Lisette Enters., Ltd. v. Regent Ins. Co.

• Decision Date: 06 May 2021
• Docket Number: Case No. 4:20-cv-00299-SMR-CFB
• Citation: 537 F.Supp.3d 1038
• Parties: LISETTE ENTERPRISES, LTD., Plaintiff, v. REGENT INSURANCE COMPANY, a member of QBE North America, Defendant.
• Court: U.S. District Court — Southern District of Iowa

537 F.Supp.3d 1038

LISETTE ENTERPRISES, LTD., Plaintiff,

v.REGENT INSURANCE COMPANY, a member of QBE North America, Defendant.

Case No. 4:20-cv-00299-SMR-CFB

United States District Court, S.D. Iowa, Central Division.

Signed May 6, 2021

James W. Carney, Nicholas J. Mauro, Carney & Appleby PLC, Des Moines, IA, for Plaintiff.

Sean M. O'Brien, Bradshaw Fowler Proctor & Fairgrave, P.C., Des Moines, IA, Dennis C. Anderson, Pro Hac Vice, Elizabeth Kniffen, Pro Hac Vice, Zelle, LLP, Minneapolis, MN, for Defendant.

ORDER ON DEFENDANT'S MOTION TO DISMISS

STEPHANIE M. ROSE, JUDGE

Plaintiff Lisette Enterprises, Ltd. is in the restaurant business and took out a business interruption insurance policy from Defendant Regent Insurance Company. Then public health measures responding to a global pandemic shut down in-person dining statewide. Plaintiff seeks coverage for income lost from ceasing its operations; Defendant contends the language of the insurance policy precludes recovery for business losses resulting from the pandemic as a matter of law. The Court agrees coverage does not extend to the circumstances pleaded by Plaintiff. Even if it did, the policy language plainly excludes recovery. For those reasons, Defendant's Motion to Dismiss, [ECF No. 4], is GRANTED.¹

I. BACKGROUND

Plaintiff is an Iowa company conducting business as Lucca Restaurant in the East Village of Des Moines, Iowa. See [ECF No. 1-1 ¶¶ 2–3]. Defendant, a Wisconsin-based property and casualty insurer, issued Plaintiff an "all-risk" commercial insurance policy to cover, among other things, the interruption of its business. Id. ¶ 11; see generally [ECF No. 4-2] (the "Policy").²

The Policy broadly extends coverage to "direct physical loss or damage to Covered Property at the [insured] premises ... caused by or resulting from any Covered Cause of Loss," which is defined as "[d]irect physical loss." [ECF No. 4-2 at 18, 19] (Policy § I(A)(3)). Relevant here, the Policy extends additional coverage to "Business Income":

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 the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.

Id. at 24 (Policy § I(A)(5)(f)(1)(a)). Similarly, Defendant agreed to reimburse "necessary Extra Expense[s]" that would not have been incurred but for the "direct physical loss or damage to the property at the described premises" if the loss or damage is "caused by or result[s] from a Covered Cause of Loss." Id. at 25 (Policy § I(A)(5)(g)(1)).

In limited circumstances, the Policy also covers Business Income and Extra Expense resulting from the actions of government officials:

When a Covered Cause of Loss causes damage to property other than the 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 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; and

(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.

Id. at 26 (Policy § I(A)(5)(i)).

Excluded from the scope of the Policy, however, is "loss or damage caused directly or indirectly" by "[a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease." Id. at 34, 37 (Policy § I(B)(1)(j)(1)). The "Virus Exclusion," like all exclusions under the Policy, includes an anti-concurrent clause and applies to exclude coverage under its terms "regardless of any other cause or event that contributes concurrently or in any sequence to the loss." Id. at 34.

In December 2019, a novel coronavirus—now known as Covid-19—was discovered in Wuhan, China. Covid-19 is a highly contagious virus that is disseminated largely through airborne droplets absorbed through the respiratory system via person-to-person contact. See [ECF No. 1-1 ¶ 41]. It spread quickly. The first case in the United States was reported in January 2020. Id. ¶ 38. The World Health Organization proclaimed the outbreak a pandemic on March 11, 2020, and on March 13, 2020, the federal government declared a national emergency. Id. ¶ 47–48.

Iowa Governor Kim Reynolds issued a Proclamation and Order on March 17, 2020, temporarily closing all bars and restaurants for dine-in or in-person service. Id. ¶ 49; see also [ECF No. 4-3 at 2–3] (the "March 17 Proclamation"). However, the Proclamation allowed dining establishments to sell food and drink "on a carry-out or drive-through basis" or if delivered off-premises. [ECF No. 1-1 ¶ 49]. Even though the Governor's order allowed limited restaurant services to continue, Plaintiff completely suspended its operations because its business could not run in an economical fashion solely on a take-out or delivery basis. Id. ¶ 51. Plaintiff maintains it did not close its business or cease operations because of the novel coronavirus, but because of the Governor's Proclamation and Order. Id. ¶¶ 15, 17. And it expressly denies the virus was ever physically present on its property or the premises of its insured facility. See id. ¶ 34.

Defendant denied coverage in a letter dated August 18, 2020. Id. ¶¶ 21–22; see also [ECF No. 1-1 at 22–24]. Plaintiff sues for declaratory judgment that its losses are covered under the Policy and seeks to recover from Defendant for breach of contract and bad faith. Defendant moves to dismiss this case on its pleadings.

II. STANDARD OF REVIEW

The Federal Rules of Civil Procedure require a complaint to present "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Conversely, a complaint is subject to dismissal when it "fail[s] to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). To meet this standard, and thus survive a motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Braden v. Wal-Mart Stores, Inc. , 588 F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). All reasonable inferences must be drawn in the plaintiff's favor, Crooks v. Lynch , 557 F.3d 846, 848 (8th Cir. 2009), but "[t]he facts alleged in the complaint ‘must be enough to raise a right to relief above the speculative level,’ " Clemons v. Crawford , 585 F.3d 1119, 1124 (8th Cir. 2009) (quoting Drobnak v. Andersen Corp. , 561 F.3d 778, 783 (8th Cir. 2009) ).

III. ANALYSIS

A. Policy Coverage

The Court turns first to the scope of coverage under the Policy, which the parties agree is governed by Iowa law.³ Iowa recognizes insurance policies as contracts of adhesion and therefore construes their language in the light most favorable to the insured. T.H.E. Insurance Co. v. Estate of Booher , 944 N.W.2d 655, 662 (Iowa 2020). Exclusions are strictly construed against the insurer. Boelman v. Grinnell Mut. Reinsurance Co. , 826 N.W.2d 494, 502 (Iowa 2013) ; Bituminous Cas. Corp. v. Sand Livestock Sys., Inc. , 728 N.W.2d 216, 220 (Iowa 2007). Policy language is interpreted "from a reasonable rather than a hypertechnical viewpoint." Boelman , 826 N.W.2d at 502 (citing Steel Prods. Co. v. Millers Nat'l Ins. Co. , 209 N.W.2d 32, 36 (Iowa 1973) ).

"Generally speaking, the plain meaning of the insurance contract prevails." Booher , 944 N.W.2d at 662. "Ambiguity exists if, ‘after the application of pertinent rules of interpretation to the face of the instrument, a genuine uncertainty results as to which one of two or more meanings is the proper one.’ " Cairns v. Grinnell Mut. Reinsurance Co. , 398 N.W.2d 821, 824 (Iowa 1987) (citation omitted). But "[a]n insurance policy is not ambiguous ... just because the parties disagree as to the meaning of its terms," Boelman , 826 N.W.2d at 502. Courts are not to " ‘write a new contract of insurance between the parties’ when there is no ambiguity" and must "avoid straining the words and phrases of the policy ‘to impose liability that was not intended and was not purchased.’ " Cairns , 398 N.W.2d at 824 (citation omitted).

Under Iowa law, the party seeking coverage under an insurance policy has the burden of demonstrating that a claim falls within the policy's terms. Am. Guar. & Liab. Ins. Co. v. Chandler Mfg. Co., Inc. , 467 N.W.2d 226, 228 (Iowa 1991). The insurer bears the burden of demonstrating that a coverage exclusion applies. Postell v. Am. Family Mut. Ins. Co. , 823 N.W.2d 35, 41 (Iowa 2012).

1. Business Income Coverage

Looking first to the Business Income provision, Plaintiff alleges it suffered "direct physical loss of or damage to property" at its facility when the Governor prohibited restaurants and bars from operating in-person or dine-in services, causing it to suspend its operations and lose revenue compensable under the Policy. To fall within Business Income coverage, the suspension of Plaintiff's business "must be caused by direct physical loss of or damage to property" at its insured facility. But such physical loss or damage, itself, "must be caused by or result from a Covered Cause of Loss"—i.e., "direct physical loss." Plaintiff contends the Policy is ambiguous, emphasizing the disjunctive language providing coverage for "loss" or "damage." Because the language includes both terms, Plaintiff points out, they must mean different things. And because the Policy does not...