Cafe Int'l Holding Co. v. Westchester Surplus Lines Ins. Co.

Citation536 F.Supp.3d 1291
Decision Date04 May 2021
CourtU.S. District Court — Southern District of Florida

Aaron Samuel Podhurst, Lea Pilar Bucciero, Pablo Rojas, Kristina Marie Infante, Matthew Weinshall, Podhurst Orseck, P.A., Bruce Alan Weil, Stephen N. Zack, James W. Lee, Marshall Dore Louis, Steven Craig Marks, Boies, Schiller, Flexner LLP, Miami, FL, Alex Boies, Pro Hac Vice, David Boies, Nicholas A. Gravante, Jr., Pro Hac Vice, Boies Schiller Flexner LLP, New York, NY, for Plaintiff.

Andrew Kenneth Daechsel, Steven Jeffrey Brodie, Carlton Fields PA, Miami, FL, Heidi Hudson Raschke, Carlton Fields P.A., Tampa, FL, Allen W. Burton, Pro Hac Vice, Leah Godesky, Pro Hac Vice, O'Melveny & Myers, LLP, New York, NY, Amy J. Laurendeau, Pro Hac Vice, O'Melveny & Myers, LLP, Newport Beach, CA, Daniel M. Petrocelli, Pro Hac Vice, Richard Blair Goetz, Pro Hac Vice, O'Melveny & Myers LLP, Los Angeles, CA, for Defendant.



Passion. Creativity. Tenacity. These are all traits exhibited by Plaintiff's counsel in their opposition to Defendant Westchester Surplus Lines Insurance Company's motion for judgment on the pleadings [ECF No. 58] in this putative class action lawsuit for damages a restaurant allegedly sustained because of the COVID-19 pandemic. But these virtues, admirable as they may be, must be squared against the unambiguous language of the commercial property insurance policy.

The Plaintiff-proffered legal arguments, while fascinating and adroit and maybe even an illustration of "outside-the-box" thinking, are not enough to permit the insured restaurant-owning corporation to avoid the same conclusions and results which dozens of courts applying Florida law have decided in insurers’ favor about COVID-19-related insurance claims.

At bottom, an insured like Plaintiff Cafe International Holding Company LLC must show "direct physical loss of or damage to" its restaurant, as that is the precise coverage language from the policy. Plaintiff's succinct and conclusory allegations about COVID-19-caused damage, which it could not specifically identify or explain during a multi-hour hearing, are insufficient to escape the great weight of legal authority holding that physical damage is required.

The virus "does not cause direct loss or damage to a property sufficient to trigger coverage," a reality which appears to be why Plaintiff's counsel was unable to provide any specific facts to support the conclusory allegation of coronavirus physical damage to the restaurant. Plaintiff may have lost business because of the pandemic, but a decline in restaurant revenue or profits is merely an economic loss, not a loss covered by the policy.

The simple fact that the coronavirus may have been somehow "present" at Plaintiff's restaurant does not give rise to the direct physical loss or damage necessary to generate coverage. Moreover, the generic notion that the policy must be interpreted "harmoniously," a theory which Plaintiff's counsel offered up at the hearing, is also inadequate to cause a result different than the one reached by dozens of courts. And the suggestion that this Court should focus on the existence of a virus exclusion in other Westchester policies (and conclude that its absence in the policy involved here is substantively significant) is contrary to the rule that an exclusion (or its absence) cannot create coverage not provided for in the coverage language.

The Undersigned empathizes with Plaintiff's plight, just like I empathize with other businesses which have suffered (and continue to suffer) from the COVID-19 pandemic. I also appreciate the energy which was invested into the theories presented by counsel in connection with a COVID-19 claim against an insurance carrier. But these factors cannot alter the inescapable reality that the unambiguous language of the insurance policy simply does not provide the coverage requested here.

In effect, Plaintiff is trying to fit a square legal argument peg into a round contract hole. Cafe International has been persistent and creative, there's no doubt about that. But that resourcefulness does not change the reality that the hole still remains round after being subjected to legal pulls. For these reasons, which I will outline in greater detail below, the Undersigned grants Westchester's motion for judgment on the pleadings and dismisses the Complaint with prejudice .

Westchester's motion for judgment on the pleadings requires an interpretation of the insurance policy, so the factual background will begin with the policy.

I. Background
a. The Policy

Westchester issued a commercial property insurance policy (the "Policy") to Cafe International -- the owner and operator of IT Italy, a restaurant in Fort Lauderdale, Florida -- for the policy period from November 29, 2019 to November 29, 2020. [ECF Nos. 1, ¶¶ 1, 19 (Complaint); 1-1, p. 2 (Policy)]. The Policy specifies what it covers and what it does not. Coverage is available only if Cafe International proves that a "Covered Cause of Loss" caused direct physical loss of or damage to the property. [ECF No. 1-1, pp. 51-52]. The Policy defines "Covered Cause of Loss" as "direct physical loss unless the loss is excluded or limited in this policy." Id. at p. 62.

The Policy provides three types of coverage relevant here: Business Income, Extra Expense, and Civil Authority. Each type of coverage is triggered only where there is (i) direct physical harm to property (ii) caused by or resulting from a Covered Cause of Loss.

i. Business Income and Extra Expense Coverage

The Business Income provision calls for Westchester to pay Cafe International for certain losses of income if Cafe International had to suspend operations due to (i) "direct physical loss of or damage to property at [Cafe International's insured] premises" and (ii) caused by or resulting from a "Covered Cause of Loss." Id. at p. 51. Specifically, the Business Income provision states:

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 premises which are described in the Declarations and for which a Business Income Limit Of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.

Id. (emphasis added).

The Extra Expense provision similarly requires "direct physical loss or damage to property" and applies "only if the Declarations show that Business Income Coverage applies at that premises." Id. In particular, the Extra Expense provision states:

Extra Expense means necessary expenses you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss.
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 location or temporary location.
(2) Minimize the "suspension" of business if you cannot continue "operations".
We will also pay Extra Expense to repair or replace property, but only to the extent it reduces the amount of loss that otherwise would have been payable under this Coverage Form.

Id. at pp. 51–52 (emphasis added).

Both the Business Income and Extra Expense provisions provide coverage only during the "period of restoration." See id. Under the Policy:

"Period of restoration" means the period of time that:
a. Begins:
(1) 72 hours after the time of direct physical loss or damage for Business Income Coverage; or
a. Immediately after the time of direct physical loss or damage for Extra Expense Coverage;
caused by or resulting from any Covered Cause of Loss at the described premises; and
b. Ends on the earlier of:
(1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality ; or
(2) The date when business is resumed at a new permanent location.
"Period of restoration" does not include any increased period required due to the enforcement of or compliance with any ordinance or law that:
(1) Regulates the construction, use or repair, or requires the tearing down, of any property ; or
(2) Requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants".

Id. at p. 59 (emphasis added).

ii. Civil Authority Coverage

The Civil Authority provision affords coverage when government orders prohibit access to Cafe International's insured premises, but only if a Covered Cause of Loss causes "damage to property" other than Cafe International's restaurant. Id. at p. 52. Specifically, the Civil Authority provision provides:

When a Covered Cause of Loss causes damage to property other than property at the described premises , we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises, provided that both of the following apply:
(1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage , and the described premises are within that area ...; and
(2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage , or the action is taken to enable a civil authority to have unimpeded access

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