SA Palm Beach, LLC v. Certain Underwriters at Lloyd's London

• Decision Date: 05 May 2022
• Docket Number: 20-14812, No. 21-10190, No. 21-10490, No. 21-10672
• Citation: 32 F.4th 1347
• Parties: SA PALM BEACH, LLC, on behalf of itself and all others similarly situated, Plaintiff-Appellant, v. CERTAIN UNDERWRITERS AT LLOYD'S LONDON, Underwriters at Lloydslondon known as Syndicates CNP 4444, AFB 2623, AFB 623, BRT, 2987, BRT 2988, NEO 2468, SAM 727, AXS1686, XIS H4202, QBE 1886, DUW 1729, WBC 5886, CHN 2015, HDU 382, MSP 318, AGR, Defendants-Appellees. Emerald Coast Restaurants, Inc., Plaintiff-Appellant, v. Aspen Specialty Insurance Company, Defendant-Appellee. R.T.G. Furniture Corp., Plaintiff-Appellant, v. Aspen Specialty Insurance Company, Crum & Forster Specialty Insurance Company, Evanston Insurance Company, Everest Indemnity Insurance Company, Hallmark Specialty Insurance Company, et al., Defendants-Appellees. Rococo Steak, LLC, d.b.a. Rococo Steak, Plaintiff-Appellant, v. Aspen Specialty Insurance Company, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

32 F.4th 1347

SA PALM BEACH, LLC, on behalf of itself and all others similarly situated, Plaintiff-Appellant,

v.CERTAIN UNDERWRITERS AT LLOYD'S LONDON, Underwriters at Lloydslondon known as Syndicates CNP 4444, AFB 2623, AFB 623, BRT, 2987, BRT 2988, NEO 2468, SAM 727, AXS1686, XIS H4202, QBE 1886, DUW 1729, WBC 5886, CHN 2015, HDU 382, MSP 318, AGR, Defendants-Appellees.

Emerald Coast Restaurants, Inc., Plaintiff-Appellant,

v.Aspen Specialty Insurance Company, Defendant-Appellee.

R.T.G. Furniture Corp., Plaintiff-Appellant,

v.Aspen Specialty Insurance Company, Crum & Forster Specialty Insurance Company, Evanston Insurance Company, Everest Indemnity Insurance Company, Hallmark Specialty Insurance Company, et al., Defendants-Appellees.

Rococo Steak, LLC, d.b.a. Rococo Steak, Plaintiff-Appellant,

v.Aspen Specialty Insurance Company, Defendant-Appellee.

No. 20-14812

No. 21-10190

No. 21-10490

No. 21-10672

United States Court of Appeals, Eleventh Circuit.

Filed: May 5, 2022

Stuart Andrew Davidson, Paul J. Geller, Robbins Geller Rudman & Dowd, LLP, Boca Raton, FL, James E. Cecchi, Carella Byrne Cecchi Olstein Brody & Agnello, PC, Roseland, NJ, James E. Cecchi, Lindsey H. Taylor, Carella Byrne Bain Gilfillan Cecchi Stewart & Olstein, Roseland, NJ, Samuel H. Rudman, Robbins Geller Rudman & Dowd, LLP, Melville, NY, Michael Joseph Sacks, Law Office of Michael Joseph Sacks, Parkland, FL, Christopher A. Seeger, Seeger Weiss, LLP, New York, NY, for Plaintiff-Appellant.

Paul Lindsey Fields, Jr., Gregory L. Mast, Fields Howell, LLP, Atlanta, GA, Freddy L. Alvarez, David E. Walker, Walker Wilcox Matousek, LLP, CHICAGO, IL, Armando Pedro Rubio, Fields Howell, LLP, MIAMI, FL, for Defendants-Appellees.

Gabriel K. Gillett, Jenner & Block, LLP, CHICAGO, IL, for Amicus Curiae Restaurant Law Center.

Laura A. Foggan, Crowell & Moring, LLP, WASHINGTON, DC, Wystan M. Ackerman, Robinson & Cole, LLP, Hartford, CT, for Amicus Curiae American Property Casualty Insurance Association.

Before William Pryor, Chief Judge, and Jordan and Anderson, Circuit Judges.

Jordan, Circuit Judge:

These cases—which we've consolidated for decision following oral argument—present a common question of insurance coverage prompted by the COVID-19 pandemic. The question is whether, under Florida law, all-risk commercial insurance policies providing coverage for "direct physical loss of or damage to" property or "direct physical loss or damage to" property insure against losses and expenses incurred by businesses as a result of COVID-19.

The Florida Supreme Court has not addressed the matter. Nor have the Florida intermediate appellate courts. So our analytic endeavor, though informed, is necessarily predictive. Sitting, "in effect, ... as a state court[,]" Comm'r v. Estate of Bosch , 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967), we follow the majority view and hold that under Florida law there is no coverage because COVID-19 did not cause a tangible alteration of the insured properties.

I

In March of 2020, in response to the public health crisis caused by the spread of COVID-19, Florida's Governor issued a series of executive orders restricting on-premises operations of non-essential businesses, including restaurants, bars, and retail stores. Several counties in Florida issued their own emergency stay-at-home or shelter-in-place orders, echoing the restrictions implemented by the Governor. These orders immediately impacted businesses throughout the state; many were forced to close their doors, and some never reopened.

All over the country, affected businesses submitted claims under their all-risk insurance policies with the hope of recovering some of the losses and expenses caused by the COVID-19 pandemic. When the majority of these claims were rejected, a wave of lawsuits ensued in the state and federal courts. The insureds here—SA Palm Beach, LLC, Emerald Coast Restaurants, Inc., Rococo Steak, LLC, and R.T.G. Furniture, Corporation—are among the Florida businesses denied coverage.

Each of the insureds seeks coverage under an all-risk insurance policy that provides compensation for losses and expenses incurred in connection with "direct physical loss of or damage to" the covered property or "direct physical loss or damage to" the covered property. Before getting to the merits of the appeals, we set out the particulars of the underlying actions and the coverage provisions at issue on appeal.¹

A

SA Palm Beach operated a fine-dining restaurant in Palm Beach, Florida. See SA Palm Beach Amended Complaint at ¶ 16. Like many other similar establishments, it was subject to state and local closure orders. See id. at ¶ 34.

Certain Underwriters at Lloyd's, London, issued a commercial property insurance policy to SA Palm Beach. The policy provides in relevant part that Lloyd's will "pay for direct physical loss of or damage to Covered Property ... caused by or resulting from any Covered Cause of Loss." See SA Palm Beach Policy, D.E. 24-1, at 46 (emphasis added). As relevant here, the policy defines "Covered Causes of Loss" as "direct physical loss unless the loss is excluded or limited in this policy," id. at 36 (emphasis added), but it does not define the terms "direct," "physical," "loss," or "damage."

In its complaint, SA Palm Beach asserted that its policy provides "business interruption coverage" which "would indemnify [it] for lost income and profits in the event that its business was shut down." See SA Palm Beach Amended Complaint at ¶ 37. Specifically, SA Palm Beach invoked coverage under the Business Income and Extra Expense provisions of the policy. The relevant language of those provisions is as follows.

Business Income : "We will pay for the 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 physical loss of or damage to property at [the insured] premises[.]"

Extra Expense: "Extra Expense means necessary expenses you incur during the ‘period of restoration’ that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss."

SA Palm Beach Policy at 60 (emphases added).

The policy defines "suspension" as "[t]he slowdown or cessation of your business activities" or "[t]hat a part or all of the [insured] premises is rendered untenantable[.]" See id. at 70. The "period of restoration" is defined as the period of time that:

a. Begins:

(1) 72 hours after the time of direct physical loss or damage for Business Income coverage; or

(2) Immediately after the time of direct physical loss or damage for Extra Expense coverage;

caused by or resulting from any Covered Cause of Loss at the [insured] premises; and

b. Ends on the earlier of:

(1) The date when the property at the [insured] premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or

(2) The date when business is resumed at a new permanent location.

Id. at 68 (emphases added).

SA Palm Beach alleged that—in abiding by the closure orders—it suffered "a direct physical loss of [its] property because [it was] unable to use the[ ] property for its intended purpose." SA Palm Beach Amended Complaint at ¶ 44. It further claimed that it suffered direct physical loss "in the form of diminished value, lost business income, and forced physical alterations during a period of restoration." Id. at ¶ 45. Notably, SA Palm Beach maintained that the closure orders were "the sole proximate cause" of its losses and disclaimed any argument that "the virus itself caused damage to [its] ... property." Id. at ¶ 54.

Lloyd's moved for dismissal under Rule 12(b)(6), asserting that SA Palm Beach had failed to sufficiently allege direct physical loss of or damage to the insured property, a necessary predicate for coverage under the Business Income and Extra Expenses provisions of the policy. Additionally, Lloyd's argued that the words "repair[ ], rebuil[d], and replace[ ]" in the definition of "period of restoration" mean that "loss" under the policy necessarily implies physical damage.

SA Palm Beach responded that it had plausibly alleged direct physical loss because the closure orders "rendered the property non-functional or only partially functional as it was no longer suitable for its intended purpose of ‘physical’ sit-down, fine dining." It also asserted that the policy's use of the disjunctive "or"—rather than a conjunctive connector—in the phrase "direct physical loss of or damage to" demonstrated that loss must mean something different than damage.

The district court granted the motion to dismiss. Relying in part on our unpublished decision in Mama Jo's Inc. v. Sparta Insurance Co. , 823 F. App'x 868, 879 (11th Cir. 2020) (holding that under Florida law "an item or structure that merely needs to be cleaned has not suffered a ‘loss’ which is both ‘direct’ and ‘physical’ "), the court concluded that SA Palm Beach had failed to allege that its property suffered a loss that was direct and physical, as required to trigger coverage under the Business Income and Extra Expense provisions. The court also agreed with Lloyd's that the language used to define the "period of restoration" indicated that loss of functionality and ensuing economic harm are not the kind of actual damage contemplated in the relevant provisions. The court therefore ruled that SA Palm Beach's allegations were insufficient to establish coverage under the policy.

B

Emerald Coast operated a sports bar and restaurant in Destin, Florida. See Emerald Coast Amended Complaint at ¶ 15. Like SA Palm Beach, it was subject to state and local closure orders issued during the COVID-19 pandemic. See id. at ¶¶ 65–72.

Aspen Specialty Insurance issued a commercial property insurance policy to Emerald Coast, and this policy includes Business Income, Extra Expense, and Extended Business Income provisions. The Business Income and Extra Expense provisions in Emerald Coast's...