BSD-360, LLC v. Phila. Indem. Ins. Co.

• Decision Date: 13 January 2022
• Docket Number: CIVIL ACTION No. 20-4719
• Citation: 580 F.Supp.3d 92
• Parties: BSD-360, LLC d/b/a the Goddard School, Plaintiff v. PHILADELPHIA INDEMNITY INSURANCE COMPANY, et al., Defendants
• Court: U.S. District Court — Eastern District of Pennsylvania

580 F.Supp.3d 92

BSD-360, LLC d/b/a the Goddard School, Plaintiff

v.PHILADELPHIA INDEMNITY INSURANCE COMPANY, et al., Defendants

CIVIL ACTION No. 20-4719

United States District Court, E.D. Pennsylvania.

Signed January 13, 2022

Filed January 14, 2022

Sol H. Weiss, Michael R. Manara, Anapol Weiss, Philadelphia, PA, Stanford B. Ponson, Baron & Budd, P.C., Washington, DC, for Plaintiff.

Jeffrey A. Zachman, Dentons US LLP, Atlanta, GA, Richard L. Fenton, Denton US LLP, Chicago, IL, Jeffrey D. Grossman, Stradley, Ronon, Stevens & Young, LLP, Philadelphia, PA, for Defendant Philadelphia Indemnity Insurance Company.

John Gerard Devlin, John Gerard Devlin & Associates PC, Philadelphia, PA, for Defendant Specht Insurance Group, Ltd.

MEMORANDUM

Pratter, United States District Judge

An insurance contract is an agreement between the customer, the insured, and the insurance company, the insurer. Goddard School purchased insurance to protect itself from property damage and other types of loss. In early 2020, like many businesses around the country, Goddard was forced to suspend operations due to the COVID-19 global pandemic. Goddard sought to recover under its insurance policy. When its claim was denied, Goddard sued both the insurance company and its insurance broker. But even though Goddard's insurance policy contains a provision related to communicable diseases, its claim is not covered under the plain language of its contract. Because Goddard has not stated a claim for relief under its insurance policy, the Court grants the insurer's motion to dismiss the complaint. And because Goddard has not alleged any negligence on the part of its broker, the Court also grants the broker's motion to dismiss.

BACKGROUND

The Goddard School is a daycare and preschool located in Wall Township, New Jersey. Goddard, through its insurance broker, Specht Insurance Group, Ltd. ("Specht"), purchased an "all-risk" insurance policy issued by Philadelphia Indemnity Insurance Company ("PIIC").

Goddard alleges that it was contacted "[o]n or about March 18, 2020 ... by a student's parent who was present at the covered premises, in the presence of students, faculty and other parents, as recently as March 16, 2020. The parent advised that she tested positive for Covid-19." Doc. No. 8, Am. Compl. ¶ 9. Goddard alleges that it attempted to alert the New Jersey Department of Health but was never able to get through. Despite that, Goddard was forced to close shortly thereafter when New Jersey Governor Murphy issued executive orders on March 21 and March 25, 2020. Goddard alleges that it was forced to close "as a result of the contamination at the covered property and the order of civil authority." Id. ¶ 12.

Goddard made a claim under its policy with PIIC for business income and extra expenses coverages in order to "recoup substantial, ongoing financial losses directly attributed to the contamination and the civil authority closure orders." Id. ¶ 14. To Goddard's dismay, PIIC responded that it would only reimburse Goddard for the costs of cleaning and decontaminating the premises but would not pay for Goddard's claimed business income loss and extra expenses. Thus, Goddard sued seeking declaratory judgment that its policy covers Goddard's losses and seeking damages for its breach of contract and bad faith claims. Goddard also seeks damages against its broker, Specht, for negligence in procuring the policy and negligently misrepresenting information to Goddard. Both PIIC and Specht move to dismiss the complaint for failure to state a claim. Fed. R. Civ. P. 12(b)(6).

LEGAL STANDARDS

In its complaint, a plaintiff must set out "a legally cognizable right of action" and "enough facts" to make that cause of action "plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotation marks omitted). On a motion to dismiss for failure to state a claim, the Court takes all well-pleaded facts as true and draws all inferences in the light most favorable to the plaintiff. Mayer v. Belichick , 605 F.3d 223, 229 (3d Cir. 2010). "[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; see also Morse v. Lower Merion Sch. Dist. , 132 F.3d 902, 906 (3d Cir. 1997) (explaining that a court need not accept a plaintiff's "bald assertions" or "legal conclusions").

In addition to the complaint, the Court may consider "exhibits attached to the complaint, matters of public record," and "undisputedly authentic documents" that the claims rest upon, Mayer , 605 F.3d at 230, plus documents "integral" to a complaint, like a contract, Schmidt v. Skolas , 770 F.3d 241, 249 (3d Cir. 2014).

DISCUSSION

This Court exercises diversity jurisdiction over the damages claim under 28 U.S.C. § 1332 and jurisdiction over the declaratory judgment claim under 28 U.S.C. § 2201. As a federal court sitting in diversity, this Court must apply the relevant state's substantive law. Jaworowski v. Ciasulli , 490 F.3d 331, 333 (3d Cir. 2007). This particular case is atypical in that this Court has to apply both New Jersey law and Pennsylvania law to the claims against PIIC and Specht, respectively. In other words, this Court must predict what the Pennsylvania Supreme Court and New Jersey Supreme Court would do if presented with Goddard's claims. Id. (New Jersey); see also Baptiste v. Bethlehem Landfill Co. , 965 F.3d 214, 225 (3d Cir. 2020) (Pennsylvania).

Once the COVID-19 global pandemic hit, Goddard was forced to close its doors. Goddard did not purport to provide childcare services exclusively to essential workers and did not apply for a special certification to remain open. Nevertheless, Goddard continued to incur expenses during this period of closure and seeks to recover these expenses and other lost revenue under its insurance policy with PIIC. The policy, an "all-risks" policy, reimburses for damage and loss from all causes not expressly excluded by the policy. For its purely economic losses, Goddard seeks to recover under four provisions: the Business Income, Extra Expense, Civil Authority, and Communicable Disease and Water-Borne Pathogen Business Income and Extra Expense provisions. PIIC contends that none of these provisions, by their plain language, cover Goddard's losses.

Anticipating that the policy may not cover its losses, Goddard also sues its insurance broker, Specht, for negligence in securing the policy for it and negligently misrepresenting the coverage that the policy provides.

The Court will address the contract claims against PIIC first under New Jersey law, and then turn to the tort claims against Specht under Pennsylvania law.

I. Goddard Has Not Plausibly Pled Any Claim Against PIIC

Goddard claims that four different policy provisions provide coverage: the Business Income, Extra Expense, Civil Authority, and Communicable Disease and Water-Borne Pathogen Business Income and Extra Expense provisions. Goddard also seeks declaratory judgment that the Virus Exclusion provision does not apply and seeks to estop PIIC from enforcing it.¹ Lastly, Goddard claims that the denial of coverage in this instance would be contrary to public policy. Because PIIC denied coverage, Goddard alleges that PIIC acted in bad faith.

Both parties agree that New Jersey law governs this contract dispute because the insured property is located in New Jersey. See Doc. No. 17-1, at 3 n.2; Doc. No. 23, at 4 n.1. Thus, the Court will apply New Jersey law for the purposes of the claims between Goddard and PIIC.

Under New Jersey law, determining "the proper coverage of an insurance contract is a question of law." Buczek v. Cont'l Cas. Ins. Co. , 378 F.3d 284, 288 (3d Cir. 2004). Because an insured "bears the burden of bringing its claim within the basic terms of the insurance policy," Goddard must establish that its claim for coverage unambiguously falls under the Policy. Arthur Anderson LLP v. Fed. Ins. Co. , 416 N.J.Super. 334, 3 A.3d 1279, 1287 (N.J. Sup. Ct. App. Div. 2010).

"Insurance policies are construed in accordance with principles that govern the interpretation of contracts; the parties’ agreement ‘will be enforced as written when its terms are clear in order that the expectations of the parties will be fulfilled.’ " Mem'l Props., LLC v. Zurich Am. Ins. Co. , 210 N.J. 512, 46 A.3d 525, 532 (2012) (quoting Flomerfelt v. Cardiello , 202 N.J. 432, 997 A.2d 991, 996 (2010) ). This principle of contract law remains true "even if a close reading might yield a different outcome, or if a painstaking analysis would have alerted the insured that there would be no coverage." Flomerfelt , 997 A.2d at 996 (internal quotation marks omitted). "If the terms are not clear, but instead are ambiguous, they are construed against the insurer and in favor of the insured, in order to give effect to the insured's reasonable expectations." Id. But, that said, a policy is not ambiguous simply because two parties offer conflicting interpretations. Simonetti v. Selective Ins. Co. , 372 N.J.Super. 421, 859 A.2d 694, 698 (N.J. Super Ct. App. Div. 2004). Moreover, "courts cannot ‘write for the insured a better policy of insurance than the one purchased.’ " Flomerfelt , 997 A.2d at 996 (quoting Walker Rogge, Inc. v. Chelsea Title & Guar. Co. , 116 N.J. 517, 562 A.2d 208, 214 (1989) ).

Exclusionary clauses within those contracts are presumptively valid and are enforced so long as they are "specific, plain, clear, prominent, and not contrary to public policy." Princeton Ins. Co. v. Chunmuang , 151 N.J. 80, 698 A.2d 9, 17 (1997) (internal quotation marks omitted). "[I]nsurance policy exclusions must be narrowly construed; the burden is on the insurer to bring the case within the exclusion." Id. Thus, "exclusions are...