Santo's Italian Café LLC v. Acuity Ins. Co.

• Decision Date: 22 September 2021
• Docket Number: No. 21-3068,21-3068
• Parties: SANTO'S ITALIAN CAFÉ LLC, Plaintiff-Appellant, v. ACUITY INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

15 F.4th 398

SANTO'S ITALIAN CAFÉ LLC, Plaintiff-Appellant,

v.ACUITY INSURANCE COMPANY, Defendant-Appellee.

No. 21-3068

United States Court of Appeals, Sixth Circuit.

Argued: September 16, 2021

Decided and Filed: September 22, 2021

ARGUED: Colin P. Sammon, SAMMON LAW, LLC, Medina, Ohio, for Appellant. John R. Chlysta, HANNA, CAMPBELL & POWELL, LLP, Akron, Ohio, for Appellee. John N. Ellison, REED SMITH LLP, New York, New York, Stephen E. Goldman, ROBINSON & COLE LLP, Hartford, Connecticut, for Amici Curiae. ON BRIEF: Colin P. Sammon, SAMMON LAW, LLC, Medina, Ohio, for Appellant. John R. Chlysta, Kenneth A. Calderone, HANNA, CAMPBELL & POWELL, LLP, Akron, Ohio, for Appellee. John N. Ellison, REED SMITH LLP, New York, New York, Christopher E. Kozak, PLEWS SHADLEY RACHER & BRAUN LLP, Indianapolis, Indiana, Wystan M. Ackerman, ROBINSON & COLE LLP, Hartford, Connecticut, Gabriel K. Gillett, JENNER & BLOCK, LLP, Chicago, Illinois, Timothy J. Fitzgerald, KOEHLER FITZGERALD LLC, Cleveland, Ohio, for Amici Curiae.

Before: SUTTON, Chief Judge; BATCHELDER and LARSEN, Circuit Judges.

SUTTON, Chief Judge.

Santosuossos is an Italian restaurant in Medina, Ohio. The COVID-19 pandemic was not good for the restaurant's business or for that matter most hospitality services. First came an understandable reluctance by patrons to enter enclosed public spaces such as restaurants. Then came the State of Ohio's order to suspend all in-person dining operations at restaurants to slow the spread of the virus. Through it all, Santosuossos lost considerable revenue and understandably blamed the pandemic and shut-down order for its economic woes. The owner of the restaurant sued its insurer, Acuity Insurance Company, for coverage under its commercial property insurance policy, which covers business interruption "caused by direct physical loss of or damage to property." R.7-7 at 29. The district court granted Acuity's motion to dismiss, reasoning that the policy did not cover this kind of peril. We agree and affirm.

I.

In March 2020, the Governor of Ohio declared a state of emergency in connection with the COVID-19 pandemic. A few days later, the Director of the Ohio Department of Health ordered restaurants across the State to close their doors to in-person diners. The order forced Santosuossos "to halt ordinary operations." R.1-1 at 3. Although the closure order permitted restaurants to offer takeout services, in-person dining generates the "substantial majority of [Santosuossos's] revenue." Id. The restaurant sustained significant losses and laid off employees as a result of the order.

The owner of the restaurant, Santo's Italian Café LLC, filed a claim with its insurance company, Acuity, seeking recovery under its commercial property insurance policy. After Acuity denied coverage, the owner filed a complaint in Ohio state court, seeking a declaration that required Acuity to reimburse it for the income lost while the closure orders were in place. Acuity removed the lawsuit to federal court and filed a motion to dismiss for failure to state a claim. See Fed. R. Civ. P. 12(b)(6). The district court granted the motion, reasoning that the policy did not cover lost income attributable to the pandemic and any shut-down orders.

II.

Ohio law governs this dispute. An insurance policy amounts to a contract, the meaning of which presents a question of law. Lager v. Miller-Gonzalez , 120 Ohio St.3d 47, 896 N.E.2d 666, 669 (2008). In Ohio, as in all States (we expect), the state courts construe the terms of a contract in accordance with their conventional meaning. Laboy v. Grange Indem. Ins. Co. , 144 Ohio St.3d 234, 41 N.E.3d 1224, 1227 (2015).

The text of the policy answers the question at hand. Two big-picture provisions initially orient the policy. At the outset, it says that "[w]e will pay for direct physical loss of or damage to Covered Property ... caused by or resulting from any Covered Cause of Loss." R.7-7 at 25. It then says that, with respect to "Covered Causes of Loss," the policy applies to "Risks of Direct Physical Loss." Id. at 26.

Later, it provides eighteen "Additional Coverages," one of which includes coverage for "Business Income and Extra Expense." Id. at 29. Under this provision, Acuity must reimburse the owner of the restaurant for business income lost "due to the necessary suspension" of its operations if the "suspension" was "caused by direct physical loss of or damage to property" at the restaurant. Id. The policy defines a "suspension" as either "[t]he partial slowdown or complete cessation of ... business activities" or when "a part or all of the described premises is rendered untenantable." Id. at 30. Thus: If the restaurant (1) lost business income (2) due to a business suspension, it may recover the lost income (3) caused by (4) "direct physical loss of or damage to property."

Everyone agrees that the shut-down orders required Santosuossos to suspend its in-premises dining operations, that the restaurant lost business income due to that suspension, and that the orders caused the shutdown. What separates the parties is disagreement over whether the suspension arose from a covered cause. Does a pandemic-triggered government order, barring in-person dining at a restaurant, count as "direct physical loss of or damage to" the property?

The policy does not define these words, requiring us to give them their "common and ordinary" meaning. Olmstead v. Lumbermens Mut. Ins. Co. , 22 Ohio St.2d 212, 259 N.E.2d 123, 126 (1970). That is cold comfort in one sense. There is nothing common or ordinary about insurance contracts. Ordinary people do not speak in the way the authors of insurance policies write. Consider the reaction you would receive if at the next social gathering you expressed your fears in the manner of this insurance contract: (1) "I'm afraid of ‘loss or damage by theft’ of my ‘jewelry, watches, watch movements, jewels, pearls, precious and semi-precious stones, bullion, gold, silver, platinum and other precious alloys or metals,’ " R.7-7 at 26; (2) "My home ‘shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion,’ " id. at 29; (3) "Where are the ‘papers and records?’ " "In whose ‘care, custody or control’ are they?" id. at 36; or (4) "I'm afraid of ‘[w]ar, including undeclared or civil war, ... [w]arlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents,’ and ‘[i]nsurrection, rebellion, revolution, usurped power, or action taken by governmental authority in hindering or defending against any of these,’ " id. at 39.

There is indeed nothing common about the language of insurance contracts. Then again, there is nothing common about the task at hand—capturing risk and what to pay for it, pricing unknowable future perils in a fair and predictable way. This is a specialized field of language, and aptly so. Hence the 26 pages and many words, sometimes overlapping words, needed to complete this contract. While there may be nothing common about the words found in insurance contracts, they often generate an ordinary meaning when anchored in the special context in which they are written.

That is true of the phrase around which this dispute revolves—"direct physical loss of or damage to" covered property—and the context in which it appears. Nothing unexpected arises from consulting dictionary definitions of the key disputed terms of this clause: "direct physical loss of" property. "Direct" means "[e]ffected or existing without intermediation or intervening agency; immediate." Oxford English Dictionary Online (3d ed. 2021). "Physical" means "natural; tangible, concrete." Id. "Loss" means "[p]erdition, ruin, destruction; the condition or fact of being ‘lost,’ destroyed, or ruined," or "being deprived of." Id. And "property" means "any residential or other building (with or without associated land) or separately owned part of such building (as an apartment, etc.)," as well as "[s]omething belonging to a thing; an appurtenance; an adjunct." Id.

Whether one sticks with the terms themselves (a "direct physical loss of" property) or a thesaurus-rich paraphrase of them (an "immediate" "tangible" "deprivation" of property), the conclusion is the same. The policy does not cover this loss. The restaurant has not been tangibly destroyed, whether in part or in full. And the owner has not been tangibly or concretely deprived of any of it. It still owns the restaurant and everything inside the space. And it can still put every square foot of the premises to use, even if not for in-person dining use.

Think of the different potential sources of the restaurant's lost income—the virus and the State's shut-down orders—and whether either one created a "direct physical loss of or damage to" property. The novel coronavirus did not physically affect the property in the way, say, fire or water damage would. No one argues that the virus physically and directly altered the property. The restaurant indeed makes no such argument. The Governor's shut-down orders also did not create a direct physical loss of property or direct physical damage to it. They simply prohibited one use of the property—in-person dining—while permitting takeout dining and through it all did not remotely cause direct physical damage to the property. It was as if the government temporarily rezoned all restaurants in the State solely for takeout dining. Even as restaurant owners no doubt would suffer from such a decision and no doubt would have reason to object to it, the government regulation would not create a direct physical loss of property. A loss of use simply is not the same as a physical loss. It is one thing for the government to ban the use of a bike or a scooter on city sidewalks; it is quite another for someone to steal it. See generally Image Dental LLC v. Citizens Ins. Co. of Am. , No. 20-cv-02759...