Promotional Headwear Int'l v. Cincinnati Ins. Co.

• Decision Date: 03 December 2020
• Docket Number: Case No. 20-cv-2211-JAR-GEB
• Citation: 504 F.Supp.3d 1191
• Parties: PROMOTIONAL HEADWEAR INTERNATIONAL, individually and on behalf of all others similarly situated, Plaintiff, v. The CINCINNATI INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Kansas

504 F.Supp.3d 1191

PROMOTIONAL HEADWEAR INTERNATIONAL, individually and on behalf of all others similarly situated, Plaintiff,

v.The CINCINNATI INSURANCE COMPANY, Defendant.

Case No. 20-cv-2211-JAR-GEB

United States District Court, D. Kansas.

Signed December 3, 2020

Abby McClellan, Bradley Wilders, Christopher Curtis Shank, Patrick J. Stueve, Stueve Siegel Hanson, LLP, Dawn Marie Parsons, Michael Barzee, Rachael D. Longhofer, Richard F. Lombardo, Shaffer Lombardo Shurin, PC, John J. Schirger, Joseph M. Feierabend, Matthew W. Lytle, Miller Schirger, LLC, Patricia Lynn Campbell, Langdon & Emison, Kansas City, MO, Brett A. Emison, J. Kent Emison, Langdon & Emison, Lexington, MO, for Plaintiff.

Daniel G. Litchfield, Pro Hac Vice, Litchfield Cavo, Chicago, IL, Ericka C. Hammett, Pro Hac Vice, Litchfield Cavo LLP, Milwaukee, WI, Kelvin J. Fisher, Michael L. Brown, Wallace Saunders Austin Brown & Enochs Chartered, Overland Park, KS, for Defendant.

MEMORANDUM AND ORDER

JULIE A. ROBINSON, CHIEF UNITED STATES DISTRICT JUDGE

Plaintiff Promotional Headwear International brings this putative class action against its property insurer, The Cincinnati Insurance Company, for declaratory judgment and breach of contract arising out of Defendant's denial of Plaintiff's insurance claim for property losses sustained due to COVID-19. Before the Court is Defendant's Motion to Dismiss (Doc. 7). The motion is fully briefed and the Court has considered the parties’ many notices of supplemental authority. For the reasons explained more fully below, the Court grants Defendant's motion to dismiss.

I. Factual Allegations

The following material facts are either alleged in the Complaint or taken from the insurance policy attached thereto. The well-pled facts alleged in the Complaint are assumed to be true for purposes of deciding this motion.

As of April 24, 2020, when Plaintiff filed its Complaint, more than 46,000 Americans had died of COVID-19, and the Department of Health for Johnson County, Kansas had reported 403 confirmed cases. The virus can spread by respiratory droplets when an infected person coughs

, sneezes, or talks. Studies demonstrate that COVID-19 spreads through the air by aerosols, where they can remain for hours or more. A person can also potentially become infected by touching a surface or object that has the virus on it and then by touching the mouth, nose, or eyes. According to studies, the virus can live on surfaces for several days if not longer.

In response to COVID-19's rapid, deadly spread across the United States, state and local governments imposed directives in February and March 2020, often called "Stay at Home Orders," requiring residents to stay in their homes except to perform certain "essential" activities. The Stay at Home Orders generally required non-essential businesses to close. At one point, 95% of the United States population was under one or more Stay at Home Orders. The State of Kansas and Johnson County, Kansas issued Stay at Home Orders in March 2020 that were still in effect at the time the Complaint was filed. The March 24, 2020 Johnson County Order recognized that the virus "endanger[s] health, safety and welfare of persons and property within the border of Johnson County, Kansas," and that it "remains a public disaster affecting life, health, property and the public peace."¹ The Johnson County Order was issued to mitigate and slow the spread of COVID-19 in the community. The March 28, 2020 State of Kansas Order directed all Kansans to stay in their homes to slow the spread of COVID-19 with several exceptions. Like the Johnson County Order, the purpose of the State Order was to "mitigate the spread of COVID-19 throughout Kansas."² On April 16, 2020, the State Order was extended to May 3, 2020.

Plaintiff is a wholesale distributor of headwear, bags, aprons, towels, and other products, including custom promotional caps sold to businesses across the globe for marketing purposes. Plaintiff's facility is located in Johnson County, Kansas. Plaintiff projected it would exceed $100 million in sales for 2020, but due to the Stay at Home Orders and the risk of transmitting of COVID-19, several of Plaintiff's employees could not show up to work and risk infection, preventing Plaintiff from meeting sales targets. COVID-19 and the Stay at Home Orders prevented Plaintiff from using its premises for its intended purpose. Plaintiff suspended its operations in order to mitigate further losses when government officials "announced that COVID-19 posed a risk of causing further physical damage and loss."³ As a result, Plaintiff lost nearly 95% of its sales.

Plaintiff purchased property insurance from Defendant, bearing Policy No. 05ECP0562300 (the "Policy"), that did not contain an exclusion for pandemic coverage. The all-risk Policy is comprised of a number of forms and endorsements that define the scope of coverage. It covers "direct ‘loss’ to Covered Property at the ‘premises’ caused by or resulting from any Covered Cause of Loss."⁴ "Covered Cause of Loss" is defined under the Policy as "direct ‘loss’ unless the ‘loss’ is excluded or limited in this Coverage Part."⁵ "Loss" is defined as "accidental physical loss or accidental physical damage."⁶

The Policy includes coverage for business income losses, losses due to certain civil authority orders, and loss of ingress/egress. The Policy covers "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 ‘loss’ to property at a ‘premises’ caused by or resulting from any Covered Cause of Loss."⁷ The civil authority coverage provision states:

When a Covered Cause of Loss causes damage to property other than Covered Property at a "premises", we will pay for the actual loss of "Business Income" and necessary Extra Expense you sustain caused by action of civil authority that prohibits access to the "premises", provided that both of the following apply:

(a) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage; and

(b) 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.⁸

The ingress/egress form provides coverage for

actual loss of "Business Income" you sustain and necessary Extra Expense you sustain caused by the prevention of existing ingress or egress at a "premises" shown in the Declarations due to direct "loss" by a Covered Cause of Loss at a location contiguous to such "premises". However, coverage does not apply if ingress or egress from the "premises" is prohibited by civil authority.⁹

The Policy imposes certain duties on the insured in the event of loss or damage, including to protect the covered property from further damage, and "[k]eep a record of ... expenses necessary to protect the Covered Property for consideration in the settlement of the claim."¹⁰

In March 2020, Plaintiff notified Defendant of a loss under the Policy sustained from COVID-19 and the Stay at Home Orders. Specifically, Plaintiff maintains it lost revenue and business opportunities due to the suspension of its operations, rendering it unable to fulfill or accept apparel orders. Defendant requested additional information and refused coverage under the Policy. In this action, Plaintiff seeks a declaration of the parties’ respective rights and duties under the Policy and requests the Court deem Defendant's conduct unlawful and in material breach of the Policy. Plaintiff also asserts breach of contract claims under Kansas law based on the business income, civil authority, ingress/egress, and Sue and Labor provisions in the Policy.

II. Standard

To survive a motion to dismiss brought under Fed. R. Civ. P. 12(b)(6), a complaint must contain factual allegations that, assumed to be true, "raise a right to relief above the speculative level" and must include "enough facts to state a claim for relief that is plausible on its face."¹¹ In order to pass muster under Rule 12(b)(6), "the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims."¹² The plausibility standard does not require a showing of probability that a defendant has acted unlawfully, but requires more than "a sheer possibility."¹³ "[M]ere ‘labels and conclusions,’ and ‘a formulaic recitation of the elements of a cause of action’ will not suffice; a plaintiff must offer specific factual allegations to support each claim."¹⁴ Finally, the Court must accept the nonmoving party's factual allegations as true and may not dismiss on the ground that it appears unlikely the allegations can be proven.¹⁵

The Supreme Court has explained the analysis as a two-step process. For the purposes of a motion to dismiss, the court "must take all the factual allegations in the complaint as true, [but] we ‘are not bound to accept as true a legal conclusion couched as a factual allegation.’ "¹⁶ Thus, the court must first determine if the allegations are factual and entitled to an assumption of truth, or merely legal conclusions that are not entitled to an assumption of truth.¹⁷ Second, the court must determine whether the factual allegations, when assumed true, "plausibly give rise to an entitlement to relief."¹⁸ "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."¹⁹

Finally, if the Court on a Rule 12(b)(6) motion looks to matters outside the pleadings, it generally must convert the motion to a Rule 56 motion for summary judgment.²⁰ However, the Court may consider documents that are referred to in the complaint if they are central to the...