Little Stars, LLC v. Sentinel Ins. Co.

• Decision Date: 12 August 2021
• Docket Number: Civil No. 3:20-CV-00609 (AVC)
• Citation: 554 F.Supp.3d 378
• Parties: LITTLE STARS, LLC d/b/a The Little Gym of Gilbert, plaintiff, v. SENTINEL INSURANCE COMPANY, LTD., defendant.
• Court: U.S. District Court — District of Connecticut

554 F.Supp.3d 378

LITTLE STARS, LLC d/b/a The Little Gym of Gilbert, plaintiff,

v.SENTINEL INSURANCE COMPANY, LTD., defendant.

Civil No. 3:20-CV-00609 (AVC)

United States District Court, D. Connecticut.

Signed August 12, 2021

Daniel C. Levin, Pro Hac Vice, Levin Sedran & Berman, Philadelphia, PA, Neal Lewis Moskow, Ury & Moskow, Fairfield, CT, for Plaintiff.

Gerald P. Dwyer, Jr., Peter Meggers, Stephani Roman, Robinson & Cole LLP, Hartford, CT, John J. Kavanagh, Sarah Gordon, Pro Hac Vice, 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, Little Stars, LLC d/b/a The Little Gym of Gilbert (hereinafter "Little Stars"), alleges that the defendant, Sentinel Insurance Company, Ltd. (hereinafter "Sentinel"), 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 28 U.S.C. § 1332.

Sentinel has moved for an order rendering judgment on the pleadings, pursuant to Federal Rule of Civil Procedure 12(c).

The issue presented is whether Little Stars has alleged sufficient facts to support its claim for coverage under its insurance contract.

FACTS

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

The plaintiff, Little Stars, is an Arizona limited liability company that owns and operates a gym in Gilbert, Arizona.

The defendant, Sentinel, is an insurance company that provided Little Stars an insurance policy. Sentinel is headquartered in Connecticut.

Little Stars contracted for a Business Owner's Policy (hereinafter "the policy") from Sentinel. The policy covered the period from January 30, 2020, through January 30, 2021. Little Stars paid its policy premiums.

The policy provided that Sentinel would "pay for direct physical loss of or physical damage to Covered Property at the premises described in the Declarations (also called ‘scheduled premises’ in this policy) 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 " ‘Fungi,’ Wet Rot, Dry Rot, Bacteria And Virus" exclusion (hereinafter "the virus exclusion" or "the exclusion") provided 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."

The exclusion further stated that "[t]his exclusion applies whether or not the loss event results in widespread damage or affects a substantial area." The two exceptions to the exclusion were:

"(1) When ‘fungi,’ wet or dry rot, bacteria or virus results from fire or lightning; or (2) To the extent that coverage is provided in the Additional Coverage – Limited Coverage for ‘Fungi,’ Wet Rot, Dry Rot, Bacteria and Virus with respect to loss or damage by a cause of loss other than fire or lightning."

On March 11, 2020, the governor of Arizona declared a public health emergency in response to the COVID-19 pandemic. On March 15, 2020, the governor ordered all public schools closed. On March 17, 2020, the governor issued a declaration discouraging all gatherings of more than ten people.

On April 1, 2020, the governor ordered the closure of non-essential businesses, including the gym operated by Little Stars, until at least April 30, 2020. On April 29, 2020, the governor extended the closure until at least May 15, 2020.

Prior to the orders, Little Stars operated at full capacity. On March 17, 2020, Little Stars closed to customers. After the closure orders were modified, Little Stars operated at limited capacity.

Little Stars sought insurance coverage for its business losses under its policy with Sentinel, with a date of loss of March 16, 2020. Sentinel denied coverage.

On May 4, 2020, Little Stars filed a complaint seeking declaratory relief against the defendants, Hartford Underwriters Insurance Company, The Hartford Financial Services Group, Inc. d/b/a The Hartford (hereinafter collectively "the Hartford defendants"), and Sentinel. On May 26, 2020, Little Stars filed an amended complaint. On June 22, 2020, Little Stars filed a notice of voluntary dismissal of its claims against the Hartford defendants, leaving Sentinel as the only defendant. On March 10, 2021, Sentinel filed a motion for judgment on the pleadings.

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) ). "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." L-7 Designs Inc., 647 F.3d at 422 (citations omitted).

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 choice of law analysis, and the law common to the jurisdictions should be applied." Lumbermens Mut. Cas. Co. v. Dillon Co., 9 F. App'x 81, 83 (2d Cir. 2001) ; see also NovaFund Advisors, LLC v. Capitala Grp., LLC, 2021 WL 2109112 (D. Conn. May 25, 2021).² In this case, there is no conflict between the laws of the states of Arizona and Connecticut on the relevant issues and, therefore, the court need not conduct a choice of law analysis and applies the law common to both states.

In Arizona, "[a]n insurance policy is a contract, and in an action based thereon the terms of the policy must govern." Apollo Educ. Grp., Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 250 Ariz. 408, 480 P.3d 1225 (2021) (citations omitted). "Absent a specific definition, terms in an insurance policy are construed ‘according to their plain and ordinary meaning,’ and the policy's ‘language should be examined from the viewpoint of one not trained in the law or in the insurance business.’ " Equity Income Partners, LP v. Chicago Title Ins. Co., 241 Ariz. 334, 338, 387 P.3d 1263 (2017) (quoting Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 534, 647 P.2d 1127 (1982) ). A term is ambiguous if it is subject to "conflicting reasonable interpretations." State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 782 P.2d 727 (1989). "If an ambiguity remains, we construe it against the insurer ... particularly when the ambiguity involves an exclusionary clause." Teufel v. Am. Fam. Mut. Ins. Co., 244 Ariz. 383, 385, 419 P.3d 546 (2018).

In Connecticut, "[a]n insurance policy is to be interpreted by the same general rules that govern the construction of any written contract." Connecticut Med. Ins. Co. v. Kulikowski, 286 Conn. 1, 5, 942 A.2d 334 (2008) (citations omitted). " ‘If the terms of the policy are clear and unambiguous, then the language ... must be accorded its natural and ordinary meaning.’ " Id. (quoting Schilberg Integrated Metals Corp. v. Cont'l Cas. Co., 263 Conn. 245, 267, 819 A.2d 773 (2003) ). "[A] provision in an insurance policy is ambiguous when it is reasonably susceptible to more than one reading." Metro. Life Ins. Co. v. Aetna Cas. & Sur. Co., 255 Conn. 295, 305, 765 A.2d 891 (2001). Similar to Arizona contracts of insurance, "any ambiguity in the terms of an insurance policy must be construed in favor of the insured ...." Connecticut Med. Ins. Co., 286 Conn. at 6, 942 A.2d 334 (citations omitted).

II. Virus Exclusion

(a) Ambiguity

Sentinel argues that Little Stars’ claims should be dismissed because the plain language of the policy shows there is no coverage in this case. Specifically, Sentinel argues that there is no coverage because of the virus exclusion. It contends that the exclusion applies because COVID-19 caused Little Stars’ losses and COVI...