Creative Bus., Inc. v. Covington Specialty Ins. Co.
| Decision Date | 09 September 2021 |
| Docket Number | Case No.: 2:20-cv-02452-JTF-atc |
| Citation | 559 F.Supp.3d 660 |
| Parties | CREATIVE BUSINESS, INC. d/b/a Blues Hall Dining Room d/b/a Rum Boogie Cafe, Plaintiff, v. COVINGTON SPECIALTY INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Western District of Tennessee |
ORDER GRANTING DEFENDANT COVINGTON SPECIALTY INSURANCE COMPANY'S MOTION FOR JUDGMENT ON THE PLEADINGS AND DISMISSING THIS CASE WITH PREJUDICE
Before the Court is Defendant Covington Specialty Insurance Company's ("Covington") Motion for Judgment on the Pleadings and supporting memorandum of law filed on December 29, 2020. (ECF No. 28, 28-2.) Plaintiff Creative Restaurants, Inc. ("Plaintiff") filed a Response in Opposition on February 2, 2021, to which Covington replied on March 3, 2021. (ECF Nos. 32 & 38.) Covington also filed Notices of Additional Recent Decisions in support of its motion for Judgment on the Pleadings on April 30, 2021, July 7, 2021 and September 2, 2021. (ECF No. 43, ECF Nos 43-1–43-4, ECF No. 44, ECF Nos. 44-1–44-2, ECF No. 45 and ECF No. 45-1.) For the following reasons, Covington's Motion for Judgment on the Pleadings is GRANTED .
Plaintiff Creative Restaurants, Inc. is a Delaware corporation that maintains its principal place of business in New Hampshire. Plaintiff leases property at 182 Beale Street in Memphis, Tennessee where it operates a restaurant, the Blues Hall Dining Room and Rum Boogie Cafe. (ECF No. 1, ¶¶ 1, 12 and 13.) Plaintiff purchased "an all risk general liability policy," Policy Number VBA743106" (the "Policy") issued by Defendant Covington Specialty Insurance Company to protect the business from certain losses or damages from February 12, 2020, to February 12, 2021.1 (ECF No. 1 ¶ 2; ECF No. 1-2.) The Policy was underwritten by Defendants RSUI Indemnity Company ("RSUI") and Alleghany Insurance Holdings, LLC ("Alleghany"), parties that were voluntarily dismissed from the lawsuit with prejudice on February 18, 2021. (ECF No. 1 ¶ 20 and ECF No. 35.)
In March 2020, the COVID-19 pandemic permeated the state of Tennessee, and by March 12, 2020, Tennessee Governor Bill Lee declared a state of emergency.2 As of September 3, 2021, 126,479 people in Shelby County had contracted the COVID-19 virus or 11.8 percent of all cases statewide; 5,644 persons have been hospitalized, 18.3 percent of all hospitalizations statewide; 1,900 persons in Shelby County have succumbed to the virus or 13.9 percent of all deaths statewide; and 117,247 persons have recovered, or 12.0 percent of all inactive/recovered cases statewide.3
Beginning in March 2020, Plaintiff was forced to suspend business operations at the restaurant because of the risk of Covid-19 infection to the public. (ECF No. 1, ¶ 9.) In mid-March, Plaintiff submitted a claim under the Policy for loss of business income resulting from the mandatory closure of non-essential businesses as mandated by City of Memphis ordinances and Shelby County Health Department directives. (ECF No. 1 ¶¶ 9, 41–45, 51.) Plaintiff alleges that due to these health orders, it sustained loss of business income from the mandatory closure, subsequent capacity restraints on on-premises dining and additional expenses for increased sanitizing costs, payroll obligations, and the expiration of food products. (ECF No. 1 ¶¶ 47–48.) On March 20, 2020, Covington denied Plaintiff's claim despite Plaintiff's assertion that this type of loss is consistent with "the actual loss of ‘Business Income," "business interruption," "loss of business income beyond the Period of Restoration under certain conditions," and "Extra Expense," all losses that are covered under the Policy. (ECF No. 1 ¶¶ 5–6, ¶ 52 and ¶¶ 22–34.)
On June 25, 2020, Plaintiff filed a Class Action Complaint against Defendants Covington, RSUI Indemnity Company, and Alleghany Insurance Holdings, LLC, on behalf of himself and other similarly situated businesses, alleging that: (1) its claim for coverage under the Policy was wrongfully denied, and (2) Defendant engaged in a "systematic and uniform refusal to pay insureds for any losses they attribute to risk of infection of COVID-19 and/or actions taken by civil authorities to suspend or prohibit access to and occupancy of the business." (ECF No. 1 ¶ 67.) Plaintiff filed an Amended Complaint on August 17, 2020, which added allegations attempting to show "direct physical loss" due to presence of COVID-19 on the actual premises. (ECF No. 15 ¶ 50–52.) Both the original and Amended Complaint contain three counts seeking declaratory judgment, three counts for breach of contract, and one count for breach of covenant of good faith and fair dealing. (ECF Nos. 1, 20–31; 15, 25–36.) Plaintiff brings one count seeking declaratory judgment and one count for breach of contract for each of the following: Business Income coverage, Extra Expense Coverage, and coverage under the Civil Authority provision. (Id. ) As noted above, before the Court is Covington's Motion for Judgment on the Pleadings and supporting memorandum of law. (ECF No. 28 and ECF No. 28-2.) As noted above, Covington recently submitted additional supplemental authority to support its motion for judgment on the pleadings. (ECF No. 43, ECF No. 43-1 – ECF No. 43-4, ECF No. 44, ECF No. 44-1–ECF No. 44-2, ECF No. 45 and ECF 45-1.)
The standard of review for a motion for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c) is the same as the standard of review for a motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). See Vickers v. Fairfield Med. Ctr. , 453 F.3d 757, 761 (6th Cir. 2006). "The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true." Mayer v. Mylod , 988 F.2d 635, 638 (6th Cir. 1993) (citing Nishiyama v. Dickson Cty., Tenn. , 814 F.2d 277, 279 (6th Cir. 1987) ). When evaluating a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the Court must determine whether the complaint contains "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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ); see also Keys v. Humana, Inc. , 684 F.3d 605, 608 (6th Cir. 2012) (). A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. In other words, although the complaint need not contain detailed facts, its factual assertions must be substantial enough to raise a right to relief above a speculative level. Ass'n of Cleveland Fire Fighters v. City of Cleveland , 502 F.3d 545, 548 (6th Cir. 2007) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). Determining whether a complaint states a plausible claim is "context-specific," requiring the Court to draw upon its experience and common sense. Iqbal , 556 U.S. at 679, 129 S.Ct. 1937.
While the Court's decision to grant or deny a motion to dismiss "rests primarily upon the allegations of the complaint, ‘matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint [ ] also may be taken into account.’ " Barany-Snyder v. Weiner , 539 F.3d 327, 332 (6th Cir. 2008) (quoting Amini v. Oberlin Coll. , 259 F.3d 493, 502 (6th Cir. 2001) ). The Court may also consider "exhibits attached to the defendant's motion to dismiss so long as they are referred to in the complaint and are central to the claims contained therein without converting the motion to one for summary judgment." Rondigo, L.L.C. v. Twp. of Richmond , 641 F.3d 673, 680–81 (6th Cir. 2011) (citation omitted).
Covington asserts that dismissal is appropriate because Plaintiff has failed to allege sufficient factual evidence of "direct physical loss" as required for coverage under the Policy's Business Income (and Extra Expense) Form and Additional Coverage for Civil Authority. (ECF No. 28-2, ECF No. 44, 1–2 and ECF No. 45, 1–3) Alternatively, Covington argues that even if the facts support "direct physical loss" so as to put Plaintiff's claim within the bounds of the Policy's coverage, either the Pathogen Exclusion or the Pollutant Exclusion, or both, precludes coverage as a Covered Cause of Loss. (ECF No, 28-2, ECF 43, 3 and ECF No. 44, 3–4.) Plaintiff responds that it has in fact, alleged sufficient evidence of "direct physical losses" so as to constitute a Covered Cause of Loss because "structural damage is not required to trigger coverage." (ECF No. 32.) Plaintiff also argues that the exclusions in the Policy do not apply, that the Civil Authority provision does apply, and that the "period of restoration" language does not preclude coverage.
A federal court sitting in diversity applies the substantive law of the state in which it sits. Hayes v. Equitable Energy Res. Co. , 266 F.3d 560, 566 (6th Cir. 2001) (citing Klaxon Co. v. Stentor Elec. Mfg. Co. , 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) ). Under Tennessee law, "a contract is presumed to be governed by the law of the jurisdiction in which it was executed absent a contrary intent." Williams v. Smith , 465 S.W.3d 150, 153 (Tenn. Ct. App. 2014) (citing Ohio Cas. Ins. Co. v. Travelers Indem. Co. , 493 S.W.2d 465, 467 (Tenn. 1973) ). The insurance contract at issue in this action was executed in Tennessee; therefore, Tennessee law governs this breach of contract action. (See ECF No. 1 ¶ 18.)
Generally, an insurance policy is to be interpreted in the same manner as any other contract. Am. Justice Ins....
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