Hillcrest Optical, Inc. v. Cont'l Cas. Co., CIVIL ACTION NO. 1:20-CV-275-JB-B

• Decision Date: 21 October 2020
• Docket Number: CIVIL ACTION NO. 1:20-CV-275-JB-B
• Citation: 497 F.Supp.3d 1203
• Parties: HILLCREST OPTICAL, INC., a corporation on behalf of itself and all others in the State of Alabama similarly situated, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Alabama

497 F.Supp.3d 1203

HILLCREST OPTICAL, INC., a corporation on behalf of itself and all others in the State of Alabama similarly situated, Plaintiff,

v.CONTINENTAL CASUALTY COMPANY, Defendant.

CIVIL ACTION NO. 1:20-CV-275-JB-B

United States District Court, S.D. Alabama, Southern Division.

Signed October 21, 2020

Richard H. Taylor, Taylor-Martino, PC, Steven A. Martino, Edward P. Rowan, W. Lloyd Copeland, Taylor Martino Zarzaur, P.C., Mobile, AL, for Plaintiff.

M. Warren Butler, Starnes Davis Florie LLP, Mobile, AL, for Defendant.

ORDER

JEFFREY U. BEAVERSTOCK, UNITED STATES DISTRICT JUDGE

This matter is before the Court on Defendant Continental Insurance Company's ("Continental" or "Defendant") Motion to Dismiss (Doc. 17). The Motion has been briefed and is ripe for review.

I. BACKGROUND

Plaintiff is an Alabama corporation which operates an optometrist office in Mobile, Alabama. (Doc. 1 at ¶¶1, 5, PageID.1 – 2). Defendant is an Illinois insurance corporation. Plaintiff purchased an "all-risk" insurance policy from Defendant to cover its property from May 1, 2019, until May 1, 2020. (Id. at ¶6, PageID.2). The parties do not dispute the policy's contents. The policy's "Business Special Property Coverage Form" provides: "[Defendant] will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from a Covered Cause of Loss." (Doc. 1 at ¶9, PageID.3; Doc. 1-2, PageID.34) (capitalization in original). The policy's "Business Income and Extra Expense" endorsement provides:

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 described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.

(Doc. 1 at ¶11, PageID.3; Doc. 1-2, PageID.56) (capitalization in original). The policy does not define the phrase "direct physical loss of ... property." (Doc. 1-2, PageID.56). Plaintiff also purchased Extra Expense coverage from Defendant. (Doc. 1 at ¶12, PageID.3) (capitalization in original). That coverage provides:

a. Extra Expense means reasonable and necessary expenses you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss of or damage to property caused by or resulting from a Covered Cause of Loss.

b. 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 premises or temporary locations; or

(2) Minimize the "suspension" of business if you cannot continue "operations."

c. We will also pay Extra Expense (including Expediting Expenses) to repair or replace the property, but only to the extent it reduces the amount of loss that otherwise would have been payable under Paragraph 1. Business Income above.

(Doc. 1-2, PageID.57) (capitalization and emphasis in original). The policy defines "operations" and "period of restoration" as follows:

19. "Operations" means the type of your business activities occurring at the described premises and tenantability of the described premises.

20. "Period of restoration" means the period of time that:

a. Begins with the date of direct physical loss or damage 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 any law that:

(a) Regulates the construction, use or repair, or requires the tearing down of any property; or

(b) Regulates the prevention, control, repair, clean-up or restoration of environmental damage.

(Doc. 1-2, PageID.51 – 52) (emphasis in original).

On March 13, 2020, President Trump declared the COVID-19 pandemic a national emergency. (Doc. 1 at ¶15, PageID.4). Following President Trump's declaration, Alabama Governor Kay Ivey declared the COVID-19 pandemic a State public health emergency and directed relevant State agencies to exercise their statutory and regulatory authority to implement measures to curb the rise of COVID-19 cases in Alabama. (Doc. 1-3, PageID.177).

On March 27, 2020, Dr. Scott Harris, the Alabama State Health Officer, entered a Statewide Order (the "Order") which provided, inter alia , all medical procedures would be postponed beginning March 28, 2020, with certain exceptions, until further notice. Plaintiff avers it shut down operations in compliance with the State's Order. (Doc. 1 at ¶17, PageID.4). Dr. Harris entered a second Order (the "Second Order"), approximately one month later (Id. at ¶18, PageID.5), allowing all medical procedures to resume. (Doc. 1-4, PageID.188). Plaintiff reopened and resumed its ordinary operations at its first available opportunity on April 30, 2020. (Doc. 1 at ¶18, PageID.5). Plaintiff alleges it suffered a substantial loss of business income as a consequence of the Order. (Id. at ¶19). Plaintiff does not allege COVID-19 was present on its premises.

Plaintiff filed a claim for its business income losses with Defendant on April 15, 2020. (Doc. 1 at ¶19, PageID.5). Plaintiff provided Defendant several documents with its claim, outlining its financial losses and other information Defendant requested. (Id. ). Plaintiff's counsel sent an email to Defendant on May 4, 2020, advising if Defendant did not respond to Plaintiff's claim within five (5) days it would consider the claim denied and proceed with litigation. (Id. ). Defendant did not respond within that time and Plaintiff commenced this action on May 15, 2020.

Plaintiff brings this action individually and for similarly situated parties. In its Complaint, Plaintiff seeks a Declaratory Judgment of its rights under the policy (Doc. 1 at ¶¶39, 40, PageID.10), and asserts a breach of contract claim. (Id. at ¶¶43 – 47, PageID.11). Plaintiff's breach of contract claim is limited to Defendant's alleged failure to cover Plaintiff's loss of business income. (Id. at ¶45). Plaintiff contends it suffered a direct physical loss of its property because it lost the ability to use its property for its intended purposes as a consequence of the Order. (Id. at ¶22, PageID.5 – 6). Alternatively, Plaintiff contends the Court should certify the question of whether it has adequately alleged a direct physical loss of property to the Alabama Supreme Court because Alabama law lacks sufficient guidance to answer it. (Doc. 24, PageID.288).

II. STANDARD OF REVIEW

Rule 12(b)(6), Fed.R.Civ.P., provides a court may dismiss a claim for failure to state a claim upon which relief can be granted. "To survive a motion to dismiss, 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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Conclusory statements, assertions or labels will not survive a 12(b)(6) motion to dismiss. Id. A plaintiff's 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. ; see also Edwards v. Prime, Inc. , 602 F.3d 1276, 1291 (11th Cir. 2010). "Factual allegations must be enough to raise a right to relief above the speculative level[.]" Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (citation omitted). "Although it must accept well-pled facts as true, the court is not required to accept a plaintiff's legal conclusions." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.

III. ANALYSIS¹

Defendant contends Plaintiff's Complaint is due to be dismissed pursuant to Rule 12(b)(6) because: (1) Plaintiff failed to allege a direct physical loss of its property in accordance with the policy's Business Special Property Coverage Form; (2) Plaintiff's inability to use its property for its intended purpose did not constitute a direct physical loss of property; and (3) Plaintiff failed to allege a period of restoration as required by the policy's Business Income and Extra Expense endorsement. (Doc. 18, PageID.240, 246, 250). In anticipation of Plaintiff's Opposition, Defendant also contends the Court should not certify the question of whether Plaintiff sufficiently alleged a direct physical loss because there is sufficient Alabama law to guide the Court in its decision. (Id. at PageID.245 n.7).

In Opposition, Plaintiff maintains it adequately alleged a direct physical loss of property because the State's Order prevented it from using its property for its intended purpose. (Doc. 24, PageID.289). Plaintiff also contends it adequately alleged a period of restoration based on its interpretation of the word "repair" as it appears in the policy. (Id. , PageID.296). In Reply, Defendant again contends Plaintiff failed to allege a direct physical loss of its property. Defendant contends Plaintiff's allegation that it lost its ability to use its property for its intended purpose fails to satisfy the policy's requirements. (Doc. 25, PageID.308 – 311).²

A. Alabama's principles of insurance contract construction.

Before considering the parties’ arguments, the Court finds it appropriate to review Alabama's principles on insurance contract construction. Matters of insurance contract construction under Alabama law are well-settled. Generally,

[t]he issue of whether a contract is ambiguous or unambiguous is a question of law for a court to decide. If a word or

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