Kennedy Hodges & Assocs. v. Twin City Fire Ins. Co.
| Decision Date | 05 April 2023 |
| Docket Number | 3:20-cv-852 (OAW) |
| Parties | KENNEDY HODGES & ASSOCIATES LTD., LLP, d/b/a KENNEDY HODGES, LLP, and THREE COMMAS, LLC, individually and on behalf of all others similarly situated, Plaintiffs, v. TWIN CITY FIRE INS. CO., Defendant. |
| Court | U.S. District Court — District of Connecticut |
RULING ON MOTION FOR JUDGMENT ON THE PLEADINGS
This cause is before the court upon Defendant's Motion for Judgment on the Pleadings. See ECF No. 47 (). The court has reviewed the Motion Plaintiffs' opposition to the Motion, ECF No. 48 Defendant's reply in support of the Motion, ECF No. 49 all notices of supplemental authority, ECF Nos. 50, 54, 55 57, 58, and 59, and the record in this matter. The court is fully advised in the premises. For the reasons discussed herein, the Motion is GRANTED.[1]
I. BACKGROUND
Plaintiff Kennedy Hodges, LLP, is a Texas limited liability partnership that operates a legal business in Houston, Texas. See ECF No. 1 at 2. Plaintiff Three Commas is a Texas limited liability company that owns the real estate out of which Kennedy Hodges, LLP, operates. Id. Defendant Twin City Fire Insurance Company (“Defendant” or “Twin City”), is an insurance company that sold Plaintiffs an insurance policy (the “Policy”) that covered the real property Three Commas owns and out of which Kennedy Hodges, LLP, ran its business (the “Covered Property”). Id. at 2, 4. The Policy was effective for the period of May 6, 2019, to May 6, 2020. Id. at 4.
In the height of the COVID-19 pandemic, various government officials in Texas issued orders requiring residents to minimize interpersonal contact and to stay within their domiciles (“COVID Orders”). Id. at 7-8. As a result, the Covered Property was closed from March 18, 2020, through May 1, 2020. Id. at 10. Plaintiffs filed a claim against the Policy for the interruption of their legal business, and Defendant denied it. Id. at 10-11.
Plaintiffs brought this action on June 19, 2020, purporting to represent a class of similarly-situated individuals. ECF No. 1. In the complaint, Plaintiffs assert two counts: the first seeks declaratory relief that the Policy does cover the losses Plaintiffs incurred as a result of the COVID Orders, and the second alleges that Twin City breached the insurance contract when it denied Plaintiffs' claim. Id.[2] Twin City filed the Motion on May 5, 2021, see ECF No. 47, and this matter was transferred to the undersigned on December 13, 2021, see ECF No. 52. The Motion is now ripe for review.
II. LEGAL STANDARD
Rule 12(c) of the Federal Rules of Civil Procedure provides that “[a]fter the pleadings are closed - but early enough not to delay trial - a party may move for judgment on the pleadings.” When reviewing a Rule 12(c) motion, “the court considers ‘the complaint, the answer, any written documents attached to them, and any matter of which the court can take judicial notice for the factual background of the case.'” L-7 Designs Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011) (quoting Roberts v. Babkiewicz, 582 F.3d 418, 419 (2d Cir. 2009)). “A complaint is [also] deemed to include any written instrument attached to it as an exhibit, materials incorporated in it by reference, and documents that, although not incorporated by reference, are ‘integral' to the complaint.” Id. (quoting Sira v. Morton, 380 F.3d 57, 67 (2d Cir.2004)) (alteration in original). The court “will accept all factual allegations in the complaint as true and draw all reasonable inferences” in favor of the complainant. Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905, 922 (2d Cir. 2010) (quoting Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir.2010)). A Rule 12(c) motion will only be granted where “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Patel v. Searles, 305 F.3d 130, 135 (2d Cir. 2002) (quoting Conley v. Gibson, 355 U.S. 41,45-46 (1957)).
III. DISCUSSION
Both in Texas and in Connecticut,[3] an insurance contract is construed using the same general rules that apply to all written contracts.[4] The language in any insurance policy is given its ordinary meaning,[5] and if any term is ambiguous, that ambiguity is resolved by adopting the interpretation most favorable to the insured party.[6] Therefore, the court's review must start with a review of the Policy.
Generally speaking, the Policy promises to provide monetary benefits in the event of “direct physical loss of or physical damage to” the Covered Property, provided that the loss or damage is caused by a “Covered Cause of Loss.” ECF No. 39-3 at 30.[7] It specifically provides “Civil Authority Coverage” (when a civil authority bars the insured from the Covered Property because of a Covered Cause of Loss), and “Dependent Property Coverage” (when another property to which the insured provides services sustains physical loss or physical damage because of a Covered Cause of Loss). Id. at 40-41. The term “Covered Causes of Loss” is defined as all “risks of direct physical loss,” unless the risk is excluded or limited pursuant to other terms of the Policy. Id. at 31. Relevant here, the Policy has a “Virus Exclusion” that explicitly excludes loss or damage caused by a virus:
We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss: (1) Presence, growth, proliferation, spread or any activity of ‘fungi,' wet rot, dry rot, bacteria or virus.
Id. at 127.[8]
Twin City argues in the Motion that it is entitled to judgment as a matter of law because (1) there was no physical loss of the Covered Property, so the Policy as a whole is inapplicable to the loss Plaintiffs sustained, (2) there was no physical loss of any other property that would trigger either Dependent Property Coverage or Civil Authority Coverage, and (3) the Virus Exclusion clearly excludes coverage for the interruption in Plaintiffs' business caused by the COVID-19 pandemic.
Plaintiffs disagree. They counter that (1) the term “physical loss” should be construed to include the loss of use of a property, such that Plaintiffs' inability to conduct business at their office while the COVID Orders were in effect gives rise to a valid claim against the Policy, (2) Twin City has failed to carry is burden of showing that the Virus Exclusion applies, and (3) even if the Virus Exclusion applies, a jury must decide whether regulatory estoppel should bar enforcement of the Virus Exclusion.
The court agrees with Twin City. Even accepting (without so deciding) that the loss of use of a property satisfies the “physical loss” requirement of the Policy,[9] the plain language of the Virus Exclusion clearly shows that Plaintiffs' claimed losses are excluded from coverage, since those losses do not flow from a “Covered Cause of Loss,” as that term is defined in the Policy. Further, because all the terms which provide coverage require a predicate “Covered Cause of Loss,” the Virus Exclusion necessarily prevents Plaintiffs from being able to bring their claim under any coverage provision in the Policy.
For the reasons that follow, the court finds Plaintiffs' contrary arguments unpersuasive.
Twin City bears the burden of showing that an exclusion to insurance coverage applies in this case. See Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 308 Conn. 760, 788 n.24 (2013) (). The court disagrees with Plaintiffs' claim that Twin City fails to meet this burden; Plaintiff's reasons are: (1) Plaintiffs' losses were not caused by a virus, but by the COVID Orders, (2) Twin City's interpretation of the Virus Exclusion is too broad, or at least the Virus Exclusion is ambiguous such that it should be read in a manner more favorable to Plaintiffs, and (3) Twin City's application of the Virus Exclusion is contrary to Plaintiffs' reasonable expectation of the Policy's bounds of coverage.
Plaintiffs first assert that their business itself was not affected by COVID-19, and therefore was not shuttered by COVID-19. Rather, Plaintiffs argue that the COVID Orders were the cause of the business closing, and “[t]he motivation for the [COVID Orders] is not part of the causal chain that caused Kennedy Hodges's ‘physical loss' of property.” ECF No. 48 at 20 (emphasis in original).
This assertion is clearly unsupportable. Plaintiffs offer no legal reason why the chain of causation must stop with the COVID Orders. To the contrary, the clear intent of the Virus Exclusion is to exclude coverage for losses caused by a virus, even if those losses also are the result of another cause or event. The complaint makes clear that the COVID Orders were issued as a result of the proliferation of the virus. See ECF No. 1 at 6-7 (). Thus, even if the coronavirus was not the direct cause of Plaintiffs' closure, it was certainly an indirect cause. “Even if the principle of ‘strictly construing' insurance policy exclusions counsels against reading the broad causation language in the virus exclusion to embrace every link in the causal chain . remoteness is not an issue here.” LJ New Haven LLC v. Amguard Ins. Co., 511 F.Supp.3d 145, 152 (D. Conn. 2020). Rather, a review of the complaint and the COVID Orders reveals that “it was a short step from the emergence of...
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