the time of removal, the bankruptcy claims gave the federal court original federal question jurisdiction. The proposed Amended Complaint removed all reference to Hale’s federal claims and his underlying bankruptcy. Instead, the remaining claims were exclusively state law claims of unfair and deceptive business practices and breach of the implied covenant of good faith and fair dealing.
Therefore, the court no longer had original federal question jurisdiction. The court declined to exercise its discretionary supplemental jurisdiction over the case. The case was remanded to the state court.