APX Operating Co. v. HDI Glob. Ins. Co.

• Decision Date: 18 November 2021
• Docket Number: C. A. N21C-03-058 AML CCLD
• Parties: APX OPERATING COMPANY, LLC, Plaintiff, v. HDI GLOBAL INSURANCE COMPANY, Defendant.
• Court: Delaware Superior Court

APX OPERATING COMPANY, LLC, Plaintiff, v. HDI GLOBAL INSURANCE COMPANY, Defendant.

C. A. No. N21C-03-058 AML CCLD

Superior Court of Delaware

November 18, 2021

Submitted: September 22, 2021

Upon Defendant's Motion to Dismiss: GRANTED

Brian M. Rostocki, Esquire, Benjamin P. Chapple, Esquire, Justin Forcier, Esquire, John Ellison, Esquire, Miranda Jannuzzi Esquire, of REED SMITH LLP, Wilmington, Delaware, Attorneys for Plaintiff APX Operating Company, LLC

John D. Balaguer, Esquire, of WHITE AND WILLIAMS LLP, Wilmington Delaware, and Kristin C. Cummins, Esquire, of ZELLE LLP Dallas, Texas, and Kristin A. Heres, Equire, of ZELLE LLP, Framingham, MA, Attorneys for Defendant HDI Global Insurance Company, LLC

MEMORANDUM OPINION AND ORDER

LeGrow, J.

The plaintiff, a Delaware LLC that owns and operates eight businesses through various subsidiaries, seeks insurance coverage for economic losses resulting from the COVID-19 pandemic and associated government closure mandates. The policy at issue insured the plaintiff's real property against "direct physical loss or direct physical harm," and against the losses that accrue when such loss or harm requires business operations at the property to be suspended. The insurer argues the plaintiff's coverage claim must be dismissed because the plaintiff has not identified "direct physical loss or direct physical damage" sufficient to establish coverage. Alternatively, the insurer argues several policy exclusions preclude coverage.

The pending motion raises two questions. First, has the plaintiff established that its claim falls within the coverage granted by the policy? Second, has the insurer established that the policy specifically excludes the plaintiff's claim? The first question need not be answered because the claim would be excluded even if the plaintiff could establish coverage in the first instance. Accordingly, the insurer's motion to dismiss is granted. Although the Court recognizes and sympathizes with the significant toll COVID-19 wrought on businesses and their employees through the country, the Court is bound to give effect to the clear and unambiguous terms of the plaintiff's insurance policy.

BACKGROUND

Unless otherwise noted, the following facts are drawn from the Complaint and the documents it incorporates by reference drawing all reasonable inferences in the plaintiff's favor.

A. The Parties

Plaintiff APX Operating Co., LLC ("APX") is a Delaware limited liability company.^[1] It is the sole owner of eight subsidiaries, all of which are Delaware limited liability companies.^[2] Through its subsidiaries, APX operates six family entertainment centers and two water parks in California, Florida, and New Jersey.^[3]These eight properties constitute the "Insured Properties" at issue in this case.^[4]

Defendant HDI Global Insurance Co. ("HDI") is an Illinois corporation with its principal place of business in Illinois.^[5] It is licensed to do business in Delaware, where it sells property insurance covering companies' commercial risks.^[6]

B. The Policy

HDI sold Commercial Lines Policy number CPD5484800^[7] to Apex Parks Group, LLC, which was extended by endorsement to include the period from May 8, 2019 to May 8, 2020 (the "Policy").^[8] Apex Parks is the Named Insured under the Policy.^[9] APX acquired Apex Parks' rights to payment under the Policy for the claim at issue in this case.^[10]

The Policy's Insuring Clause states it "insures against risks of direct physical loss or direct physical damage, except as excluded, to Insured covered property while on described premises."^[11] The Policy also insures "TIME ELEMENT LOSS" as follows:

A. This Policy insures TIME ELEMENT loss, as provided in the TIME ELEMENT COVERAGES, directly resulting from direct physical loss or damage of the type insured by this Policy:

1) to property described elsewhere in this Policy and not otherwise excluded by this Policy or otherwise limited in the TIME ELEMENT COVERAGES below;

2) used by the Insured, or for which the Insured has contracted use;

3) located at an Insured Location; and

4) during the Periods of Liability described in this section.^[12]

The Policy's "TIME ELEMENT" coverage includes "GROSS EARNINGS" and "EXTRA EXPENSE."^[13] These coverages apply to lost earnings and extra costs incurred to "temporarily continue as nearly normal as practicable" the business.^[14] Under both sections, the recoverable loss is measured during the "PERIOD OF LIABILITY," which the Policy defines as follows:

A. The PERIOD OF LIABILITY applying to all TIME ELEMENT COVERAGES, except GROSS PROFIT and LEASEHOLD INTEREST and as shown, or if otherwise provided under the TIME ELEMENT COVERAGE EXTENSIONS, is as follows: 1) For building and equipment, the period:

a) starting from the time of direct physical loss or damage of the type insured against; and

b) ending when with due diligence and dispatch the building and equipment could be:

(i) repaired or replaced; and

(ii) made ready for operations, under the same or equivalent physical and operating conditions that existed prior to the damage.

c) not to be limited by the expiration of this Policy. * * *

8) If an order of CIVIL or MILITARY AUTHORITY specifically prohibits access to the Insured Location and provided such order is the direct result of physical damage of the type insured against under this Policy at the Insured Location or within 1 mile of it, the period of time:

a) starting at the time of such direct physical damage; but

b) not to exceed the number of consecutive days shown in the LIMITS OF LIABILITY clause of the DECLARATIONS section.

The Policy contains several exclusions, two of which are relevant here. First, the Policy excludes "contamination including but not limited to the presence of pollution or hazardous material" (the "Pollution and Contamination Exclusion").^[15]The Policy defines these terms in a separate section as follows:

Pollutant(s) and/or Contaminant(s) and/or Hazardous Material(s)

The term pollutant(s), contaminant(s), hazardous material(s) shall mean any solid, liquid, gaseous or thermal irritant or contaminant, including, but not limited to, smoke, vapor, soot, fumes, acids, alkalis, chemicals, bacteria, virus, vaccines and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Pollution and/or Contamination

The terms pollution and/or contamination shall mean the presence of any material which after its release or discharge can cause or threaten damage to human health and/or human welfare, or causes or threatens damage, deterioration, loss of value, marketability and/or loss of use to insured property, including, but not limited to, bacteria, virus, or hazardous substances as listed in the Federal Water Pollution Control Act, Clean Air Act, Resource Conservation and Recovery Act of 1976, and/or Toxic Substances Control Act, or as designated by the U.S. Environmental Protection Agency or, local equivalent environmental agency.^[16]

Second, the Policy excludes coverage for "loss of market or loss of use" (the "Loss of Use Exclusion") as follows:

EXCLUSIONS

The following exclusions apply unless specifically stated elsewhere in this Policy:

A. This Policy excludes:

1) indirect or remote loss or damage.

2) delay, interruption of business, except to the extent provided by this policy.

3) loss of market or loss of use.^[17]

C. The COVID-19 Pandemic

In December 2019, an outbreak of the illness known as COVID-19 caused by a novel coronavirus formally known as SARS-CoV-2 first was identified.^[18] A pandemic arose in the following months.^[19] SARS-CoV-2 is highly transmissible, even by asymptomatic individuals.^[20] An individual can become infected through exposure to respiratory droplets of an infected person, as well as by touching surfaces or objects that have SARS-CoV-2 on them and then touching his or her mouth, eyes, or nose.^[21] Infected persons shed infectious SARS-CoV-2 virions in high quantities.^[22] Although these virions are microscopic, they physically exist in the air and attach to surfaces.^[23] SARS-CoV-2 virions may remain viable on surfaces for hours or days, depending on the material.^[24]

Beginning in March 2020, state and local governments in the United States issued orders suspending or severely curtailing the operations of non-essential businesses.^[25] These orders "resulted from the need to address the spread of SARS-CoV-2 and the transmission of COVID-19" in the areas affected by the orders.^[26] Such orders required operations to be suspended at APX's subsidiaries in California, Florida, and New Jersey.^[27] Most of the businesses were allowed to reopen starting in late June and early July after the closure mandates began to lift.^[28]Social distancing procedures and other limitations on operations have continued to affect APX's businesses, however, and none have returned to pre-interruption earning levels.^[29]

Because of the infectious nature of SARS-CoV-2, APX alleges:

it is a statistical certainty that SARS-CoV-2 virions were physically present in the air, within infected persons, and on surfaces located at most, if not all, of the Insured Properties prior to the issuance of the aforementioned civil authority orders, and that infected individuals would have been present at all of the Insured Properties and surrounding properties on an ever-increasing number in the absence of the issuance of those orders.^[30]

The alleged release of COVID-19 virions into the air and onto the surfaces within the Insured Properties made the properties "dangerous" and the air "potentially lethal to breathe."^[31]

D. Coverage Dispute & Litigation

In its Complaint, APX identifies several losses it contends fall within the Policy's coverage. First, APX identifies "[t]he...