Ida Cason Callaway Found. v. ACE Am. Ins. Co.

• Decision Date: 23 February 2023
• Docket Number: Civil Action 3:22-cv-406-HEH
• Parties: IDA CASON CALLAWAY FOUNDATION, INC., Plaintiff, v. ACE AMERICAN INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

IDA CASON CALLAWAY FOUNDATION, INC., Plaintiff, v. ACE AMERICAN INSURANCE COMPANY, Defendant.

Civil Action No. 3:22-cv-406-HEH

United States District Court, E.D. Virginia, Richmond Division

February 23, 2023

MEMORANDUM OPINION (GRANTING DEFENDANT'S MOTION TO DISMISS)

Henry E. Hudson, Senior United States District Judge

This matter is before the Court on Defendant ACE American Insurance Company's (“Defendant”) Motion to Dismiss (the “Motion,” ECF No. 26), filed on November 18, 2022. Defendant moves the Court to dismiss Plaintiff Ida Cason Callaway Foundation, Inc.'s (“Plaintiff') Amended Complaint (ECF No. 23), filed on October 21, 2022. Defendant's Motion raises for the first time before this Court an issue relating to the ongoing COVID-19 pandemic. Plaintiff has owned and operated a resort located in Georgia, known as Callaway Gardens Resort (“Callaway Gardens” or the “Resort”). Like many resorts, COVID-19-related mandates forced Callaway Gardens to reduce inperson services. Plaintiff originally filed its Complaint in the Circuit Court of Richmond (ECF No 1-1) after its insurer, Defendant, denied its reimbursement request for $1 million of pandemic-related losses. Defendant timely removed the Complaint to this Court on May 31, 2022.^[1] (Notice of Removal, ECF No. 1.) Defendant then filed a Motion to Dismiss the original Complaint on July 18, 2022. (ECF No. 11.) The Court heard oral argument on that motion on October 7, 2022. (ECF No. 22.)

At the October 7 hearing, the Court, by oral order, granted Defendant's Motion to Dismiss pursuant to Federal Rule of Civil Procedural 12(b)(6) and allowed Plaintiff to file an Amended Complaint within 14 days following the hearing. (ECF No. 22.) Plaintiff then amended its Complaint, seeking a declaratory judgment that Defendant's insurance policy covers its losses, and that Defendant must reimburse said losses (Count I), and alleging a breach of contract claim (Count II). (Id. ¶¶ 30-38.) Defendant filed the instant Motion to Dismiss, and the parties submitted memoranda supporting their respective positions. The Court heard oral argument on January 10, 2023. At the close of the January 10 hearing, the Court indicated that it was inclined to deny Defendant's Motion. However, upon further review, the Court will, for the reasons stated herein, grant Defendant's Motion to Dismiss.

I. BACKGROUND

Viewed through the lens of Rule 12(b)(6) review, the relevant facts are as follows. Defendant issued policy number GPA-D42219174-003 to Plaintiff for coverage of its property Callaway Gardens, for a policy period of March 8, 2020 to March 8, 2021. (Ex A to Am. Compl. at 10, ECF No. 23-1 (hereinafter the “Policy”).) Like many other property insurance policies addressed by courts in the United States facing this issue, the Policy is an “all-risk” policy. (Id.) All-risk policies provide blanket coverage terms and may include specific exclusions. (Id.) The Policy in this case:

covers the interest of the insured in all real and personal property earned, used, leased or intended for use by the insured or in which the insured may have an insurable interest, or for which the insured may be responsible for the insurance, or real or personal property hereinafter constructed, erected, installed, or acquired including while in course of construction, erection, installation, and assembly, and also including Improvements and Betterments (collectively “Covered Property”).

(Id. at 12.) The Policy also provides business interruption coverage, which encompasses coverage for “Loss of Attraction.” (Id. at 22.) The “Loss of Attraction” provision states:

h) Loss of attraction - This Policy is extended to insure loss as insured hereunder, including Clean Up and Remediation, when there is an interruption or interference with the business of the Insured as a consequence of:

1. Infectious or contagious disease (excluding Coronavirus 2019 COVID-19) manifested by any person while on the Covered Property of the Insured which results in the total or partial closure of the Covered Property at the direction of The National Center for Disease Control and/or the applicable state, city or municipal department of public health;

2. Murder or suicide occurring at the Covered Property of the Insured;

3. Injury or illness sustained by any person arising from or traceable to foreign or injurious matter in food and drink provided on the Covered Property of the Insured or the threat thereof;

4. Closing of the whole or part of the Covered Property of the Insured by order of a public authority consequent upon the existence or threat of hazardous conditions either actual or suspected at the Covered Property of the Insured.

(Id.) Two sub-parts from the aforementioned Loss of Attraction provision are especially relevant. The first, Section 20(h)(1), is a limited grant of coverage for losses resulting from “an interruption or interference with the business” caused by “[i]nfectious disease or contagious disease,” excluding losses arising from COVID-19.” (Id.) The second, Section 20(h)(4), is a limited grant of coverage for losses due to “an interruption or interference with the business” as a result of the full or partial closure of the “Covered Property” by public authority “consequent upon” the actual or suspected presence of “hazardous conditions” at the “Covered Property.” (Id.)

On March 14, 2020, due to the impact of the COVID-19 pandemic, the Governor of Georgia, Brian Kemp (“Governor Kemp”) declared a state of emergency for the State of Georgia. (Ex. B to Am. Compl. at 1, ECF No. 23-2.) On March 23, 2020, Governor Kemp exercised his emergency powers under Georgia Code § 38-3-51 to restrict the number of persons that could gather in a single location due to concerns related to the spread of CO VID-19. (Id. at 2-4.) The Order restricted the number of persons that could gather at a single location, and also stated that “no business, establishment, non-profit corporation, or organization shall allow more than ten (10) persons to be gathered at a single location if such gathering require persons to stand or be seated within six (6) feet of any other person.” (Id.) The Order also mandated that “all businesses which possess a license to operate as or otherwise meet the definition of 4[b]ar'” under Georgia law “shall cease operation while this Order is in effect.” (Id.)

On April 2, 2020, Governor Kemp reiterated the distancing requirements and further ordered residents and visitors to shelter in place unless they were conducting or participating in “Essential Services,” performing “Necessary Travel,” engaging in “the performance of Minimum Basic Operations for a business,” or part of the “workforce for Critical Infrastructure.” (Ex. C. to Am. Compl. at 2-3, ECF No. 23-3.) The April 2 Order also required “all restaurants and private social clubs [to] cease providing dine-in services” with limited exceptions not applicable to the Resort. It also dictated:

That all gyms, fitness centers, bowling alleys, theaters, live performance venues, operators of amusement rides ... body art studios... estheticians ... hair designers . . . and businesses which possess a license to operate as or otherwise meet the definition of “bar” as defined by Code Section 3-1-2(2.1), shall cease in-person operations and shall close to the public while this Order is in effect.

Id. On April 8, 2020, Governor Kemp, by Executive Order, extended the April 2 Order until April 30, 2020. (Ex. D. to Am. Compl. at 2, ECF No. 23-4).

Plaintiff submitted claims to Defendant seeking insurance coverage for business losses caused by COVID-19 under Section 20(h)(4) of the Policy. (Am. Compl. ¶ 7.) On September 15, 2021, and October 15, 2021, Defendant responded that no coverage existed under the Policy for Plaintiffs losses. (Id.) Defendant explained that the Policy does not provide coverage for COVID-19-related losses at Callaway Gardens. (Id.) Plaintiff thereafter filed suit in the Circuit Court of Richmond, alleging that Section 20(h)(4) of Defendant's Policy covers its COVID-19-related losses. (Compl. ¶ 6.) Plaintiff raises the same argument in its Amended Complaint. (Am. Compl. ¶ 19.) Plaintiff principally argues that coverage applies under Section 20(h)(4) because Governor Kemp's Orders (the “Orders”) forced Plaintiff to close its business due to the threat of hazardous conditions suspected at Callaway Gardens. (Id.) Plaintiff maintains that although COVID-19-related losses are expressly excluded from 20(h)(1)'s coverage extension to “infectious or contagious disease,” such losses should nonetheless be covered under Section 20(h)(4) because the phrases “infectious or contagious disease” and “hazardous conditions” are not mutually exclusive. (Pl.'s Opp'n Br. at 7.)

Defendant moves to dismiss the Amended Complaint, arguing Section 20(h)(4) of the Policy does not cover Plaintiffs alleged losses because Section 20(h)(1)-the sole Policy provision which addresses business losses associated with “infectious or contagious disease”-explicitly excludes COVID-19-related losses. (Mot. at 7.) Defendant maintains that an alternative reading of the Policy would render Section 20(h)(1) meaningless and permit Plaintiff to access distinct coverage for “hazardous condition[s]” as a “back-door coverage grant for COVID-19 business interruption loss.” (Id.) Defendant further contends that even if Section 20(h)(4) applies, coverage is not warranted because Plaintiff has not plausibly alleged facts to trigger coverage under that section. (Id. at 12-15.) Specifically, Defendant asserts the Amended Complaint fails to adequately plead Plaintiff closed the property in response to COVID-19, and that Governor Kemp issued the Orders in response to specific “hazardous conditions” at Callaway...