Rencana LLC v. Sentinel Ins. Co.

• Citation: 604 F.Supp.3d 34
• Decision Date: 27 May 2022
• Docket Number: 3:20-CV-00611 (SVN)
• Parties: RENCANA LLC d/b/a Core Reform Pilates, Plaintiff, v. SENTINEL INSURANCE COMPANY, LTD., Defendant.
• Court: U.S. District Court — District of Connecticut

604 F.Supp.3d 34

RENCANA LLC d/b/a Core Reform Pilates, Plaintiff,

v.SENTINEL INSURANCE COMPANY, LTD., Defendant.

3:20-CV-00611 (SVN)

United States District Court, D. Connecticut.

Signed May 27, 2022

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 AND ORDER ON DEFENDANT'S MOTION TO DISMISS

Sarala V. Nagala, United States District Judge.

Plaintiff Rencana LLC d/b/a Core Reform Pilates has brought this action against Defendant Sentinel Insurance Company, Ltd. seeking a declaratory judgment that Plaintiff is entitled to coverage under an insurance policy (the "Policy") underwritten by Defendant for business interruption losses related to the COVID-19 pandemic. The Second Amended Complaint ("SAC") consists of one count for declaratory relief pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201.

Defendant has moved to dismiss Plaintiff's action pursuant to Federal Rule of Civil Procedure 12(b)(6), contending that the Policy does not cover the losses Plaintiff claims, in large part due to a "Virus Exclusion" in the Policy. Plaintiff argues that its claimed losses are covered by the Policy, and that the Virus Exclusion is inapplicable. For the reasons described below, the Court agrees with Defendant that Plaintiff has failed to state a claim upon which relief can be granted because the Virus Exclusion unambiguously excludes the losses Plaintiff claims. Defendant's motion to dismiss the SAC is therefore GRANTED.

I. FACTUAL BACKGROUND

On May 4, 2020, Plaintiff, along with former plaintiff Irvine Company LLC, initiated this action by filing their original complaint against Defendant and former defendant Hartford Financial Services Group, Inc.¹ ECF N. 1. Following the filing of an amended complaint and an answer by Defendant, Plaintiff filed the SAC on May 17, 2021. ECF No. 41.

The SAC alleges the following facts, which the Court accepts as true for purposes of Defendant's motion to dismiss. Plaintiff, a California limited liability company, owns and operates two Pilates schools in California. SAC, ECF No. 41, ¶ 8. In or around April of 2019, Defendant underwrote an insurance policy issued to Plaintiff, which included "coverage for business interruption losses incurred by Plaintiff from June 18, 2019 through June 18, 2020." Id. ¶¶ 9–10; see ECF No. 41-1 at 11. The Policy also included "additional coverages in the event of business interruption or closures by order of Civil Authority and for business loss for property damage." SAC ¶ 13. The following provisions of the Policy, which Plaintiff attaches to the SAC, see ECF No. 41-1, are relevant to Defendant's motion.

• Covered Causes of Loss: The Policy includes coverage "for direct physical loss of or physical damage to Covered Property ... caused by or resulting from a Covered Cause of Loss." Id. at 32. "Covered Causes of Loss" are defined as "RISKS OF DIRECT PHYSICAL LOSS" unless the loss is otherwise excluded or limited by the Policy. Id. at 33.

• Business Income Coverage: The Policy provides "Business Income" coverage under a provision stating, in part, that Defendant "will pay for the actual loss of Business Income [Plaintiff] sustain[s] due to the necessary suspension of [Plaintiff's] ‘operations’ during the ‘period of restoration[.]’ " Id. at 41. This provision further provides that "[t]he 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." Id.

• Extra Expense Coverage: The Policy provides "Extra Expense" coverage under a provision stating, in part, that Defendant "will pay reasonable and necessary Extra Expense [Plaintiff] incur[s] during the ‘period of restoration’ that [Plaintiff] would not have incurred if there had been no direct physical loss or physical damage to property at the ‘scheduled premises’ ... caused by or resulting from a Covered Cause of Loss." Id.

• Civil Authority Coverage: The Policy provides "Civil Authority" coverage under a provision stating, in part: "This insurance is extended to apply to the actual loss of Business Income [Plaintiff] sustain[s] when access to [its] ‘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 [Plaintiff's] ‘scheduled premises[.]’ " Id. at 42.

• Virus Exclusion: The Policy contains an endorsement titled "LIMITED FUNGI, BACTERIA OR VIRUS COVERAGE." Id. at 122. Within this endorsement is a section titled " ‘Fungi’, Wet Rot, Dry Rot, Bacteria And Virus." Id. This section provides, in part: "[Defendant] 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." Id. This section further provides that "[t]his exclusion applies whether or not the loss event results in widespread damage or affects a substantial area." Id.

According to the SAC, Plaintiff's "schools and accompanying retail stores have suffered business loss" due to the COVID-19 pandemic and the resulting "state and local government orders (‘Civil Authority Orders’) mandating that all non-essential in-store businesses must shut down on March 16, 2020." SAC ¶ 2. Plaintiff alleges that it has suffered "direct physical loss of or damage" to its property due to the COVID-19 pandemic because COVID-19: made its schools and stores "unusable," intruded upon its property, damaged its property, prevented physical access to and use of the property, and caused a suspension of business operations at the property. Id. ¶ 105. Plaintiff further alleges that "the coronavirus and COVID-19,² and the measures required to prevent their spread from surfaces and materials used by the Plaintiff, cause physical loss or damage to property" because the virus can persist on objects even after cleaning and because Plaintiff "was required to physically alter" its businesses and "drastically reduce operations, and even to close entirely, to comply with the Civil Authority Orders and ensure the safety of employees and customers." Id. ¶¶ 74, 76, 107. Plaintiff further alleges that access to its business was "prohibited" by civil authority orders and that there was "physical impact" not only in Plaintiff's premises, but also in the surrounding area, "in light of COVID-19 presence not being detectable other than through microscopic means, and occurrence of illness." Id. ¶¶ 101, 103.

The SAC further alleges that, although the Policy includes a "virus or bacteria exclusion," the exclusion "was never intended by ... Defendant to pertain to a pandemic like the present global COVID-19 Pandemic because ... Defendant define[s] ‘virus’ and ‘pandemic’ as used in [its] policies differently than how those terms might be normally used." Id. ¶ 28. Plaintiff also claims that the Virus Exclusion "does not apply to the closure of Plaintiff's businesses as a result of an order issued by a Civil Authority due to the COVID-19 pandemic." Id. ¶ 20.

Plaintiff asserts that it submitted a claim to Defendant "for losses incurred while the Policy was in effect." Id. ¶ 12. In response, Defendant "rejected Plaintiff's business loss and business interruption claims and other claims, contending, inter alia , that Plaintiff did not suffer physical damage to its property directly and stating other reasons why Plaintiff is not purportedly entitled to coverage for the losses and damages claimed." Id. Accordingly, Plaintiff seeks "declaratory relief that its business is covered for all business losses that have been incurred." Id. ¶ 4. Additional allegations from the SAC are discussed where relevant throughout the remainder of this ruling.

II. LEGAL STANDARD

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for "failure to state a claim upon which relief can be granted." When determining whether a complaint states a claim upon which relief can be granted, highly detailed allegations are not required, but the complaint must "contain sufficient factual matter, accepted as true, to ‘state a claim that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). For purposes of this examination, "the complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." Chambers v. Time Warner, Inc. , 282 F.3d 147, 152 (2d Cir. 2002). Accordingly, courts in this Circuit routinely consider insurance policies attached to, or referenced in, complaints. See, e.g. , Great Meadow Cafe v. Cincinnati Ins. Co. , No. 3:21-CV-00661 (KAD), 2022 WL 813796, at *1 (D. Conn. Mar. 17, 2022) ("When deciding a motion to dismiss, a district court may consider documents attached to the complaint or incorporated by reference into the complaint[,] including an insurance policy referenced in the complaint." (alteration in original)).

"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." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. This plausibility standard is not a "probability requirement," but imposes a standard higher than "a sheer possibility that a defendant has acted unlawfully." Id. In undertaking this analysis, the Court must "draw all reasonable inferences in [the plaintiff's] favor, assume all well-pleaded...