DZ Jewelry, LLC v. Certain Underwriters at Lloyds London

Citation525 F.Supp.3d 793
Decision Date12 March 2021
Docket NumberCivil Action No. H-20-3606
Parties DZ JEWELRY, LLC, d/b/a Zadok Jewelers, Plaintiff, v. CERTAIN UNDERWRITERS AT LLOYDS LONDON, Defendant.
CourtU.S. District Court — Southern District of Texas

Donald Clinton Green, II, John Scott Black, Daly & Black, Houston, TX, for Plaintiff.

Gerard Joseph Kimmitt, II, HFW, Houston, TX, for Defendant.

MEMORANDUM AND ORDER

Lee H. Rosenthal, Chief United States District Judge The COVID-19 pandemic disrupted and interrupted many aspects of life. Like many brick-and-mortar retailers, DZ Jewelry, LLC, d/b/a Zadok Jewelers lost customers and revenue when the State of Texas and Harris County, Texas ordered nonessential businesses to temporarily close their doors to prevent the spread of COVID-19. Like many retail businesses, Zadok is hoping that its insurance policy covers some of the losses. That hope turns on the specific language of Zadok's policy. Unfortunately for Zadok, the language provides no coverage for the losses it sustained. The court grants the motion to dismiss Zadok's complaint, without prejudice and with leave either to amend or to inform the court that it stands on its current pleading no later than March 25, 2021.

The reasons are explained below.

I. Background

Before COVID-19 became a problem, before the president declared it a pandemic, and before the State of Texas and Harris County issued orders temporarily closing businesses, Zadok purchased an all-risk commercial property insurance policy from Certain Underwriters at Lloyd's of London.1 (Docket Entry No. 1 at ¶ 72). The policy provides 30 days of business-income loss coverage and two weeks of civil-authority order and extra-expense coverage. The policy does not have a virus, pandemic, or communicable-disease exclusion clause. (Id. at ¶¶ 77–79).

Under the policy's business-income loss provision, Lloyd's agreed to cover business income lost during a "period of restoration" caused by a "direct physical loss of or damage to property":

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 the premises described in the Declarations, including personal property in the open (or in a vehicle) within 100 feet, caused by or resulting from any Covered Cause of Loss.2

(Docket Entry No. 5-2 at 30). "Period of restoration" is defined as "the period of time that ... [b]egins with the date of direct physical loss or damage ... [and] [e]nds on the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality." (Id. at 36).

Under the civil-authority order provision, Lloyd's agreed to cover business income lost and extra expenses incurred due to certain government-ordered closures:

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 due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.

(Docket Entry No. 5-2 at 31; Docket Entry No. 1 at ¶ 84).

The policy defines "extra expenses" as "necessary expenses [the insured] incur[s] during the ‘period of restoration’ that [the insured] 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." (Docket Entry No. 5-2 at 30). These expenses include costs to "[r]epair or replace any property; or ... [r]esearch, replace or restore the lost information on damaged valuable papers and records." (Id. ).

In March 2020, the Governor declared a state of disaster in Texas due to COVID-19. (Docket Entry No. 1 at ¶ 48). On March 19, the Governor issued executive orders that banned gatherings of 10 or more people and discouraged gatherings at bars, food courts, restaurants, and gyms. (Id. at ¶ 49). The Governor also required nonessential services to operate remotely.3 In Harris County, on March 24, the Commissioner's Court Judge issued a "Stay Home, Stay Safe Order," prohibiting nonessential businesses from opening. (Id. at ¶ 50). On April 27, the Governor allowed nonessential retail stores to reopen at 25% capacity, and on May 5 expanded the maximum capacity to 50%. (Id. at ¶¶ 56, 57). The Harris County Order was extended, but Zadok was able to reopen on April 30, 2020. (Id. at ¶ 52).

Zadok closed its store from March 23 until April 30, 2020, when it reopened with limits on capacity. (Id. at ¶¶ 65, 75). Zadok alleges that it was forced to close for approximately five weeks due to "various orders issued by the State of Texas and Harris County" and "the prevalence of COVID-19." (Id. at ¶ 3). As Zadok states, the closure orders required it to shut down because retail jewelry sales are not essential. (Id. at ¶ 11).

Zadok also alleges that it closed because "people infected by the virus, or who had contact with other infected people, have likely visited Zadok's store, and thereby contaminated Zadok's store and surrounding property with the virus by the time of the Closure Orders, and thereafter." (Id. at ¶ 12). Three Zadok employees tested positive for COVID-19, though it is unclear if they were in the store while they were contagious. (Id. at ¶ 13). Zadok alleges that the "transmission of COVID-19 and the Closure Orders" adversely impacted its business because customers either could not access its store or would not do so for fear of contracting COVID-19, or both. (Id. ). Zadok alleges that the pandemic and closure orders resulted in $3 million in lost sales. (Id. at ¶¶ 70, 75).

On April 3, 2020, Zadok filed a claim with Lloyd's for lost business income and extra expenses due to COVID-19 and the Texas closure orders. (Id. at ¶ 89). On May 28, Lloyd's denied the claim, in part because Zadok's store did not suffer direct physical loss or damage to property at the premises. (Id. at ¶ 90). This lawsuit followed. Zadok asserts breach of contract, bad faith, and violations of the Texas Prompt Payment of Claims Act, TEX. INS. CODE § 542.002, et seq. (Docket Entry No. 1). Lloyd's moves to dismiss.

II. The Legal Standard
A. The Rule 12(b)(6) Standards

Rule 12(b)(6) allows dismissal if a plaintiff fails "to state a claim upon which relief can be granted." FED. R. CIV. P. 12(b)(6). Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). A complaint must contain "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Rule 8 "does not require ‘detailed factual allegations,’ but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). "The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ).

To withstand a Rule 12(b)(6) motion, a complaint must include "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Lincoln v. Turner , 874 F.3d 833, 839 (5th Cir. 2017) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). "Nor does a complaint suffice if it tenders ‘naked assertion[s] devoid of ‘further factual enhancement.’ " Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (alteration in original) (quoting Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ). "A complaint ‘does not need detailed factual allegations,’ but the facts alleged ‘must be enough to raise a right to relief above the speculative level.’ " Cicalese v. Univ. of Tex. Med. Branch , 924 F.3d 762, 765 (5th Cir. 2019) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). "Conversely, when the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should be exposed at the point of minimum expenditure of time and money by the parties and the court." Cuvillier v. Taylor , 503 F.3d 397, 401 (5th Cir. 2007) (alterations omitted) (quoting Twombly , 550 U.S. at 558, 127 S.Ct. 1955 ).

A court reviewing a motion to dismiss under Rule 12(b)(6) may consider "(1) the facts set forth in the complaint, (2) documents attached to the complaint, and (3) matters of which judicial notice may be taken under Federal Rule of Evidence 201." Inclusive Cmtys. Project, Inc. v. Lincoln Prop. Co. , 920 F.3d 890, 900 (5th Cir. 2019).

B. Texas Insurance Law

The parties agree that Texas law governs this action. Insurance policies are read based on "common principles governing the construction of contracts, and the interpretation of an insurance policy is a question of law for a court to determine." Am. Int'l Specialty Lines Ins. Co. v. Rentech Steel LLC , 620 F.3d 558, 562 (5th Cir. 2010). "Unless the policy dictates otherwise, courts give words and phrases their ordinary and generally accepted meaning, reading them in context and in light of the rules of grammar and common usage." Nassar v. Liberty Mut. Fire Ins. Co. , 508 S.W.3d 254, 258 (Tex. 2017). Courts "enforce unambiguous policies as written." Pan Am Equities, Inc. v. Lexington Ins. Co. , 959 F.3d 671, 674 (5th Cir. 2020). "If policy language is worded so that it can be given a definite or certain legal meaning, it is not ambiguous and courts construe it as a matter of law." Am. Mfrs. Mut. Ins....

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