Coleman E. Adler & Sons, L.L.C. v. Axis Surplus Ins. Co.

• Decision Date: 20 September 2022
• Docket Number: 21-30478
• Citation: 49 F.4th 894
• Parties: COLEMAN E. ADLER & SONS, L.L.C.; Royal Cloud Nine, L.L.C.; Latrobe's on Royal, L.L.C., Plaintiffs—Appellants, v. AXIS SURPLUS INSURANCE COMPANY, incorrectly named Axis Surplus Lines Insurance Company; Risk Placement Services, Incorporated; Unidentified Parties; Marsh & McLennan Agency, L.L.C., Defendants—Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

49 F.4th 894

COLEMAN E. ADLER & SONS, L.L.C.; Royal Cloud Nine, L.L.C.; Latrobe's on Royal, L.L.C., Plaintiffs—Appellants,

v.AXIS SURPLUS INSURANCE COMPANY, incorrectly named Axis Surplus Lines Insurance Company; Risk Placement Services, Incorporated; Unidentified Parties; Marsh & McLennan Agency, L.L.C., Defendants—Appellees.

No. 21-30478

United States Court of Appeals, Fifth Circuit.

FILED September 20, 2022

James M. Garner, Esq., Ashley Gremillion Coker, Esq., Martha Y. Curtis, Esq., Stephanie T. Wartelle, Sher Garner Cahill Richter Klein & Hilbert, L.L.C., New Orleans, LA, for Plaintiffs—Appellants.

Kristin V. Gallagher, Kennedys CMK, L.L.P., Basking Ridge, NJ, Jedidiah D. Vander Klok, Esq., Kennedys CMK, L.L.P., Miami, FL, Emma Madison Barton, Kyle Paul Kirsch, Wanek Kirsch Davies, L.L.C., New Orleans, LA, for Defendant—Appellee Axis Surplus Insurance Company.

Christopher Kent Ralston, Clerc Higgins Cooper, Matthew Slaughter, Phelps Dunbar, L.L.P., New Orleans, LA, for Defendant—Appellee Risk Placement Services, Incorporated.

Christopher Rutledge Teske, Esq., Laura Spansel Gravener, Lindsey Soboul, Pipes Miles Beckman, L.L.C., New Orleans, LA, for Defendant—Appellee Marsh & McLennan Agency, L.L.C.

Before Smith, Duncan, and Oldham, Circuit Judges.

Stuart Kyle Duncan, Circuit judge:

During the covid-19 pandemic, state and local authorities in Louisiana ordered nonessential businesses to close for a time. This required Coleman E. Adler II to temporarily shut his jewelry stores and event spaces in New Orleans. To recoup income lost during the closure, Adler claimed reimbursement under his insurance policy's coverage for "direct physical loss of or damage to" his property. Adler's insurer, Axis, denied the claim.

Adler sued Axis along with his insurance agent and broker. The district court dismissed Adler's claims, concluding that Adler suffered no covered loss or damages and that his agent and broker violated no duty to advise Adler about pandemic-related coverage. We affirm.

I.

Adler owns and operates jewelry stores and reception venues in New Orleans.¹ In March 2020, responding to the covid-19 pandemic, government orders closed Adler's businesses as nonessential. Adler sought business-interruption coverage under a commercial property insurance policy. The policy covers "direct physical loss of or damage to Covered Property ... caused by or resulting from any Covered Cause of Loss." Adler's insurer, Axis Surplus Insurance Company ("Axis"), denied the claim.

Adler then brought a state court lawsuit against (1) Axis; (2) Adler's insurance agent, Marsh & McLennan Agency LLC ("Marsh"); and (3) Adler's wholesale broker, Risk Placement Services, Inc. ("RPS").² Adler pleaded negligence, breach of contract, and bad faith. He claimed the businesses were "damaged" under the policy because the coronavirus was present in them and "the rampant spread of Covid-19 ... create[d] a dangerous property condition" that prevented use of the property. Adler also claimed Marsh and RPS were liable for not having recommended pandemic coverage.

Marsh removed the case to federal court, joined by the other defendants. All three separately moved to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The district court granted the motions and dismissed Adler's complaint with prejudice. Adler timely appealed.

II.

We review a dismissal for failure to state a claim de novo. IberiaBank Corp. v. Ill. Union Ins. Co. , 953 F.3d 339, 345 (5th Cir. 2020). To survive a motion to dismiss, the plaintiff's "complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).

Interpretation of an insurance policy is a question of law that we also review de novo. Naquin v. Elevating Boats, L.L.C. , 817 F.3d 235, 238 (5th Cir. 2016). "Under Louisiana law, an insurance policy is a contract that must be construed using the general rules of contract interpretation set forth in the Civil Code." Anco Insulations, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh , 787 F.3d 276, 281 (5th Cir. 2015) (footnote omitted). Dismissal is proper if an insurance contract precludes recovery. IberiaBank , 953 F.3d at 346.

III.

We first examine Adler's claim that Axis wrongly denied coverage for "direct physical loss of or damage to property." The district court found Adler provided no evidence that his properties suffered any such loss or damage. We agree with the district court.

"Words and phrases used in an insurance policy are to be construed using their plain, ordinary and generally prevailing meaning." Edwards v. Daugherty , 2003-2103, at *11 (La. 10/1/04); 883 So. 2d 932, 940–41 ; see also LA. CIV. CODE art. 2045 – 47. "When the words of an insurance contract are clear and unambiguous and lead to no absurd consequences, courts must enforce the contract as written and may make no further interpretation in search of the parties' intent." Gorman v. City of Opelousas , 2013-1734, at *5 (La. 7/1/14); 148 So. 3d 888, 892. Where, as here, the Louisiana Supreme Court has yet to interpret the policy language at issue, we make an " Erie guess" as to how that court would read it. See Erie R.R. v. Tompkins , 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ; see also Carrizales v. State Farm Lloyds , 518 F.3d 343, 345–46 (5th Cir. 2008).

This is a guess we have already made. In Q Clothier , our court recently interpreted a Louisiana insurance policy's coverage for "direct physical loss of or damage to property" to "cover only tangible alterations of, injuries to, and deprivations of property." Q Clothier New Orleans, L.L.C. v. Twin City Fire Ins. Co. , 29 F.4th 252, 257 (5th Cir. 2022) (emphasis added). While recognizing that the Louisiana Supreme Court had not yet construed this contract language, we based our Erie guess in part on several Louisiana intermediate appellate decisions.³ Accordingly, we held that the clause did not apply to a retailer's claim for losses caused by pandemic closure orders. Id. at 259. Loss of income from such orders was not a "tangible" loss of property, "[n]or [wa]s it an alteration, injury, or deprivation of property. " Id. at 259. The retailer's "property," we explained, "ha[d] been unchanged by the orders or the close of its stores," and so losses of income caused by the orders were not covered by the policy. Ibid.

Adler argues we are not bound by Q Clothier because, since that decision, one Louisiana appeals court has reached a different conclusion. In Cajun Conti, LLC et al. v. Certain Underwriters at Lloyd's, London et al. , 21-0343, 2022 WL 2154863, p. 5 (La. App. 4 Cir. 6/15/22), reh'g granted for clarification only , 21-0343 (La. App. 4 Cir. 8/8/22), the Louisiana Fourth Circuit held that similar policy language covered a restaurant's losses resulting from pandemic closure orders. Adler is mistaken. Our court's rule of orderliness applies to Erie cases no less than cases interpreting federal law. See F.D.I.C. v. Abraham , 137 F.3d 264, 268–69 (5th Cir. 1998) ("Adherence to th[e] rule [of orderliness] is no less immutable when the matter determined by the prior panel is the interpretation of state law[.]") (citing Broussard v. S. Pac. Transp. Co. , 665 F.2d 1387, 1389 (5th Cir. 1982) (en banc)).⁴

No exception to the rule of orderliness applies here. Since Q Clothier , there has been "neither a clearly contrary subsequent holding of the highest court of [Louisiana] nor a subsequent statutory authority, squarely on point." Id. at 269. Nor has there been contrary intervening precedent that "comprises unanimous or near-unanimous holdings from several—preferably a majority—of the intermediate appellate courts of [Louisiana]." Ibid. We have only one subsequent decision from an intermediate state court, and that cannot overcome our rule of orderliness. Ibid. ; see also Dickie Brennan & Co., L.L.C. v. Zurich Am. Ins. Co. , No. 21-30776, 2022 WL 3031303, at *2 n.1 (5th Cir. Aug. 1, 2022) (unpublished) (panel was bound by Q Clothier despite Cajun Conti because "the issuance of an intermediate appellate court decision does not alter our duty to apply the rule of orderliness").

Accordingly, Q Clothier binds this panel and forecloses Adler's arguments. Like the Q Clothier plaintiff, Adler strains to equate its pandemic losses to the property losses in Chinese drywall cases. See Q Clothier , 29 F.4th at 259 ; see also, e.g., In re Chinese Manufactured Drywall Prods. Liab. Litig. , 759 F.Supp. 2d 822, 831–32 (E.D. La. 2010). Adler contends that, like drywall-related losses, his losses were caused by the "the presence of ... coronavirus particles" and infected persons, rendering its property unusable. Q Clothier rejected that argument. Unlike losses arising from pandemic closure orders, drywall losses arose because the defective drywall emitted sulfur gases, making the property "unusable or uninhabitable" until the drywall was "removed and replaced in the property." Q Clothier , 29 F.4th at 259. Not so here. Adler has not alleged that the coronavirus physically damaged or contaminated his property such that it needed to be repaired or replaced. "COVID-19 itself did not make [Adler's] stores inherently dangerous or uninhabitable like the drywall." Id. at 260. To the contrary, what denied Adler use of his property was the government's closure orders. Such losses do not involve a "tangible alteration to, injury to, or deprivation of property." Id. at 260. The district court therefore correctly dismissed Adler's claims against Axis.⁵

IV.

We next examine Adler's claims that RPS and Marsh are liable for breach of contract, breach of fiduciary duty, and negligence. These claims are based on those defendants' alleged failures to (1) advise Adler about pandemic-related coverage, (2) perform due diligence...