Leal, Inc. v. Twin City Fire Ins. Co.

• Decision Date: 10 November 2021
• Docket Number: Civil No. 3:20-CV-00917 (AVC)
• Parties: LEAL, INC., plaintiff, v. TWIN CITY FIRE INSURANCE COMPANY, defendant.
• Court: U.S. District Court — District of Connecticut

573 F.Supp.3d 648

LEAL, INC., plaintiff,

v.TWIN CITY FIRE INSURANCE COMPANY, defendant.

Civil No. 3:20-CV-00917 (AVC)

United States District Court, D. Connecticut.

Signed November 10, 2021

Mark P. Kindall, Douglas Patrick Needham, Izard, Kindall & Raabe, LLP, West Hartford, CT, Edwin John Kilpela, Jr., Gary F. Lynch, Kelly Iverson, Lynch Carpenter, LLP, Pittsburgh, PA, for Plaintiff.

Anthony Anscombe, Steptoe & Johnson LLP, Chicago, IL, Gerald P. Dwyer, Jr., Peter Meggers, Stephani Roman, Robinson & Cole LLP, Hartford, CT, Sarah Gordon, Steptoe & Johnson LLP, Washington, DC, for Defendant.

RULING ON THE DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS

Alfred V. Covello, United States District Judge

This is an insurance coverage dispute in which the plaintiff, Leal, Inc. (hereinafter "Leal"), alleges that the defendant, Twin City Fire Insurance Company (hereinafter "Twin City"), unlawfully denied Little Stars coverage under its insurance policy. It is brought pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201(a)¹ and common law tenets concerning breach of contract.

Twin City has moved for an order rendering judgment on the pleadings, pursuant to Federal Rule of Civil Procedure 12(c). The issue presented is whether Leal can recover under its insurance policy for damages it incurred in connection with governmental closure orders. For the following reasons, the court concludes that the policy's virus exclusion applies to prohibit recovery and, therefore, Twin City's motion for judgment on the pleadings is granted.

FACTS

Examination of the complaint, the answer, and any attachments thereto, discloses the following facts.

The plaintiff, Leal, is an Ohio corporation that owns and operates a boutique clothing store in Columbus, Ohio.

The defendant, Twin City, is an insurance company that provided Leal with an insurance policy. Twin City is headquartered in Indiana.

Leal contracted for a business owner's policy (hereinafter "the policy"). The policy covered the period from June 17, 2019, through June 17, 2020. Leal paid its policy premiums.

The policy provided that the insurer would "pay for direct physical loss of or physical damage to Covered Property at the premises ... caused by or resulting from a Covered Cause of Loss." The policy defined "Covered Causes of Loss" as "RISKS OF DIRECT PHYSICAL LOSS," unless the loss is specifically excluded or limited by other provisions in the policy.

The policy also provides for business income and extra expense coverage. This provision of the policy provides coverage "for the actual loss of Business Income you sustain due to the necessary suspension of your ‘operations’ during the ‘period of restoration’." Such suspension of operations "must be caused by direct physical loss of or physical damage to property at the ‘scheduled premises’ ...." Coverage under the extra expense portion of the policy also requires a showing of "direct physical loss or physical damage to property."

The Policy further provides coverage for business income from dependent properties. Specifically, this provision covers "actual loss of Business Income you sustain due to direct physical loss or physical damage at the premises of a dependent property² caused by or resulting from a Covered Cause of Loss."

The policy extends civil authority coverage "to the actual loss of Business Income [Leal] sustain[s] when access to [its] ‘scheduled premises’ is specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate area of your ‘scheduled premises."

The " ‘Fungi,’ Wet Rot, Dry Rot, Bacteria And Virus" exclusion (hereinafter "the virus exclusion" or "the exclusion") provides that:

"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."

Section B.1, the virus endorsement, states the policy's "[l]imited coverage for ‘Fungi’, Wet Rot, Dry Rot, Bacteria and Virus" and provides follows:

1. Limited Coverage For "Fungi", Wet Rot, Dry Rot, Bacteria and Virus

a. The coverage described in 1.b below only applies when the ‘fungi’, wet or dry rot, bacteria or virus is the result of one or more of the following causes that occurs during the policy period and only if all reasonable means were used to save and preserve the property from further damage at the time of and after that occurrence.

(1) A "specified cause of loss" other than fire or lightning;

(2) Equipment Breakdown Accident occurs to Equipment Breakdown Property, if Equipment Breakdown applies to the affected premises.

b. We will pay for loss or damage by "fungi", wet rot, dry rot, bacteria and virus. As used in this Limited Coverage, the term loss or damage means:

(1) Direct physical loss or direct physical damage to Covered Property caused by "fungi", wet rot, dry rot, bacteria or virus, including the cost of removal of the "fungi", wet rot, dry rot, bacteria or virus;

(2) The cost to tear out and replace any part of the building or other property as needed to gain access to the "fungi", wet rot, dry rot, bacteria or virus; and

(3) The cost of testing performed after removal, repair, replacement or restoration of the damaged property is completed, provided there is a reason to believe that "fungi", wet rot, dry rot, bacteria or virus are present.

Policy Endorsement "Limited Fungi, Bacteria or Virus Coverage," Sec. B.1.a-b. Coverage pursuant to section B.1.b is dependent on the fact that the "fungi, wet rot, dry rot, bacteria or virus" resulted from the causes in section B.1.a.

Subsection B.1.f provides as follows:

f. The following applies only if a Time Element Coverage applies to the ‘scheduled premises’ and only if the suspension of ‘operations’ satisfies all the terms and conditions of the applicable Time Element Coverage.

(1) If the loss which resulted in ‘fungi’, wet or dry rot, bacteria or virus does not in itself necessitate a suspension of ‘operations’, but such suspension is necessary due to loss or damage to property caused by ‘fungi’, wet or dry rot, bacteria or virus, then our payment under the Time Element Coverage is limited to the amount of loss and expense sustained in a period of not more than 30 days unless another number of days is indicated in the Declarations. The days need not be consecutive. If a covered suspension of ‘operations’ was caused by loss or damage other than ‘fungi’, wet or dry rot, bacteria or virus, but remediation of ‘fungi’, wet or dry rot, bacteria or virus prolongs the ‘period of restoration’, we will pay for loss and expense sustained during the delay (regardless of when such a delay occurs during the ‘period of restoration’), but such coverage is limited to 30 days unless another number of days is indicated in the Declarations. The days need not be consecutive.

Id. at B.1.f.

On March 9, 2020, the governor of Ohio declared a state of emergency throughout the state.

On March 22, 2020, the governor entered an order closing all non-essential businesses in the state, which covered Leal's clothing store. As a result, on March 23, 2020, Leal closed its business operations.

Leal sought insurance coverage for its business losses under its policy, with a date of loss of March 23, 2020. The defendant denied coverage.

On July 2, 2020, Leal filed a complaint seeking declaratory relief against the defendant, The Hartford Financial Services Group, Inc. d/b/a The Hartford (hereinafter "the Hartford"), and Twin City. On September 29, 2020, Leal filed a notice of voluntary dismissal of its claims against the Hartford, leaving Twin City as the only remaining defendant.

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." Fed. R. Civ. P. 12(c). "On a 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) (citing Roberts v. Babkiewicz, 582 F.3d 418, 419 (2d Cir. 2009) ).³

On a Rule 12(c) motion to dismiss, 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) (citations omitted). However, the "[p]laintiffs’ failure to include matters of which as pleaders they had notice and which were integral to their claim — and that they apparently most wanted to avoid — may not serve as a means of forestalling the district court's decision ...." L-7 Designs Inc., 647 F.3d at 422 (citations omitted). "A complaint will only be dismissed under Rule 12(c) if it appears beyond doubt that the [nonmoving party] 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) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ).

DISCUSSION

I. Choice of Law

"In cases where jurisdiction is based on the diversity of the parties’ citizenship, a federal court will apply the choice-of-law rules of the forum state." Bigio v. Coca-Cola Co., 675 F.3d 163, 169 (2d Cir. 2012). "Connecticut's choice of law approach for contracts is the ‘most significant relationship’ test of the Restatement (Second) ... § 188." Reichhold Chemicals, Inc. v. Hartford Accident & Indem. Co., 252 Conn. 774, 781, 750 A.2d 1051 (2000). However, "[t]he threshold choice of law question in Connecticut ... is whether there is an outcome determinative conflict between the applicable laws of the states with a potential interest in the case. If not, there is no need to perform a...