The US Court of Appeals for the Fourth Circuit remanded an insurance coverage dispute for the district court to determine whether settlement of the underlying lawsuit eliminated any concrete interest in the declaratory judgment action and rendered the case moot. Covington Specialty Insurance Company v. Omega Restaurant & Bar, LLC, Case No. 24-1364 (4th Cir. July 20, 2026) (Wilkinson, Wynn, Berner, JJ.)
Covington Specialty Insurance issued a commercial general liability policy to Omega Restaurant & Bar, which operated a nightclub in Virginia Beach, Virginia. The policy provided coverage for certain personal and advertising injuries.
In September 2020, several professional models sued Omega in Virginia state court, alleging that Omega used their images in advertisements without authorization. Omega removed the action to the US District Court for the Eastern District of Virginia.
In May 2021, Covington filed a separate action in the same district seeking a declaration that it had no duty to defend or indemnify Omega in connection with the models’ lawsuit. The parties filed cross-motions for summary judgment.
While the declaratory judgment action was pending, Omega settled the underlying lawsuit. Under the settlement, Omega consented to entry of a $155,000 judgment and assigned to the models its rights and claims against Covington under the insurance policy. The record did not show that Omega informed the district court presiding over the coverage action that the settlement had occurred.
The district court subsequently granted summary judgment for Covington and denied Omega’s cross-motion. The court found that the policy did not cover the injuries alleged in the underlying complaint and concluded that Covington had neither a duty to defend nor a duty to indemnify. Omega appealed.
Omega argued that the district court erred because the underlying complaint alleged conduct that potentially fell within the policy’s coverage. Covington responded by arguing for the first time that the settlement had rendered the dispute moot.
The Fourth Circuit explained that mootness is jurisdictional because Article III limits federal courts to deciding live cases and controversies. A case becomes moot when the parties no longer retain a legally cognizable interest in the outcome and the court cannot grant meaningful relief. The relevant inquiry is whether the parties retain any concrete interest, however small, in the litigation’s outcome.
Although Covington did not raise mootness until more than two years after the settlement, the Fourth Circuit explained that a jurisdictional objection cannot be waived or forfeited. The timing of the argument, however, left the appellate record insufficiently developed because the district court had never considered the effect of the settlement.
The record did not establish whether any cognizable interest remained in the coverage dispute or whether Covington had withdrawn or otherwise abandoned its defense of Omega in the underlying action. Without those facts, the Fourth Circuit could not determine whether the case remained live.
The Fourth Circuit therefore remanded for the district court to determine whether the settlement rendered the declaratory judgment action moot. It did not reach the merits of the coverage dispute and left Omega free to renew its appellate challenge if the district court determined that a live controversy remained.
Practice note: Mootness may be raised at any stage because it implicates subject matter jurisdiction, but waiting until appeal may create an inadequate factual record and result in remand. Parties should promptly disclose settlements and raise any resulting jurisdictional issues before the district court to avoid unnecessary proceedings.
