Tribal court has jurisdiction over COVID-19 business interruption suit, 9th Circuit rules

The Ninth Circuit didn’t rule on the merits of the claims, but rather upheld a district judge’s decision.

The tribe submitted COVID-19-related loss claims under policies, which covered nearly $242 million worth of real property, $50 million worth of personal property and $98 million of business interruption value, according to the Ninth Circuit opinion. Credit: J. Albert Diaz/ALM

The U.S. Court of Appeals for the Ninth Circuit said Thursday that a tribal court had jurisdiction over COVID-19 business interruption coverage claims the Suquamish tribe brought against several insurers.

The off-reservation insurance companies, including Lexington Insurance Co., must face the claims in Suquamish Tribal Court because the claims center on a contract between the tribe and insurers conducted on tribal land, the Ninth Circuit held. Under U.S. Supreme Court precedent, tribes have power over “the activities of nonmembers who enter consensual relationships” with them, the Ninth Circuit said.

“The insurance policy establishes a contract between Lexington as the insurer and the Tribe, Port Madison, and subsidiary entities as beneficiaries. In exchange for coverage, Lexington received premiums from the Tribe and Port Madison, and Lexington renewed the policies many times over the course of several years,” wrote Judge M. Margaret McKeown, joined by Judges Michael Daly Hawkins and Susan P. Graber. “There is no dispute that the relationship was mutual and consensual.”

After the start of the COVID-19 pandemic, insurance companies faced a flood of lawsuits from businesses after denying coverage for losses due to shutdown orders. Federal courts have overwhelmingly ruled in favor of the insurers.

In the case here, the Suquamish Tribe, located in Washington state, and Port Madison Enterprises, a tribally chartered economic development entity, purchased insurance policies from Lexington in 2015 for the tribe’s businesses, which included a museum, a seafood company, a casino, a hotel and several gas stations, according to the opinion.

The policies were part of a Tribal Property Insurance Program.

The tribe submitted COVID-19-related loss claims under the policies, which covered nearly $242 million worth of real property, $50 million worth of personal property and $98 million of business interruption value, according to the Ninth Circuit opinion.

After Lexington said the policies did not cover the losses, the tribe filed a breach-of-contract suit in tribal court. Lexington then asked a federal district judge to rule that the tribal court lacked jurisdiction.

The Ninth Circuit didn’t rule on the claims’ merits, but upheld U.S. District Judge David G. Estudillo’s finding that the tribal court had authority over the case. The Ninth Circuit also said the insurance company should have foreseen that the contract would trigger tribal authority.

“The transaction had tribe and tribal lands written all over it,” McKeown wrote.

The insurance companies were represented by Gibson, Dunn & Crutcher. The tribe was represented by Dorsey & Whitney.

The Ninth Circuit rendered its decision in Lexington Ins. v. Smith, No. 22-35784.

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