Albuquerque Ambulatory Eye Surgery Ctr. LLC v. Transp. Ins. Co.

• Decision Date: 12 October 2021
• Docket Number: 1:21-cv-00280-KWR-JFR
• Citation: 566 F.Supp.3d 1178
• Parties: ALBUQUERQUE AMBULATORY EYE SURGERY CENTER LLC, Plaintiff, v. TRANSPORTATION INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of New Mexico

566 F.Supp.3d 1178

ALBUQUERQUE AMBULATORY EYE SURGERY CENTER LLC, Plaintiff,

v.TRANSPORTATION INSURANCE COMPANY, Defendant.

1:21-cv-00280-KWR-JFR

United States District Court, D. New Mexico.

Filed October 12, 2021

Kristin C. Davis, Pro Hac Vice, Thompson Hammerman Davis LLP, Washington, DC, Robert E. Hanson, Peifer, Hanson, Mullins & Baker, P.A., Albuquerque, NM, for Plaintiff.

David H. Timmins, Pro Hac Vice, Husch Blackwell LLP, Dallas, TX, Joshua Grabel, Husch Blackwell LLP, Phoenix, AZ, for Defendant.

MEMORANDUM OPINION AND ORDER

KEA W. RIGGS, UNITED STATES DISTRICT JUDGE

THIS MATTER comes before the Court upon Defendant's Motion to Dismiss for Failure to State a Claim. Doc. 16 . Having reviewed the parties' pleadings and the relevant law, the Court concludes that oral argument is not necessary. The Court finds that the motion is well taken, and is therefore GRANTED IN PART AND DENIED IN PART for the reasons provided below. Counts I, III, IV, and V are dismissed without prejudice and with leave to amend, but Count II remains.

BACKGROUND

This case arises out of a dispute over insurance coverage concerning business losses suffered as a result of the coronavirus (COVID-19) pandemic. The Complaint contains the following allegations. Plaintiff Albuquerque Ambulatory Eye Surgery Center LLC ("AAESC") is an eye surgery center in Albuquerque, New Mexico. See Doc. 1-1, ¶ 1 . Defendant Transportation Insurance Company ("Transportation") is an Illinois insurance company that issued an insurance policy to Plaintiff, CNA Connect Policy No. B 2067314575 ("the Policy"). Id. ¶¶ 1, 9, 20 ; Doc. 1-1, Ex. 1, at 29 ; see also Doc. 16, at 1-2 .

Plaintiff alleges that its business was impacted by the coronavirus pandemic and the resulting government health orders and seeks coverage from Defendant over the loss of the use of its premises, lost business income, extra expenses, and other business-related losses stemming from business disruptions caused by the coronavirus. See Doc. 1-1, ¶ 1 . On March 11, 2020, the first confirmed case of COVID-19 was reported in New Mexico. Id. ¶ 55 . The same day, New Mexico Governor Michelle Lujan Grisham issued an executive order in response to the increasing infection rates in the state and declared a public health emergency. Id. ¶ 56 ; Doc. 1-1, Ex. 3, at 191 . In the following months, New Mexico Department of Health Secretary Kathyleen Kunkel issued additional public health orders, including orders limiting the size of gatherings to no more than 100 people, advising citizens to stay home, and warning citizens to undertake only outings "absolutely necessary for their health, safety, or welfare." Id. ¶¶ 58-60 (emphasis omitted). Additionally, on March 16, 2020, the American Academy of Ophthalmology issued an advisory that "all ophthalmologists cease providing any treatment other than urgent or emergent care immediately." Id. ¶ 61 .

Then, on March 23, 2020, a public health order required all non-essential businesses to reduce their in-person workforce by 100%. Id. ¶ 63 . Essential businesses were authorized to remain open, minimize their operations and staff "to the greatest extent possible," and maintain social distancing and safety protocols. Id. ; see also Doc. 1-1, Ex. 5, at 200 . Plaintiff, a medical eye surgery center, was considered an essential business. See Doc. 1-1, ¶ 66 . However, on March 24, 2020, a public health order imposed temporary restrictions on "non-essential health care services, procedures, and surgeries." Id. ¶ 65 . As a result, Plaintiff alleges it was prohibited from performing non-essential procedures, such as surgeries that could be delayed for three months without undue risk to a patient's health. Id. ¶ 66 . Thus, Plaintiff was limited to performing only "emergency" medical care and surgical procedures. Id.

Plaintiff alleged it closed its business on March 16, 2020, "except to provide limited urgent and emergency services." Id. ¶ 73 . Plaintiff did not reopen until April 17, 2020. Id. Plaintiff alleges that by April and May 2020, its business appointments were down 96% and 60%, respectively, when compared to pre-pandemic levels. Id. ¶ 76 . Plaintiff asserts its business continues to operate with reduced capacity. Id. ¶ 77 . Further, Plaintiff alleges that three of its employees have tested positive for COVID-19 and that six patients that visited its facilities later tested positive for COVID-19. Id. ¶ 79 .

On May 8, 2020, Plaintiff filed a claim seeking coverage under the Policy. Id. ¶ 92 . The Policy was effective from June 1, 2019 to June 1, 2020 and Plaintiff alleges that it was an "all-risk commercial property policy." Id. ¶ 20 . Plaintiff asserts that the Policy provides certain coverage, including coverage for "Business Income Loss and Extra Expenses, Civil Authority orders, and Business Income Loss from Dependent Property." Id. ¶ 28 . Plaintiff alleges that under the Policy, Defendant "committed to pay for direct physical loss of or damage to Covered Property at the premises caused by or resulting from any Covered Cause of Loss." Id. ¶ 23 (internal quotations and alterations omitted). Plaintiff states that the coronavirus "harmed and continues to harm AAESC, causing physical loss and loss of intended use and physical damage to the premises, including its air." Id. ¶ 83 . Therefore, Plaintiff asserts it was entitled to coverage.

Plaintiff alleges that on May 22, 2020, "without reviewing any facts around the claim or seeking additional information," Defendant denied coverage under the Policy. Id. ¶ 95 . On July 10, 2020, Plaintiff claims it sought reconsideration from Defendant regarding coverage and provided estimates of its losses and copies of the relevant public health orders. Id. ¶ 96 . However, Plaintiff alleges that Defendant failed to adequately investigate its claim, and on October 7, 2020, confirmed denial of coverage under the Policy. Id. ¶ 98 . Plaintiff contends that the denial of coverage was improper in light of the relevant Policy provisions. Id. ¶¶ 29-41 . According to Plaintiff, the Policy has no "applicable exclusions" that would preclude coverage nor does it have a "virus exclusion." Id. ¶ 26 . Therefore, Plaintiff asserts that losses due to COVID-19 are covered losses under the Policy to which Defendant is responsible.

The insurance policy at issue contains the following relevant provisions. First, the Policy provides that Defendant "will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from a Covered Cause Of Loss." See Doc. 1-1, Ex. 1, at 45 . Next, the Policy contains a "Business Income and Extra Expense" Endorsement which provides the following:

1. Business Income

b. We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration." The "suspension" must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.

Id. at 67 .

2. Extra Expense

a. Extra Expense means reasonable and necessary expenses you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss of or damage to property caused by or resulting from a Covered Cause of Loss.

b. We will pay Extra Expense (other than the expense to repair or replace property) to:

(1) Avoid or minimize the "suspension" of business and to continue "operations" at the described premises or at replacement premises or temporary locations, including relocation expenses and costs to equip and operate the replacement premises or temporary locations; or

(2) Minimize the "suspension" of business if you cannot continue "operations."

Id. at 68 . The Policy also contains a "Civil Authority" Endorsement which states:

Civil Authority

1. When the Declarations show that you have coverage for Business Income and Extra Expense, you may extend that insurance to apply to the actual loss of Business Income you sustain and reasonable and necessary Extra Expense you incur caused by action of civil authority that prohibits access to the described premises.

[ ]The civil authority action must be due to direct physical loss of or damage to property at locations, other than described premises, caused by or resulting from a Covered Cause of Loss.

Id. at 93 . Finally, the Policy contains a "Dependent Property" Endorsement which states:

Business Income and Extra Expense – Dependent Property

1. When the Declarations show that you have coverage for Business Income and Extra Expense, you may extend that insurance to apply to the actual loss of Business Income you sustain and reasonable and necessary Extra Expense you incur due to the "suspension" of your "operations" during the "period of restoration."

[ ]The "suspension" must be caused by direct physical loss or damage at the premises of a Dependent Property, caused by or resulting from a Covered Cause of Loss.

Id. at 184 .

The Policy provides definitions of some terms referenced in these provisions. Under the Policy, a "Dependent Property" means property operated by third parties upon whom the insured depends on to:

a. Deliver materials or services ... (Contributing Locations);

b. Accept [its] products or services (Recipient Locations);

c. Manufacture products for delivery to [its] customers under contract of sale (Manufacturing Locations); or

d. Attract customers to [its] business (Leader Locations).

Id. Further, "suspension" means the "partial or complete cessation of [the insured's] business activities," id. at 64 , and "operations" means "the type of your business activities occurring at the described premises and tenantability of the described premises." Id. at 62 .

Additionally, the "period of restoration" begins with "the date of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at the described premises" and ends on the date when "the...