Procaccianti Cos. v. Zurich Am. Ins. Co.

• Decision Date: 18 May 2023
• Docket Number: C. A. 20-512 WES
• Parties: PROCACCIANTI COMPANIES, INC., and TPG HOTELS & RESORTS, INC., Plaintiffs, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Rhode Island

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PROCACCIANTI COMPANIES, INC., and TPG HOTELS & RESORTS, INC., Plaintiffs, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant.

C. A. No. 20-512 WES

United States District Court, D. Rhode Island

May 18, 2023

MEMORANDUM AND ORDER

WILLIAM E. SMITH, DISTRICT JUDGE

Before the Court is Defendant Zurich American Insurance Company's Motion for Summary Judgment, ECF No. 62. This case is one of thousands nationwide seeking to recover under a commercial property insurance policy for business income losses arising from the COVID-19 pandemic. Joining the overwhelming majority of courts that have decided those cases, the Court concludes that Plaintiffs Procaccianti Companies, Inc., and TPG Hotels and Resorts, Inc., cannot sustain a claim for coverage. Accordingly, Defendant's Motion for Summary Judgment is GRANTED.

I. Background

Plaintiff Procaccianti Companies, Inc., is a real estate transaction holding company that owns and operates hotels, and Plaintiff TPG Hotels & Resorts, Inc., is a wholly owned subsidiary of Procaccianti and operates several hospitality brands. Pls.' Statement Disp. Facts (“SDF”) ¶¶ 1-2, ECF No. 64. In 2020, upon the start of the COVID-19 pandemic in the United States, Plaintiffs were required by government order to limit or cease operations across all locations. Id. ¶¶ 5, 8. People infected with COVID-19 were present at Plaintiffs' locations in February 2020 prior to the closures. Id. ¶ 7. Plaintiffs allege $100 million in losses from the virus. Pls.' Mem. Opp. Mot. Summ. J. (“Pls.' Mem.”) 11, ECF No. 63-1.

Defendant issued an insurance policy to Plaintiff with an effective date of April 1, 2019. SDF ¶ 10. Plaintiff seeks coverage for COVID-related losses under six provisions of the policy, each of which requires some variant of “direct physical loss of or damage to” the property to trigger coverage.^[1] Compl. ¶¶ 94-106, ECF No. 1. The policy also contains exclusions that bar coverage in certain circumstances. One such exclusion, relevant to the present motion, is the contamination exclusion, which excludes “Contamination, and any cost due to Contamination including the ability to use or occupy property or any cost of making property safe or suitable for use or occupancy.” PXA 25, ECF No. 1-1. The policy defines “contamination” as “[a]ny condition of property due to the actual presence of any . . . virus [or] disease causing or illness causing agent.” Id. at 62. Finally, the policy contains various amendatory endorsements that modify certain policy provisions, among which is the Louisiana Endorsement. The Louisiana Endorsement amends the contamination exclusion by deleting various terms, including “virus,” from the definition of “contamination.” Id. at 102.

II. Legal Standard

Summary judgment may be granted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56; see IDC Props., Inc. v. Chicago Title Ins. Co., 42 F.4th 1, 7 (1st Cir. 2022). The movant bears the initial burden of establishing that there is no genuine issue of material fact, and, if that burden is met, the burden shifts to the non-movant who avoids summary judgment only by providing properly supported evidence of disputed material facts that require a trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986); Fed. Ins. Co. v. Russell L. Sisson & Sons, C. A. No. 18-441-WES, 2021 WL 4263624, at *1 (D.R.I. Sept. 20, 2021).

“[M]ere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby Inc., 477 U.S. 242, 247-48 (1986). “A dispute is ‘genuine' if ‘the evidence about the fact is such that a reasonable jury could resolve the point in the favor of the non-moving party.'” Cherkaoui v. City of Quincy, 877 F.3d 14, 23-24 (1st Cir. 2017) (quoting Sanchez v. Alvarado, 101 F.3d 223, 227 (1st Cir. 1996)). A material fact is one which has the “potential to affect the outcome of the suit under the applicable law.” Id. at 23 (citation omitted). “A court will disregard conclusory allegations, improbable inferences, and unsupported speculation in determining whether a genuine factual dispute exists.” Id. at 24 (citation omitted). The Rule plainly allows for the entry of summary judgment “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322.

A federal court sitting in diversity is constrained to apply state substantive law. Shay v. Walters, 702 F.3d 76, 79 (1st Cir. 2012) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). The parties do not dispute that Rhode Island law applies. When the Rhode Island Supreme Court has not ruled on an issue, the federal courts are to make an Erie guess that takes into account the precedents of other jurisdictions in predicting what path the state court would most likely travel. Mu v. Omni Hotels Mgmt. Corp., 882 F.3d 1, 9 (1st Cir. 2018); Liberty Mut. Ins. Co. v. Met. Life Ins. Co., 260 F.3d 54, 65 (1st Cir. 2001). III. Discussion

Defendant contends that it is entitled to summary judgment because (1) the presence of the COVID-19 virus on property covered by the insurance policy is not, as a matter of law, “direct physical loss of or damage” to the property and (2) even if the first argument fails, the policy's contamination exclusion applies to bar coverage. Def.'s Mem. L. Supp. Mot. Summ. J. (“Def.'s Mem.”) 6, ECF No. 62-1. The Court agrees with Defendant on both arguments.

a. Direct Physical Loss or Damage

To obtain coverage under the policy, Plaintiffs must demonstrate that they suffered “direct physical loss of or damage to Property . . . caused by a Covered Cause of Loss” at an insured location and that any claimed suspension of business activities was due to that direct physical loss or damage. PXA 28. Plaintiffs contend that the COVID-19 virus caused physical damage to their insured properties.

Relying on a case from the Massachusetts Supreme Judicial Court (“SJC”), the First Circuit adopted the definition of “direct physical loss or damage” that is applicable here, concluding that “‘direct physical loss or damage to' property requires some ‘distinct, demonstrable, physical alteration of the property.'” Legal Sea Foods, LLC v. Strathmore Ins. Co., 36 F.4th 29, 34 (1st Cir. 2022) (quoting Verveine Corp. v. Strathmore Ins. Co., 184 N.E.3d 1266, 1275 (Mass. 2022)). Further, “property has not experienced physical loss or damage in the first place unless there needs to be an active repair or remediation measures to correct the claimed damage or the business must be moved to a new location.” Id. (quoting Verveine Corp., 184 N.E.3d at 1275) . Applying this definition, both the First Circuit and the SJC concluded that the COVID-19 virus does not cause “direct physical loss of or damage to” property as a matter of law. Id. at 34; Verveine Corp., 184 N.E.3d at 1269-70. Rather, COVID-19 causes the “[e]vanescent presence of a harmful airborne substance that will quickly dissipate on its own, or surface-level contamination that can be removed by simple cleaning, [and] does not physically alter or affect property.” Legal Sea Foods, LLC, 36 F.4th at 3435 (quoting Verveine Corp., 184 N.E.3d at 1276).^[2] Courts in this jurisdiction have concluded the same, including Judge Stern of the Rhode Island Superior Court, who considered the question as a matter of first impression under Rhode Island law. In Josephson, LLC v. Affiliated FM Insurance Company, the policy at issue “insure[d] against costs incurred by the policyholder as a result of ‘physical loss or damage' to insured property” and “financial business interruption losses ‘as a direct result of physical loss or damage of the type insured.'” No. PC-2021-03708, 2022 WL 999134, at *1 (R.I. Super. Ct. Mar. 29, 2022). Judge Stern concluded that “COVID-19 is not capable of causing ‘physical loss or damage' to property, full stop,” reasoning that the virus cannot cause physical loss or damage to property “where no physical alteration or damage has occurred to the property.” Id. at *12-*13. “Whether a doorknob, for example, poses a risk to human health is absolutely irrelevant to whether that doorknob is physically lost or damaged for purposes of insurance coverage.” Id. at *13. Judge McConnell also reached this conclusion in an April 2022 decision denying a motion to dismiss. See M&N Food Serv. LLC v. Twin City Fire Ins. Co., No. 21-cv-206-JJM-LDA, 2022 WL 1137311, at *2 n.2 (D.R.I. Apr. 18, 2022) (“COVID-19 does not cause damage to property: it operates in the respiratory system of a human host.”).

Further numerous courts across the country have independently reached the same conclusion. See, e.g., Consol. Rest. Ops., Inc. v. Westport Ins. Corp., 205 A.D.3d 76 (N.Y.App.Div. 2022) (no coverage as a matter of law where the virus was present on surfaces and in the air and alleged condition of property was dangerous for people); Gavrilides Mgmt. Co., LLC v. Michigan Ins. Co., 985 N.W.2d 919, 925 (Mich. Ct. App. Feb. 1, 2022) (“contamination to the environment within a building, such as the air,” does not constitute physical loss of or damage to property); Sweet Berry Cafe, Inc. v. Soc'y Ins., Inc., 193 N.E.3d 962, 966 (Ill.App.Ct. 2022) (no damage to or loss of property where virus “rendered items of physical property unsafe and impaired its value and function and physically altered the air”), appeal denied, 197 N.E.3d 1126 (Table) (Ill. Sept. 28, 2022); Bridal Expressions LLC v. Owners Ins. Co., Case No. 21-3381, 2021 WL...