Ilios Prod. Design, LLC v. Cincinnati Ins. Co.
| Decision Date | 12 April 2021 |
| Docket Number | Case No. 1:20-CV-857-LY |
| Parties | ILIOS PRODUCTION DESIGN, LLC, Plaintiff v. THE CINCINNATI INSURANCE COMPANY, INC.; THE CINCINNATI CASUALTY COMPANY, INC.; AND THE CINCINNATI INDEMNITY COMPANY, INC., Defendants |
| Court | U.S. District Court — Western District of Texas |
Before the Court are Defendants' Second Motion to Dismiss and Memorandum of Support, filed January 19, 2021 (Dkt. 35); Plaintiff's Response, filed February 22, 2021 (Dkt. 44); and Defendants' Reply, filed February 26, 2021 (Dkt. 46). On March 3, 2021, the District Court referred Defendants' motion to the undersigned Magistrate Judge for report and recommendation, pursuant to 28 U.S.C. § 636(b)(1), Federal Rule of Civil Procedure 72, and Rule 1 of Appendix C of the Local Rules of the United States District Court for the Western District of Texas.
On July 8, 2020, Plaintiff ILIOS Production Design, LLC, a Texas limited liability company, filed this insurance coverage lawsuit against its insurer, The Cincinnati Insurance Company, Inc., The Cincinnati Casualty Company, Inc., and the Cincinnati Indemnity Company, Inc., Ohio corporations (collectively, "Cincinnati"). A summary of the allegations contained in Plaintiff's Original Petition follows. Dkt. 1-1.
Plaintiff, a Texas limited liability company, is a provider of lighting and production design services for live concerts and music productions, weddings, corporate conventions, and various other broadcast events. Plaintiff's headquarters are at 4009 Commercial Center Dr., Austin, Texas 78744-1088. On August 28, 2020, Cincinnati issued Plaintiff a commercial property insurance policy covering Plaintiff's property from August 20, 2018 to August 20, 2021 (the "Policy"). Id. ¶¶ 7-8. The Policy generally provides coverage for direct losses to Plaintiff's property and business personal property, with specified exclusions. Dkt. 35-2 at 3-4. The Policy also provides coverage to Plaintiff for loss of business income and extra expenses (commonly referred to as "business interruption losses") during necessary suspension of its operations during a "period of restoration" caused by a "direct loss" to its property. Id. at 18. The Policy further provides coverage to Plaintiff for loss of business income and extra expenses sustained when "a Covered Cause of Loss causes damage to property other than Covered Property" that was "caused by action of civil authority that prohibits access to the 'premises.'" Id. at 19.
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. Dkt. 1-1 at ¶ 20. Shortly thereafter, the Centers for Disease Control and Prevention issued guidance on slowing the spread of the virus, including advising the public to observe social distancing and avoid large gatherings. Id. ¶ 27. State and local governments issued many orders to protect public health by limiting the spread of COVID-19, including orders limiting gatherings and restricting operation of non-essential businesses. For example, on March 24, 2020, Travis County and the City of Austin issued "Stay at Home or Place of Residence" orders ordering all non-essential businesses to immediately cease operations in the City of Austin and Travis County and prohibiting all public and private gatherings outside of a single household. Id. ¶ 31. On March 31, 2020, the Governor of Texas issued an Executive Order closing schools and orderedthe public to limit social gatherings and minimize in-person contact with people not in the same household. Id. ¶ 32.
As a result of these civil authority orders, Plaintiff alleges that it was forced to close its non-essential business on March 24, 2020 "and remained closed until a limited re-opening on June 26, 2020." Id. 45. Plaintiff alleges that it has incurred "a substantial loss of business income and additional expenses covered under the Policy," and submitted a claim to Cincinnati to recover for those losses. Id. 46. Plaintiff argues that it "suffered direct physical loss to the use of their premises . . . as a result of both the global Coronavirus pandemic (COVID-19) and Civil Authority orders issued by governmental entities rendering said premises temporarily uninhabitable and/or unusable for their respective business operations." Dkt. 44 at 3.
On April 20, 2020, Cincinnati denied Plaintiff's claim, contending that the losses were not covered under the Policy because "[t]he claim does not involve direct, physical loss to property at your premises caused by a Covered Cause of Loss." Dkt. 1-1 at 14. In addition, Cincinnati noted that even if there were a direct physical loss, coverage would be excluded under the Policy's pollution exclusion provision. Id. at 17-18.1 In response, Plaintiff filed suit, alleging breach of contract, common-law bad faith, and violations of the Texas Insurance Code, including unfair settlement practices, misrepresentation, and failure to promptly pay Plaintiff's claims.
On August 17, 2020, Cincinnati removed the case to federal court on the basis of diversity jurisdiction, pursuant to 28 U.S.C. § 1441(b). Cincinnati then filed a Motion to Dismiss (Dkt. 3), arguing that the case should be dismissed under Federal Rule of Civil Procedure 12(b)(6) because the Policy provides coverage only for direct physical loss or damage to property but Plaintiff has not sustained any direct physical loss or damage to its property. Dkt. 1.
On December 7, 2020, Plaintiff filed an Opposed Motion for Leave to File First Amended Complaint, seeking leave to add as a defendant Jonathan Malish, a Texas licensed adjuster, and to add a civil conspiracy claim against all defendants. Dkt. 19. The District Court granted Plaintiff's Opposed Motion for Leave and dismissed Cincinnati's Motion to Dismiss without prejudice. Dkt. 30. Cincinnati then filed a Motion to Reconsider the District Court's Order granting Plaintiff Leave to File First Amended Complaint, arguing that Plaintiff was attempting to defeat diversity jurisdiction. Dkt. 36. On January 29, 2021, the District Court granted the Motion to Reconsider, vacated its Order granting Plaintiff's Motion for Leave, and ordered that Plaintiff's First Amended Complaint be stricken from the record. Dkt. 38. Therefore, the "live" complaint in this case is Plaintiff's Original Petition.
Ten days before the District Court struck Plaintiff's First Amended Complaint, Cincinnati filed its Second Motion to Dismiss, arguing once again that Plaintiff's lawsuit should be dismissed under Rule 12(b)(6) because Plaintiff has not sustained any direct physical loss or damage to its property but the Policy provides coverage only for such losses. Plaintiff opposes the Motion and contends that its loss of business income due to the COVID-19 pandemic is a covered loss under the Policy.2 The Court makes the following recommendations.
The Court applies the following standards to the Motion to Dismiss.
Federal Rule of Civil Procedure 12(b)(6) allows a party to move to dismiss an action for failure to state a claim on which relief can be granted. In deciding a Rule 12(b)(6) motion to dismiss forfailure to state a claim, the court "accepts all well-pleaded facts as true, viewing them in the light most favorable to the [nonmovant]." In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal quotation marks omitted). The Supreme Court has explained that a complaint must contain sufficient factual matter "to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the [nonmovant] pleads factual content that allows the court to draw the reasonable inference that the [movant] is liable for the misconduct alleged." Ashcroft, 556 U.S. at 678.
While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).
Twombly, 550 U.S. at 555 (cleaned up). The court's review is limited to the complaint, any documents attached to the complaint, and any documents attached to the motion to dismiss that are central to the claim and referenced by the complaint. Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010).
The parties agree that Texas law governs this diversity action.3 "Texas law provides that insurance policies are construed according to 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 L.L.C., 620 F.3d 558, 562 (5th Cir. 2010). Unless the policy dictates otherwise, courts give words and phrases their ordinary andgenerally 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). "The paramount rule is that 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 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. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003); see also Pan Am, 959 F.3d at 674 ().
[U]nder Texas...
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