Q Clothier New Orleans, L.L.C. v. Twin City Fire Ins. Co.

• Decision Date: 22 March 2022
• Docket Number: No. 21-30278,21-30278
• Citation: 29 F.4th 252
• Parties: Q CLOTHIER NEW ORLEANS, L.L.C.; Q Shirtmakers West Village, L.L.C.; Q Custom Clothier Houston, L.L.C.; Q Custom Clothier OKC, L.L.C.; Q Custom Clothier ATL, L.L.C. ; Q Clothier Tulsa, L.L.C.; Q Clothier Fort Worth, L.L.C.; Q Fifty One Digital, L.L.C.; Q Fifty One, L.L.C., Plaintiffs—Appellants, v. TWIN CITY FIRE INSURANCE COMPANY, Defendant—Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

29 F.4th 252

Q CLOTHIER NEW ORLEANS, L.L.C.; Q Shirtmakers West Village, L.L.C.; Q Custom Clothier Houston, L.L.C.; Q Custom Clothier OKC, L.L.C.; Q Custom Clothier ATL, L.L.C. ; Q Clothier Tulsa, L.L.C.; Q Clothier Fort Worth, L.L.C.; Q Fifty One Digital, L.L.C.; Q Fifty One, L.L.C., Plaintiffs—Appellants,

v.TWIN CITY FIRE INSURANCE COMPANY, Defendant—Appellee.

No. 21-30278

United States Court of Appeals, Fifth Circuit.

FILED March 22, 2022

David Joseph Schexnaydre, Schexnaydre Law Firm, L.L.C., Mandeville, LA, for Plaintiffs—Appellants.

Jonathan Freiman, Esq., Wiggin & Dana, L.L.P., New Haven, CT, Seth Andrew Schmeeckle, Esq., Lugenbuhl, Wheaton, Peck, Rankin & Hubbard, New Orleans, LA, for Defendant—Appellee.

Shannon Marie O'Malley, Zelle, L.L.P., Dallas, TX, Laura A. Foggan, Esq., Crowell & Moring, L.L.P., Washington, DC, for Amicus Curiae American Property Casualty Insurance Association.

Before King, Graves, and Ho, Circuit Judges.

James E. Graves, Jr., Circuit Judge:

In response to the onset of the COVID-19 pandemic, state and local authorities across the country ordered nonessential businesses to close or suspend operations. Louisiana and the City of New Orleans did the same. Q Clothier complied with the orders and closed its men's clothing stores. After losing business income as a result, Q Clothier submitted claims to its insurer under two types of provisions: one covering "direct physical loss of or damage to property" and the other covering the loss of business income when access to the store is prohibited by a civil authority order "as a direct result of" a covered loss of property. The insurer denied the claims.

Q Clothier sued the insurer and sought coverage for its business income losses. The district court granted the insurer's motion for judgment on the pleadings after concluding the orders closing nonessential businesses did not qualify as a direct physical loss of or damage to property and no other coverage applied. We agree with these conclusions and AFFIRM.

I. BACKGROUND

Plaintiffs-Appellants Q Clothier own and operate nine high quality men's clothing stores in four states.¹ Q Clothier purchased an insurance policy from Defendant-Appellee Twin City Fire Insurance Company to cover each of the stores. The policy was in effect from June 19, 2019 through June 19, 2020.

The policy provides coverage for Q Clothier's business and business property caused by covered causes of loss. For coverage, the policy states Twin City "will pay for direct physical loss of or physical damage to Covered Property at the premises described in the Declarations ... caused by or resulting from a Covered Cause of Loss." "Covered Causes of Loss" are defined as "risks of direct physical loss" unless excluded or limited by the policy.

The policy has a couple of relevant coverage extensions. The Business Income Extension states Twin City

will pay for the actual loss of Business Income [Q Clothier] sustain[s] due to the necessary suspension of [Q Clothier's] ‘operations’ during the ‘period of restoration.’ The suspension must be caused by direct physical loss of or physical damage to property at the ‘scheduled premises,’ ... caused by or resulting from a Covered Cause of Loss.

The Civil Authority Extension covers "the actual loss of Business Income [Q Clothier] sustain[s] when access to [the] ‘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 [the] ‘scheduled premises.’ "

The policy also has a "Virus Exclusion." It states Twin City "will not pay for loss or damage caused directly or indirectly by" "[p]resence, growth, proliferation, spread or any activity of ‘fungi,’ wet rot, dry rot, bacteria or virus. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss."

The Virus Exclusion has one relevant exception which states the Exclusion does not apply when the "Additional Coverage – Limited Coverage for ‘Fungi,’ Wet Rot, Dry Rot, Bacteria and Virus" provides coverage. This "Limited Virus Coverage" "only applies when the ... 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." (emphasis added). The causes listed are (1) a "specified cause of loss" other than fire or lightning or (2) equipment breakdown or accident. A "specified cause of loss" is defined in the policy as "fire; lightning; explosion, windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow; ice or sleet; water damage." When Limited Virus Coverage applies, the policy states Twin City "will pay for loss or damage by ‘fungi,’ wet rot, dry rot, bacteria and virus." "[L]oss or damage means [d]irect physical loss or direct physical damage ...."

The Limited Virus Coverage concludes with subsection (B)(1)(f), which states:

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 rot, 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 rot, 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 other number of days is indicated in the Declarations ....

In March 2020, the COVID-19 pandemic caused state and local authorities to issue orders restricting personal and business activities to prevent the spread of the virus. In Louisiana, the Governor issued a series of proclamations directing certain nonessential businesses to close completely or reduce operations. The Mayor of New Orleans also directed certain businesses to cease operations. Q Clothier complied with these orders, closed its stores, and lost business income.²

Q Clothier then filed a claim with Twin City to recover its losses under the policy. Twin City denied coverage and stated "[e]ven if the virus did cause damage, it is excluded from the policy, and the limited coverage available for losses caused by virus does not apply to the facts of [Q Clothier's] loss." Twin City also denied coverage under the Civil Authority Extension because there was no indication that "a civil authority issued an order as a direct result of a covered cause of loss to property in the immediate area of [Q Clothier's] scheduled premises."

Q Clothier sued Twin City in federal court in the Eastern District of Louisiana seeking coverage for its losses under the policy. Twin City moved for judgment on the pleadings. The district court granted Twin City's motion. The district court applied Louisiana law and concluded (1) Q Clothier did not allege it was entitled to coverage because it failed to allege a direct physical loss of or damage to property, (2) the Virus Exclusion applied, (3) the Limited Virus Coverage did not apply, (4) the Civil Authority Extension did not apply, and (5) the "Time Element Coverage" in subsection (B)(1)(f) was not an independent basis of coverage. Q Clothier timely appeals.

II. APPLICABLE LAW

The court reviews de novo a district court's ruling on a Rule 12(c) motion for judgment on the pleadings. See In re Katrina Canal Breaches Litig. , 495 F.3d 191, 205 (5th Cir. 2007). The standard for deciding a Rule 12(c) motion is the same standard used for deciding motions to dismiss pursuant to Rule 12(b)(6). See id. The court must accept the well-pleaded facts as true and view them in the light most favorable to the plaintiff. See Guidry v. Am. Pub. Life Ins. Co. , 512 F.3d 177, 180 (5th Cir. 2007).

The parties do not dispute that Louisiana law governs the policy. "An insurance policy is a conventional obligation that constitutes the law between the insured and the insurer, and the agreement governs the nature of their relationship." Supreme Servs. & Spec. Co. v. Sonny Greer, Inc. , 958 So. 2d 634, 638 (La. 2007) (citing LA. CIV. CODE ANN. art. 1983 ). Insurance policies are therefore interpreted by the same principles as contract interpretation. See id. ; Sims v. Mulhearn Funeral Home, Inc. , 956 So. 2d 583, 588–89 (La. 2007).

Courts must first consider the parties' intent by examining the words of the policy. See Sims , 956 So. 2d at 589 ; LA. CIV. CODE ANN. art. 2045 – 46. In so doing, "words and phrases in an insurance policy are to be construed using their plain, ordinary and generally prevailing meaning, unless the words have acquired a technical meaning, in which case the words must be ascribed their technical meaning." Sims , 956 So. 2d at 589 (citing LA. CIV. CODE ANN. art. 2047). "When the words of an insurance contract are clear and unambiguous and lead to no absurd consequences, courts must enforce the contract as written and may make no further interpretation in search of the parties' intent." Gorman v. City of Opelousas , 148 So. 3d 888, 892 (La. 2014) (citation omitted); LA. CIV. CODE ANN. art. 2046.

An insurance policy must be construed as a whole and each provision must be interpreted to give meaning to each provision. See Peterson v. Schimek , 729 So. 2d 1024, 1029 (La. 1999). "One portion of the policy should not be construed separately at the expense of disregarding other provisions." Id. (citing LA. CIV. CODE ANN. art. 2050 ).

After applying these general rules of interpretation, if a true ambiguity exists in the policy language, the court must construe the policy in favor of the insured. See Bonin v. Westport Ins. Corp. , 930 So. 2d 906, 911 (La. 2006). A policy...