Carpe Diem Spa, Inc. v. Travelers Cas. Ins. Co. of Am.

• Decision Date: 26 March 2021
• Docket Number: Civ. No. 20-14860
• Parties: CARPE DIEM SPA, INC., Plaintiff, v. TRAVELERS CASUALTY INSURANCE COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — District of New Jersey

CARPE DIEM SPA, INC., Plaintiff, v. TRAVELERS CASUALTY INSURANCE COMPANY OF AMERICA, Defendant.

Civ. No. 20-14860

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

March 26, 2021

NOT FOR PUBLICATION

OPINION

THOMPSON, U.S.D.J.

INTRODUCTION

This matter comes before the Court upon the Motion to Dismiss filed by Defendant Travelers Casualty Insurance Company of America ("Defendant"). (ECF No. 16.) Plaintiff Carpe Diem Spa, Inc. ("Plaintiff") opposes. (ECF No. 18.) The Court has decided the Motion based on the written submissions of the parties and without oral argument, pursuant to Local Civil Rule 78.1(b). For the reasons stated herein, Defendant's Motion to Dismiss (ECF No. 16) is granted.

BACKGROUND

I. Factual Background

A. Policy

Plaintiff is a hair and beauty salon in Far Hills, New Jersey. (Am. Compl. ¶¶ 1, 42, ECF No. 13.) Defendant issued Plaintiff an insurance policy (the "Policy") with an initial policy period of January 20, 2020 to January 20, 2021. (Id. ¶ 6; Policy at 120, Def.'s Ex. A, ECF No. 16-3.)¹ The Policy covers, among other things, loss of "Business Income" and "Extra Expense" from "direct physical loss of or damage to property . . . caused by or result[ing] from a Covered Cause of Loss" (the "Business Income and Extra Expense Provisions"). (Policy at 17.) The Policy also covers certain losses of business income and extra expenses where "action of civil authority . . . prohibits access to the described premises" (the "Civil Authority Provision"). (Id. at 29.) Under the Civil Authority Provision, "[t]he civil authority action must be due to direct physical loss of or damage to property at locations, other than described premises, that are within 100 miles of the described premises, caused by or resulting from a Covered Cause of Loss." (Id.)

The Policy excludes from coverage "loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease" (the "Virus Exclusion"). (Id. at 103.)²

B. COVID-19 Executive Orders

In response to the COVID-19 pandemic, the Governor of New Jersey (the "Governor") issued several executive orders (the "Executive Orders"). On March 21, 2020, the Governor issued Executive Order 107, which, among other things, temporarily closed cosmetology shops, barber shops, beauty salons, hair braiding shops, nail salons, electrology facilities, spas, massage parlors, and tanning salons in New Jersey. (Am. Compl. ¶ 38.)³

Plaintiff "closed for several months and [had] only recently reopened" as of the filing of the Amended Complaint. (Id. ¶ 43.) Unfortunately, Plaintiff "suffered a substantial loss of business and income." (Id.) Plaintiff also terminated staff members' employment. (Id.) Defendant has denied coverage for Plaintiff's losses. (Id. ¶ 54.)

II. Procedural History

Plaintiff filed the Complaint on September 18, 2020 in New Jersey Superior Court, Mercer County. (Notice of Removal ¶ 1, ECF No. 1.) Defendant removed the case to this Court on October 22, 2020. (ECF No. 1.) On December 2, 2020, Plaintiff filed the operative Amended Complaint. (ECF No. 13.) The Amended Complaint alleges two counts: (1) a declaratory judgment of Plaintiff's coverage under the Policy (Am. Compl. ¶¶ 46-51), and (2) breach of contract (id. ¶¶ 52-55). Plaintiff seeks coverage under the Policy's Business Income, Extra Expense, and Civil Authority provisions, in addition to the "'sue and labor' provisions in the Policy." (Id. ¶¶ 51(b)-(e).)

On December 16, 2020, Defendant filed a Motion to Dismiss. (ECF No. 16.) Plaintiff filed an Opposition (ECF No. 18), and Defendant filed a Reply (ECF No. 21). Defendant's Motion to Dismiss is presently before the Court.

LEGAL STANDARD

To survive dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure, "a 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 (2009) (internal quotation marksomitted). "The defendant bears the burden of showing that no claim has been presented." Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). When considering a Rule 12(b)(6) motion, a district court conducts a three-part analysis. Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011). "First, the court must 'tak[e] note of the elements a plaintiff must plead to state a claim.'" Id. (quoting Iqbal, 556 U.S. at 675). "Second, the court should identify allegations that, 'because they are no more than conclusions, are not entitled to the assumption of truth.'" Id. (quoting Iqbal, 556 U.S. at 679). "Third, 'whe[n] there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement [to] relief.'" Id. (quoting Iqbal, 556 U.S. at 679). A complaint that does not demonstrate more than a "mere possibility of misconduct" must be dismissed. Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009) (quoting Iqbal, 556 U.S. at 679).

Although a district court generally must confine its review to the pleadings on a Rule 12(b)(6) motion, see Fed. R. Civ. P. 12(d), "a court may consider certain narrowly defined types of material" beyond the pleadings, In re Rockefeller Ctr. Props., Inc. Sec. Litig., 184 F.3d 280, 287 (3d Cir. 1999). The court may consider "matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, [and] items appearing in the record of the case." Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006). The court may also consider "documents . . . explicitly relied upon in the complaint . . . without converting the motion [to dismiss] into one for summary judgment." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (emphasis omitted).

DISCUSSION

I. Virus Exclusion

The Virus Exclusion precludes coverage of Plaintiff's losses. Plaintiff asserts threeprincipal arguments to the contrary. First, Plaintiff appears to imply that the Virus Exclusion is ambiguous. (See Opp'n at 8, ECF No. 18.) In other insurance cases, however, this Court has determined that identical virus exclusions are unambiguous. See Causeway Auto., LLC v. Zurich Am. Ins. Co., 2021 WL 486917, at *5 (D.N.J. Feb. 10, 2021); 7th Inning Stretch LLC v. Arch Ins. Co., 2021 U.S. Dist. LEXIS 11326, at *5 (D.N.J. Jan. 19, 2021).

Second, Plaintiff contends that the Executive Orders, not the COVID-19 virus, caused its losses. (See Opp'n at 10.) In New Jersey, "if an exclusion 'bars coverage for losses caused by a particular peril, the exclusion applies only if the excluded peril was the efficient proximate cause of the loss.'" Causeway, 2021 WL 486917, at *5 (quoting N.J. Transit Corp. v. Certain Underwriters at Lloyd's London, 221 A.3d 1180, 1192 (N.J. Super. Ct. App. Div. 2019)). "Where a peril specifically . . . sets other causes in motion which, in an unbroken sequence and connection between the act and the final loss, produces the result for which recovery is sought, the . . . peril is regarded as the proximate cause of the entire loss." Id. (quoting N.J. Transit, 221 A.3d at 1192). The Governor's Executive Order declaring a Public Health Emergency and State of Emergency was issued "[i]n response to . . . COVID-19." (Am. Compl. ¶ 36.) Therefore, Plaintiff's argument that the virus did not cause Plaintiff's losses is unavailing.⁴

Third, Plaintiff maintains that regulatory estoppel bars Defendant from invoking the Virus Exclusion. (See Opp'n at 11-16.) Plaintiff alleges that the insurance industry made misrepresentations to state regulators when securing approval of the Virus Exclusion. (See Am.Compl. ¶¶ 29-34.)⁵ Plaintiff relies on a case in which the New Jersey Supreme Court applied the regulatory estoppel doctrine in the context of a pollution-exclusion clause. (See Opp'n at 11-12 (citing Morton Int'l, Inc. v. Gen. Accident Ins. Co. of Am., 629 A.2d 831 (N.J. 1993)).) In Morton, the court estopped insurers from relying on an interpretation of the pollution-exclusion clause that was inconsistent with previous industry representations to state regulatory authorities. See 629 A.2d at 872-76. Unlike the insurers' misrepresentations in Morton, the insurers' representations cited by Plaintiff do not contradict Defendant's position in this case. Therefore, Plaintiff's regulatory estoppel argument fails. See Del. Valley Plumbing Supply, Inc. v. Merchs. Mut. Ins. Co., 2021 WL 567994, at *6 (D.N.J. Feb. 16, 2021) (reasoning that the plaintiff "failed to point to a similar misrepresentation regarding the scope of the Virus Exclusion, and to demonstrate how the interpretation advanced by [the defendant] is inconsistent with priorrepresentations made by the insurance industry to regulators").⁶ Because Plaintiff's losses were "caused by or result[ed] from [a] virus . . . that induces or is capable of inducing physical distress, illness or disease," the Virus Exclusion applies. (See Policy at 103.)⁷

Consequently, Plaintiff's losses are not covered under the Policy's Business Income, Extra Expense, or Civil Authority provisions. Under the Business Income and Extra Expense Provisions, any loss or damage must be "caused by or result from a Covered Cause of Loss." (Id. at 17.) Likewise, under the Civil Authority Provision, "[t]he civil authority action must be due to direct physical loss of or damage . . . caused by or resulting from a Covered Cause of Loss." (Id. at 29.) The Virus Exclusion

applies to all coverage under all forms and endorsements that comprise this Coverage Part or Policy, including but not limited to forms or endorsements that cover property damage to buildings or personal property and forms or endorsements that cover business income, extra expense, rental value or action of civil authority.

(Id. at 103.) Therefore, the Business Income, Extra Expense, and Civil Authority provisions do not provide the coverage...