Circus Circus LV, LP v. Aig Specialty Ins. Co.

• Decision Date: 26 February 2021
• Docket Number: Case No.: 2:20-cv-01240-JAD-NJK
• Citation: 525 F.Supp.3d 1269
• Parties: CIRCUS CIRCUS LV, LP, Plaintiff v. AIG SPECIALTY INSURANCE COMPANY, Defendant
• Court: U.S. District Court — District of Nevada

525 F.Supp.3d 1269

CIRCUS CIRCUS LV, LP, Plaintiff

v.AIG SPECIALTY INSURANCE COMPANY, Defendant

Case No.: 2:20-cv-01240-JAD-NJK

United States District Court, D. Nevada.

Signed February 26, 2021

Rachel E. Hudgins, Pro Hac Vice, Joshua M. Kalb, Pro Hac Vice, Hunton Andrews Kurth LLP, Atlanta, GA, Renee M. Finch, Messner Reeves LLP, Las Vegas, NV, Christopher Cunio, Pro Hac Vice, Harry Manion, Pro Hac Vice, Katharine A. Dennis, Pro Hac Vice, Nicholas D. Stellakis, Pro Hac Vice, Hunton Andrews Kurth LLP, Boston, MA, Kevin V. Small, Pro Hac Vice, Hunton Andrews Kurth LLP, New York, NY, Michael S. Levine, Pro Hac Vice, Hunton Andrews Kurth LLP, Washington, DC, for Plaintiff.

Kristen T. Gallagher, McDonald Carano Wilson LLP, Las Vegas, NV, Matthew Keith Moskowitz, Pro Hac Vice, Chicago, IL, Erin Bradham, Pro Hac Vice, Dentons US LLP, Phoenix, AZ, Stephen J. O'Brien, Pro Hac Vice, Dentons US LLP, St. Louis, MO, for Defendant.

Order Granting Defendant's Motion to Dismiss, Denying its Motion for Leave to File Supplemental Authority, and Granting Plaintiff's Motion for Leave to Amend

[ECF Nos. 17, 54, 62]

Jennifer A. Dorsey, U.S. District Judge Circus Circus sues AIG Specialty Insurance Company for failing to provide coverage for economic losses it incurred from the government-mandated closure of its casino during the COVID-19 pandemic.¹ AIG moves to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that Circus Circus's "all risks" policy does not cover its claims and any alleged damage caused by the SARS-CoV-2 virus is precluded by its pollutants-or-contaminants exclusion.² Due to the nationwide prevalence of these suits, AIG also seeks leave to file supplemental authority for my consideration.³ Circus Circus maintains that it has sufficiently alleged coverage under its policy, and seeks leave to amend to add additional claims for breach of the implied covenant of good faith and fair dealing and violations of Nevada law.⁴

I find that AIG's additional filing does not aid my decision in this case because AIG provides no additional, controlling precedent, so I deny its motion for leave to file supplemental authority. Because Circus Circus does not and cannot allege direct physical loss or damage—to its property or others’—sufficient to trigger coverage under its insurance policy, I grant AIG's motion and dismiss those claims with prejudice. But I grant Circus Circus leave to amend to add claims for violations of NRS 686A.310(1)(c).

Background⁵

At midnight on March 17, 2020, Nevada's Governor Steve Sisolak ordered the cessation of all gaming activities in the state to prevent the spread of SARS-CoV-2, the virus responsible for the COVID-19 pandemic.⁶ So Circus Circus folded up the big top, closing its casino doors to comply with the governor's order.⁷ For the next few months, Circus Circus's gambling floor remained closed, depriving its thousands of patrons of the opportunity to enjoy its 1,100 gaming attractions.⁸ In light of the losses sustained by this closure, Circus Circus requested insurance coverage from its provider, AIG.⁹

Circus Circus's policy provides coverage for "all risks of direct physical loss or damage" to its property "from a [c]overed [c]ause of [l]oss."¹⁰ A covered cause of loss is defined as "a peril or other type of loss, not otherwise excluded" by the policy.¹¹ But coverage is subject to terms and conditions, including coverage and exclusion provisions, that limit the "physical loss or damage" from which Circus Circus could recover from AIG. Notably, the time-element-coverage provision covers:

[A]ctual loss of income sustained by the Insured during the necessary partial or total interruption of the Insured's business operations ... during the Period of Interruption directly resulting from a Covered Cause of Loss[.] In determining the amount payable under this coverage, the Period of Interruption shall be: The period from the time of direct physical loss or damage from a Covered Cause of Loss to ... the time when ... normal operations resume; or [ ] physically damaged buildings and equipment could be repaired or replaced[.]¹²

Subject to the conditions of the time-element-coverage provision, and its "direct physical loss or damage" requirement, the policy also provides additional time-element coverages, including:

Contingent Time Element [Coverage.] If direct physical loss or damage to property of the type insured under this Policy of a direct supplier or direct customer of the Insured is damaged by a Covered Cause of Loss ... then this Policy is extended to cover the actual loss of income and extra expense sustained by the Insured during the Period of Interruption with respect to such property of the supplier that sustains such loss or damage[.]

Extra Expense [Coverage.] This Policy is extended to cover the loss sustained by the Insured for Extra Expense during the Period of Interruption resulting from direct physical loss or damage by a Covered Cause of Loss to Insured Property[.]

Ingress & Egress [Coverage.] This Policy is extended to cover the actual loss of income and extra expense sustained during the period of time when partial or total physical ingress to or egress from the Insured's real or personal property is prohibited as a direct result of a Covered Cause of Loss to property of others[.]

Interruption by Civil or Military Authority [Coverage.] This policy is extended to cover the actual loss of income and Extra Expense sustained during the period of time when an order of civil or military authority prohibits total or partial access to the Insured's real or personal property, provided such order is a direct result of a Covered Cause of Loss to property of others and such property of others is within [a certain] distance[.]¹³

The policy also excludes coverage for:

The actual, alleged[,] or threatened release, discharge, escape[,] or dispersal of Pollutants or Contaminants, all whether direct or indirect, proximate or remote or in whole or in part caused by, contributed to or aggravated by any Covered Cause of Loss under this Policy ....

Pollutants or Contaminants means any solid, liquid, gaseous[,] or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals[,] and waste, which after its release can cause or threaten damage to health or human welfare or causes or threatens damage, deterioration, loss of value, marketability or loss of use to property issued hereunder, including, but not limited to, bacteria, virus , or hazardous substances ....¹⁴

Circus Circus submitted its claim to AIG on March 20, 2020, citing physical loss and damage caused by COVID-19, which had sickened its employees and "contaminat[ed] objects and surfaces."¹⁵ After AIG denied the casino's claim on June 19, 2020, Circus Circus sued, seeking declaratory relief and breach-of-contract remedies.¹⁶

AIG moves to dismiss Circus Circus's complaint, largely arguing that the policy does not provide coverage for the casino's purely economic losses.¹⁷ It also seeks leave to file additional, supplemental authority in support of its position.¹⁸ Circus Circus opposes both motions and seeks leave to amend its complaint to add factual support for two additional causes of action—breach of the implied covenant of good faith and fair dealing and violations of Nevada Revised Statute 686A.310(1)(c), (e).¹⁹

Discussion

I. Motion to dismiss [ECF No. 17]

Under Nevada law, an insurer "bears a duty to defend its insured whenever it ascertains facts [that] give rise to the potential of liability under the policy."²⁰ While all doubts as to coverage are "resolved in favor of the insured," the "duty to defend is not absolute."²¹ "A potential for coverage only exists when there is arguable or possible coverage" and "[d]etermining whether an insurer owes a duty to defend is achieved by comparing the allegations of the complaint with the terms of the policy."²² Interpreting insurance contract terms in Nevada is normally a job for the court.²³

A. Circus Circus fails to plausibly allege direct physical loss or damage.

Circus Circus's policy requires it to show its own or a neighboring business's "direct physical loss or damage" to receive coverage under any of the cited policy provisions.²⁴ The casino correctly notes that the terms "direct physical loss or damage" are undefined, and it argues that the losses it incurred by closing its gaming floor fall within a reasonable interpretation of that provision and that other courts have construed similar policies to support coverage. An insurance policy "is enforced according to its terms to effectuate the parties’ intent,"²⁵ viewing its provisions "in their plain, ordinary[,] and popular sense."²⁶ In Nevada, any limitation in policy coverage must "clearly and distinctly communicate[ ] to the insured the nature of the limitation."²⁷ "To determine whether a term is ambiguous, it should not be viewed standing alone, but rather in conjunction with the policy as a whole ‘in order to give a reasonable and harmonious meaning and effect to all its provisions.’ "²⁸

While neither party identifies controlling Nevada authority that has explicitly interpreted the term "direct physical loss or damage," the Nevada Supreme Court has generally cabined claims for coverage under similar policies to plaintiffs who allege some sort of structural or physical change to a property, which actually altered its functionality or use.²⁹ The Ninth Circuit has agreed with such a reading, upholding both an exclusion of coverage under a "direct physical loss or damage" provision when the "record reveal[ed] that there was no damage caused by the fire;"³⁰ and affirming dismissal of "intangible" claims under a policy's "direct physical loss" provision.³¹ California courts, which often guide Nevada's, have consistently interpreted "direct physical loss" to require a "distinct, demonstrable, physical alteration of the property" or a "physical change in the condition of the property."³² This requirement is...