King's Palace, Inc. v. Certain Underwriters At Lloyd's, London & Vanguard Claims Admin., Inc.

CourtUnited States District Courts. 6th Circuit. Western District of Tennessee
Citation558 F.Supp.3d 636
Docket NumberCase No. 2:20-cv-02629-JTF-cgc
Parties KING'S PALACE, INC. and KPC, Inc. d/b/a King's Palace Café, Inc., Tap Room and Absinthe Room, individually and on behalf of all others similarly situated, Plaintiffs, v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON and Vanguard Claims Administration, Inc., Defendants.
Decision Date01 September 2021

ORDER GRANTING DEFENDANT CERTAIN UNDERWRITERS AT LLOYD'S, LONDON SUBSCRIBING TO POLICY NO. TN134664'S MOTION TO DISMISS PLAINTIFFS’ COMPLAINT, GRANTING DEFENDANT VANGUARD CLAIMS ADMINISTRATION, INC.S MOTION TO DISMISS THE COMPLAINT, AND DISMISSING PLAINTIFFS’ COMPLAINT WITH PREJUDICE

JOHN T. FOWLKES, JR., United States District Judge

Before the Court is Defendants Certain Underwriters at Lloyd's, London Subscribing to Policy No. TN 134664's Motion to Dismiss Plaintiffs’ Complaint, filed on November 2, 2020. (ECF No. 20.) Additionally, before the Court is Defendant Vanguard Claims Administration, Inc.’s Motion to Dismiss the Complaint, filed on November 2, 2020. (ECF No. 21.) Plaintiffs filed their Omnibus Response in Opposition to the Motions to Dismiss on December 7, 2020. (ECF No. 26.) Defendants Certain Underwriters at Lloyd's, London Subscribing to Policy No. TN 134664 filed a Reply on January 4, 2021. (ECF No. 34.) On February 11, 2021, Plaintiffs filed a Notice of Supplemental Authorities. (ECF No. 36.) On February 25, 2021 and August 10, 2021, Defendants filed their Notices of Supplemental Authority. (ECF No. 37 & 47.) For the reasons provided below, Defendants Certain Underwriters at Lloyd's, London's Motion to Dismiss is GRANTED . Defendant Vanguard's Motion to Dismiss is GRANTED . Plaintiffs’ Complaint is DISMISSED with prejudice.

FACTUAL BACKGROUND

Plaintiffs are Tennessee corporations with bars and restaurants at 162–168 Beale Street in Memphis, Tennessee. (ECF No. 1, 1 ¶ 1.) Plaintiffs’ Complaint alleges that, effective May 17, 2019 through May 17, 2020, they purchased "an all risk general liability policy issued by Lloyd's," policy number TN134664 ("the Policy"). (Id. at ¶ 2.) Defendants Underwriters’ responsibilities, Plaintiffs aver, include paying claims for losses covered under the Policy. (Id. at ¶ 3.)

During the coverage period of the Policy, in March 2020, COVID-19 began to spread in Tennessee and the rest of the United States. On March 12, 2020, Tennessee Governor Bill Lee declared a state of emergency in response to the COVID-19 pandemic. (ECF No. 1, 12 ¶ 41 & ECF No. 20-2.) On March 22, 2020, Governor Lee issued Executive Order No. 17, which the Complaint states "require[d] all restaurants to close except for curbside or take-out orders."1 (ECF No. 1, 13 ¶ 44 & ECF No. 20-5.) The next day, on March 23, 2020, City of Memphis Mayor Jim Strickland issued a Civil Emergency Proclamation and Executive Order, No. 03-2020, which Plaintiffs state "required businesses within the city of Memphis to comply with the Order of the Governor, requiring closure of all restaurants unless the restaurants prepare food for delivery or carry out." (ECF No. 1, 13 ¶ 45 & ECF No. 20-6.) On March 30, 2020, Governor Lee extended Executive Order No. 17 through April 14, 2020. (ECF No. 1, 13–14 ¶ 46 & ECF No. 20-7.) On the same day, Governor Lee also issued Executive Order No. 22—a stay-at-home order. (ECF No. 1, 13–14 ¶ 46 & ECF No. 20-8.) This order allowed restaurants to remain open only for off-premises consumption. (ECF No. 20-8.) On April 13, 2020, Governor Lee extended the stay-at-home order through April 30, 2020. (ECF No. 1, 14 ¶ 47 & ECF No. 20-9.) On April 24, 2020, Governor Lee issued Executive Order No. 29, which lifted in-person dining restrictions, except as to limited service restaurants. (ECF No. 1, 14 ¶ 47 & ECF No. 20-10.) However, Executive Order No. 29 also empowered certain county health departments, such as the Shelby County Health Department, to "maintain any existing order or issue further restrictions regarding the operation of restaurants[.]" (ECF No. 20-10.) On June 1, 2020, the Shelby County Health Department issued Health Directive No. 5, allowing restaurants to reopen but requiring social distancing and dining groups of six people or fewer. (ECF No. 1, 14 ¶ 48 & ECF No. 20-11.)

Plaintiffs allege that starting in March 2020, they "were forced to suspend business operations at the restaurant due to risk of infection of COVID-19 and/or actions of civil authorities prohibiting full access to and occupancy of the restaurant due to dangerous physical conditions." (ECF No. 1, 3 ¶ 9.) As a result, Plaintiffs "suffer[ed] significant losses and incur[red] significant expenses." (Id. ) On or about March 19, 2020, Plaintiffs made a claim for coverage under the Policy. (Id. at ¶ 10.) Plaintiffs allege that, "without conducting any meaningful investigation," Defendants denied coverage through a letter dated July 23, 2020. (Id. at ¶¶ 10, 68.)

The Complaint alleges that "[t]he Policy is an all risk insurance policy," meaning that it:

covers all risks of loss that may happen (except by fraudulent acts of the insured), no matter their source and however fortuitous the event or circumstance may be, as long as it is beyond the control of the insured and unless the policy contains a specific provision expressly excluding the loss from coverage.

(Id. at ¶ 22.) Moreover, Plaintiffs aver that they "are not required to prove the precise cause of the loss or damage to demonstrate coverage exists under the Policy or that the loss or damage was occasioned by an external cause, but simply that the loss was due to a fortuitous circumstance or event." (ECF No. 1.) Plaintiffs point to three areas of the Policy as the bases for their claims: (1) business income coverage; (2) extra expense coverage; and (3) civil authority coverage. (Id. at ¶¶ 5–7.)

The Policy's Building and Personal Property Coverage Form states: "We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss."2 (ECF No. 1-1, 11.) The Causes of Loss – Special Form provided that "Covered Causes of Loss means direct physical loss unless the loss is excluded or limited in this policy." (Id. at 38.)

The Policy contained a Business Income (and Extra Expense) Coverage Form, which provided that:

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 premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss."3

(Id. at 27.) (emphasis added).4

Extra Expense coverage was also provided in the Business Income Coverage Form, which provided: "Extra Expense Coverage is provided at the premises described in the Declarations only if the Declarations show that Business Income Coverage applies at that premises." (Id. ) The Extra Expense section further stated, in part: "Extra Expense means necessary expenses you incur during the ‘period of restoration’ that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss." (ECF No. 1-1, 35.) As to the restoration period, the definitional section of the Business Income Form provides:

"Period of restoration" means the period of time that:
a. Begins:
(1) 72 hours after the time of direct physical loss or damage for Business Income Coverage; or
(2) Immediately after the time of direct physical loss or damage for Extra Expense Coverage;
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.

(Id. at 35.) (emphasis added).

The Business Income (and Extra Expense) Coverage Form also provides, under the "Additional Coverages" heading, Civil Authority coverage. (Id. at 28.) The Civil Authority coverage provision states, in relevant part:

When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises, provided that both of the following apply:
(1) Access to the area immediately surrounding the damaged property is prohibited by the civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property;
(2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.

(ECF No. 1-1, 28.)

Plaintiffs filed their Class Action Complaint on August 20, 2020, which contains seven causes of action: (1) declaratory judgment on behalf of the "Business Income Coverage Class"; (2) breach of contract "on behalf of the Business Income Coverage Class"; (3) declaratory judgment "on behalf of the Extra Expense Coverage Class"; (4) breach of contract on behalf of the "Extra Expense Coverage Class"; (5) declaratory judgment on behalf of the Civil Authority Coverage Class; (6) breach of contract on behalf of the Civil Authority Coverage Class; and (7) breach of the covenant of good faith and fair dealing. (ECF No. 1.)

LEGAL STANDARD

Defendants seek dismissal pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. When evaluating a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the Court must...

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