Hotel Mgmt. of New Orleans v. Gen. Star Indem. Co.
| Decision Date | 05 May 2023 |
| Docket Number | 22-30354 |
| Parties | Hotel Management of New Orleans, L.L.C., Plaintiff-Appellant, v. General Star Indemnity Company; First Specialty Insurance Corporation; Homeland Insurance Company of New York, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Appeal from the United States District Court for the Eastern District of Louisiana USDC No. 2:21-cv-00876
Before CLEMENT, OLDHAM, and WILSON, Circuit Judges.
During the COVID-19 pandemic, state and local officials in Louisiana ordered non-essential businesses, such as Hotel Management's properties, to shut down temporarily. Hotel Management filed several claims with its insurers, attempting to recover some of its lost income. They denied the hotelier's claims.
Hotel Management sued its insurance companies for breach of contract. The district court granted three motions to dismiss and closed the case. It found Hotel Management suffered no covered loss based on our precedent in Q Clothier New Orleans, L.L.C. v. Twin City Fire Insurance Company, 29 F.4th 252 (5th Cir. 2022) and dismissed one of the defendants under the doctrine of forum non conveniens. We AFFIRM.
Hotel Management owns several hotels in the French Quarter and downtown New Orleans. The hotelier created an insurance stack by contracting with three insurers to protect these businesses. General Star issued the primary policy, Homeland provided the first excess policy, and First Specialty issued the second excess policy. All three insurance contracts were in effect when the COVID-19 emergency began in the spring of 2020.
The policies covered all "direct physical loss[es]" to Hotel Management's commercial property, subject to various exclusions. In March 2020, Louisiana and New Orleans issued orders shutting down non-essential business activity including the operation of hotels. Hotel Management submitted claims to its insurers for the business interruption the lockdowns inflicted on its properties. But the insurance companies denied the claims.
In response, Hotel Management filed suit in Louisiana state court, seeking a declaratory judgment that its insurance policies covered its losses and alleging breach of contract. The insurance companies removed the case to federal court based on diversity jurisdiction and moved for dismissal. The district court granted these motions, dismissing Hotel Management's claims against General Star and Homeland under Federal Rule of Civil Procedure 12(b)(6) with prejudice and dismissing Hotel Management's action against First Specialty for forum non conveniens. Hotel Management timely appealed.
We review a dismissal for failure to state a claim de novo. IberiaBank Corp. v. Ill. Union Ins. Co., 953 F.3d 339, 345 (5th Cir. 2020). The plaintiff's "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face'" to survive a motion to dismiss. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). We also evaluate the district court's interpretation of an insurance policy de novo. Naquin v. Elevating Boats L.L.C., 817 F.3d 235, 238 (5th Cir. 2016). "Under Louisiana law, an insurance policy is a contract that must be construed using the general rules of contract interpretation set forth in the Civil Code." Anco Insulations, Inc v. Nat'l Union Fire Ins. Co. of Pittsburgh, 787 F.3d 276, 281 (5th Cir. 2015) (footnote omitted). Dismissal is proper if an insurance contract precludes recovery. Coleman E. Adler &Sons, L.L.C v. Axis Surplus Ins Co., 49 F.4th 894, 897 (5th 2022).
When evaluating the district court's order granting a motion to dismiss for forum non conveniens, first "[w]e review de novo the district court's conclusions that the [forum selection clause] was mandatory and enforceable." Weber v. PACT XPP Techs., AG, 811 F.3d 758, 766 (5th Cir. 2016). Second, we evaluate the trial court's application of Atlantic Marine's balancing test when it dismisses a case under the forum non conveniens doctrine for abuse of discretion. Id.; See Atl. Marine Constr. Co. v. U.S. Dist. Ct. for the W. Dist. of Tex., 571 U.S. 49, 62-66 (2013).
On appeal, Hotel Management argues[1] that its insurers wrongly denied its claims because the language of its underlying General Star policy only requires a "loss" to trigger coverage and that the financial hit Hotel Management took from the COVID-19 lockdowns certainly is such a "loss." In the alternative, the hotelier argues that we should find the contracts ambiguous and adopt its reasonable interpretations of those policies. The district court found that the policies were not ambiguous and dismissed two of the insurers because Hotel Management had failed to plead a plausible claim for breach of the insurance contract. We agree with the district court's analysis.
"Words and phrases used in an insurance policy are to be construed using their plain, ordinary and generally prevailing meaning." Edwards v. Daugherty, 883 So.2d 932, 940-41 (La. 2004); see also LA. CIV. CODE art. 2045-47. "When the words of an insurance contract are clear and explicit and lead to no absurd consequences, courts must enforce the contract as written and may make no further interpretation in search of the parties ' intent." Gorman v. City of Opelousas, 148 So.3d 888, 892 (La. 2014). Here, the Louisiana Supreme Court recently provided guidance on whether business closures caused by the COVID-19 pandemic could constitute a "direct physical loss." See Cajun Conti, LLC v. Certain Underwriters at Lloyd's, London, No. 22-C-1349 (La. 3/17/23). It determined that "COVID-19 did not cause direct physical loss of or damage to [covered] property." Id. at p. 5.
This accords with our Erie-guess[2] regarding whether COVID-19 and its associated lockdowns caused a "direct physical loss" to an insured in Q Clothier. 29 F.4th at 257. We concluded that only "tangible alterations of, injuries to, and deprivations of property" qualify as a "direct physical loss." Id. Because the COVID-19 closure orders and the virus particles in and of themselves did not cause a "tangible" loss, we held that the policy did not cover the loss of business income triggered by the pandemic. Id. at 259. We further extended this holding to clauses insuring companies against civil authority closures because such provisions "require[] a causal connection between loss or damage to property near [a plaintiff's business] and the civil authority orders prohibiting access to its stores." Id. at 261-62.
To avoid this holding, now confirmed by the Louisiana Supreme Court, Hotel Management argues that its insurance contracts are distinct from the one we interpreted in Q Clothier. Specifically, it claims that only a "loss" is required under its underlying insurance policy, not a "direct physical loss." So, according to Hotel Management, it should be able to recover its loss of income during the COVID-19 pandemic under the terms of its policies, regardless of whether its loss is tangible or not.
However, to get to this reading of its contracts, Hotel Management improperly ignores the second half of its business interruption coverage provision in the General Star policy. That provision states:
BUSINESS INTERRUPTION - This policy shall cover the direct physical loss resulting from necessary interruption of business conducted by the Insured including all interdependent loss of earnings between or among companies owned or operated by the Insured caused by loss, damage, or destruction by any of the perils covered herein during the term of this policy to real and personal property as covered herein.
(emphasis added). Similarly, the Civil Authority clause provides:
This policy . . . insures against loss resulting from damage to or destruction by the perils insured against, to . . . the actual loss sustained for a period not to exceed four consecutive weeks when, as a result of a peril insured against, access to real or personal property is impaired or hindered by the order of civil or military authority ....
(emphasis added). "Peril[s] insured against" by the policy are "all risks of direct physical loss of or damage to property." (deemphasized).
When we put the Business Interruption and the Civil Authority provisions together with the definition for "peril[s] insured against," we find that for Hotel Management to receive payment for a claim based on these clauses, it needs to show that its "loss of earnings" or "actual loss" was "caused" by a "peril covered," to wit, a "direct physical loss." The Homeland Insurance policy only applies as broadly as the General Star underlying insurance policy. Because the General Star policy is not triggered, neither is the Homeland Insurance policy. Consequently, the interpretation of this language is not distinguishable from the provisions we interpreted in Q Clothier and the Louisiana Supreme Court's opinion in Cajun Conti. See 29 F.4th at 257-58; see also 2022-C-1349, p. 1, 5 (La. 3/17/23).
The district court correctly applied Q Clothier and dismissed Hotel Management's claims against General Star and Homeland. As established above, the Business Interruption and Civil Authority coverages required Hotel Management to demonstrate a "tangible" loss. Q Clothier, 29 F.4th at 257. By failing to do so, they failed to state a claim on which relief could be granted. Adler, 49 F.4th at 898. Therefore, we AFFIRM the judgment granting the dismissal of Hotel Management's claims against General Star and Homeland.
IV
Hotel Management also challenges the district court's decision to grant First Specialty's motion to dismiss for forum non conveniens. The district court found that the First Specialty policy's forum selection...
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