1 S.A.N.T., Inc. v. Berkshire Hathaway, Inc.

• Decision Date: 15 January 2021
• Docket Number: Civil Action No. 2:20-cv-862
• Citation: 513 F.Supp.3d 623
• Parties: 1 S.A.N.T., INC., Plaintiff, v. BERKSHIRE HATHAWAY, INC. and National Fire & Marine Insurance Company, Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

513 F.Supp.3d 623

1 S.A.N.T., INC., Plaintiff,

v.BERKSHIRE HATHAWAY, INC. and National Fire & Marine Insurance Company, Defendants.

Civil Action No. 2:20-cv-862

United States District Court, W.D. Pennsylvania.

Signed January 15, 2021

Gary F. Lynch, Kelly K. Iverson, R. Bruce Carlson, Carlson Lynch, LLP, Pittsburgh, PA, for Plaintiff.

Julie S. Greenberg, Robert L. Byer, Duane Morris LLP, Pittsburgh, PA, for Defendants.

MEMORANDUM OPINION

WILLIAM S. STICKMAN IV, District Judge

Defendant National Fire & Marine Insurance Co. ("National Fire")¹ filed its Federal Rule of Civil Procedure ("Rule") 12(b)(6) Motion to Dismiss (ECF No. 17). Briefing is complete, and oral argument occurred on October 28, 2020. The matter is ripe for resolution. For the reasons set forth here, Defendant's Motion to Dismiss is granted.

FACTUAL AND PROCEDURAL HISTORY

Plaintiff 1 S.A.N.T., Inc., d/b/a Town & Country and d/b/a Gatherings Banquet and Event Center ("1 S.A.N.T."), the operator of a restaurant and tavern business, bought commercial property insurance for lost business income for a policy term of June 1, 2019 to June 1, 2020 ("Policy"). (ECF No. 15, ¶¶ 3, 13). In response to the COVID-19 pandemic, on March 6, 2020, Governor Tom Wolf declared a "Disaster Emergency" throughout the Commonwealth of Pennsylvania. (Id. ¶ 29). On March 19, 2020, Governor Wolf signed an Executive Order ("Governor Wolf's order") closing all non-life sustaining businesses, which included 1 S.A.N.T. (Id. ¶ 29). 1 S.A.N.T. incurred, and continues to incur, a substantial loss of business income and other expenses. (Id. ¶ 45). 1 S.A.N.T. provided notice to National Fire of its claim for interruption to its business. (Id. ¶ 46). On June 4, 2020, National Fire denied 1 S.A.N.T.’s claim. (Id. ¶ 47).

1 S.A.N.T. filed a putative class action lawsuit against National Fire, seeking coverage for lost business income resulting from the suspension or reduction of its operations because of the COVID-19 pandemic. (ECF No. 18, p. 6).

National Fire submits that 1 S.A.N.T.’s claim for coverage under the Policy was properly denied because (1) 1 S.A.N.T. did not sustain "direct physical loss of or damage to Covered Property" necessary to trigger coverage under the Policy; (2) 1 S.A.N.T.’s Policy excludes the alleged loss or damage because it was caused by COVID-19, which is barred by the Virus Exclusion provision; and (3) the orders issued by state and local governments in response to COVID-19 did not prohibit access to 1 S.A.N.T.’s property, which is required to trigger Civil Authority coverage. (Id. ). National Fire submits its Rule 12(b)(6) Motion to Dismiss to the Court asserting that 1 S.A.N.T. does not have a claim under 1 S.A.N.T.’s Policy. (ECF No. 18).

1 S.A.N.T. opposes the Motion to Dismiss and contends the Policy should cover its claim. 1 S.A.N.T. argues that triggering coverage for physical loss or damage does not require physical alteration, that it was triggered because 1 S.A.N.T. could not use the property for its intended purpose. (ECF No. 26, p. 6). Further, it argues that the Virus Exclusion does not bar coverage because Governor Wolf's orders were the efficient, proximate cause of 1 S.A.N.T.’s loss and not the virus. (Id. at 6–7). Alternatively, the ubiquitous presence of the virus is enough to constitute a covered cause of loss. (Id. at 7). Finally, 1 S.A.N.T. argues that National Fire should be estopped from applying the Virus Exclusion provision under the theory of Regulatory Estoppel. (Id. ).

STANDARD OF REVIEW

A motion to dismiss filed under Rule 12(b)(6) tests the legal sufficiency of the complaint. Kost v. Kozakiewicz , 1 F.3d 176, 183 (3d Cir. 1993). A plaintiff must allege enough facts that, if accepted as true, state a claim for relief plausible on its face. See Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; see also Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The Court must accept all well-pleaded factual allegations as true and view them in the light most favorable to a plaintiff. See Fowler v. UPMC Shadyside , 578 F.3d 203, 210 (3d Cir. 2009) ; see also DiCarlo v. St. Mary Hosp. , 530 F.3d 255, 262–63 (3d Cir. 2008). Although the Court must accept the allegations as true, it is "not compelled to accept unsupported conclusions and unwarranted inferences, or a legal conclusion couched as a factual allegation." Baraka v. McGreevey , 481 F.3d 187, 195 (3d Cir. 2007) (citations omitted).

The "plausibility" standard required for a complaint to survive a motion to dismiss is not akin to a "probability" requirement but asks for more than sheer "possibility." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). In other words, the complaint's factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations are true even if doubtful in fact. Twombly , 550 U.S. at 555, 127 S.Ct. 1955. Facial plausibility is present when a plaintiff pleads factual content that allows the Court to draw the reasonable inference that a defendant is liable for the misconduct alleged. Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. Even if the complaint's well-pleaded facts lead to a plausible inference, that inference alone will not entitle a plaintiff to relief Id. at 682, 129 S.Ct. 1937. The complaint must support the inference with facts to plausibly justify that inferential leap. Id.

ANALYSIS

National Fire seeks to dismiss 1 S.A.N.T.’s amended complaint for two reasons. National Fire argues that the Policy does not provide coverage because 1 S.A.N.T. failed to allege that it suffered any direct physical loss or damage as a result of the involuntary business closure, which is necessary to implicate any coverage. National Fire contends that, even if a direct physical loss had been alleged, the Policy contains a broad exclusion for viruses that applies to the COVID-19 pandemic. Before turning to the merits, the Court must consider the general principles governing insurance contract interpretation under Pennsylvania law.

A. Principles of Pennsylvania insurance contracts

Courts generally enforce the plain language of an insurance policy. Reliance Ins. Co. v. Moessner , 121 F.3d 895, 901 (3d Cir. 1997) ("If ... the terms of the policy are clear and unambiguous, the general rule in Pennsylvania is to give effect to the plain language of the agreement.") (citations omitted). Policy exclusions, similarly, are enforced under their plain meaning. Pac. Indem. Co. v. Linn , 766 F.2d 754, 760–61 (3d Cir. 1985) ("Exclusions from coverage contained in an insurance policy will be effective against an insured if they are clearly worded and conspicuously displayed ...."). Any ambiguity in policy language should be interpreted against the insurer. McMillan v. State Mut. Life Ins. Co. , 922 F.2d 1073, 1075 (3d Cir. 1990).

When parties dispute coverage and exclusions under an insurance policy, courts will apply a burden-shifting framework. See Burgunder v. United Specialty Ins. Co. , No. CV 17-1295, 2018 WL 2184479, at *4 (W.D. Pa. May 11, 2018). "[I]n an action based upon an ‘all risks’ insurance policy, the burden is upon the insured to show that a loss has occurred; thereafter, the burden is on the insurer to defend by showing that the loss falls within a specific policy exclusion." Betz v. Erie Ins. Exch. , 957 A.2d 1244, 1256 (Pa. Super. 2008).

B. The Court must interpret the plain meaning of 1 S.A.N.T.’s Policy.

"All risks" policies differ from policies that cover specified risks, such as flooding or earthquakes. National Fire's Policy provides general coverage with specific exclusions. If an exclusion does not apply, then the risk is covered. If an exclusion applies, then the risk is not covered. COVID-19, National Fire claims, is an excluded peril under the Virus Exclusion of 1 S.A.N.T.’s Policy. (ECF No. 18, p. 12). But before the Court can even consider the applicability of an exclusion, it must first determine whether there is an insurable loss.

Litigation involving insurance claims arising out of business shutdowns and restrictions imposed by COVID-19 mitigation orders have proliferated in recent months, and courts have had a chance to specifically examine the relevant policy language to determine whether coverage was warranted. Some courts have focused on virus exclusions within policies, many dismissing the cases given their policies’ virus exclusion provisions.² Other courts have focused on the threshold question of whether the claimants could establish physical loss or damage tied to the novel coronavirus or state and local orders in response to the virus.³

The Court will first determine whether, in this case, there was a loss that would trigger coverage under the language of the policy. If so, it will look at whether the virus exclusion applies.

C. Coverage under the policy requires direct, physical loss.

The policy that 1 S.A.N.T. bought from National Fire has the following threshold provision for coverage:

A. Coverage

We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

(ECF No. 1-1, p. 16). National Fire asserts that COVID-19 is excluded as a potential Covered Cause of Loss under the Virus Exclusion and that 1 S.A.N.T. has not shown a "direct physical loss of or damage" to the property. (ECF No. 18, p. 13). Indeed, National Fire argues that 1 S.A.N.T. has sustained no "direct physical loss of or damage to" any covered property. It contends that 1 S.A.N.T. has not claimed that the virus is present at its facilities or that any of its employees have contracted the virus. (Id. ). National Fire points out that access to the building was never impeded and that the building was used for alternate operations, such as takeout. The gist of its argument is, simply, that the interruption of 1 S.A.N.T.’s usual...