Skillets, LLC v. Colony Ins. Co.

• Decision Date: 10 March 2021
• Docket Number: Civil Action No. 3:20cv678-HEH
• Parties: SKILLETS, LLC d/b/a Skillets Restaurant, et al., Plaintiffs, v. COLONY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

524 F.Supp.3d 484

SKILLETS, LLC d/b/a Skillets Restaurant, et al., Plaintiffs,

v.COLONY INSURANCE COMPANY, Defendant.

Civil Action No. 3:20cv678-HEH

United States District Court, E.D. Virginia, Richmond Division.

Signed March 10, 2021

Lisa Sarah Brook, Edward Kyle McNew, MichieHamlett PLLC, Charlottesville, VA, Adam J. Levitt, Pro Hac Vice, DiCello Levitt Gutzler LLC, Chicago, IL, Kenneth Abbarno, Pro Hac Vice, DiCello Levitt Gutzler, LLC, Menter, OH, Timothy W. Burns, Pro Hac Vice, Burns Bowen Bair LLP, Madison, WI, for Plaintiff Skillets, LLC.

Lisa Sarah Brook, MichieHamlett PLLC, Charlottesville, VA, for Plaintiffs Good Breakfast, LLC, Skillets Holdings, LLC.

Gary Wayne Berdeen, Stewart Smith, Midlothian, VA, William Stewart, Pro Hac Vice, Stewart Smith, West Conshohocken, PA, for Defendant.

MEMORANDUM OPINION

(Granting Defendant's Motion to Dismiss)

Henry E. Hudson, Senior United States District Judge

This matter comes before the Court on Defendant Colony Insurance Company's ("Defendant") Motion to Dismiss, filed on November 25, 2020 (ECF No. 32). Defendant's Motion raises for the first time before this Court an issue relating to the ongoing COVID-19 pandemic that many other courts around the country have already decided. Plaintiffs Skillets, LLC, Good Breakfast, LLC, and Skillets Holdings, LLC ("Skillets") operate nine locations of Skillets Restaurants in Southwest Florida, and, like most restaurants, were forced to halt in-person dining service as a result of the pandemic. Skillets filed suit in this Court after its insurer, Defendant, denied its reimbursement request for pandemic-related losses. Skillets filed its Second Amended Class Action Complaint (hereinafter "Complaint") on November 13, 2020 (ECF No. 30), alleging breach of contract claims and seeking a declaratory judgment that its losses are covered under its insurance policy with Defendant and that Defendant therefore must pay for said losses.¹ The parties have filed memoranda supporting their respective positions, and the Court heard oral argument on February 26, 2021. For the reasons stated herein, Defendant's Motion to Dismiss will be granted.

I. BACKGROUND

Defendant issued Policy No. 101 CP 0113119-01 to Skillets (the "Policy"), covering a policy period of December 28, 2019 to December 28, 2020.² (Compl. ¶ 25.) Like the many other property insurance policies addressed by courts in the United States facing this issue, the Policy is an "all-risk" policy. (Id. ¶ 26.) All-risk policies provide blanket coverage terms and may include specific exclusions, as opposed to enumerating every specific risk covered. (Id. ) In general, the Policy provides that Defendant "will pay for direct physical loss of or damage to Covered Property at the premises ... caused by or resulting from any Covered Cause of Loss." (Id. , Ex. B at 19, ECF No. 30-2.) "Covered Causes of Loss" is defined as "Risks Of Direct Physical Loss" unless subject to an enumerated list of exclusions in the Policy's "Causes of Loss – Special Form." (Id. at 45-54.) The Policy does not include a virus exclusion provision. (Id. ) Skillets alleges that its losses are covered under five provisions in the "Business Income (and Extra Expense) Coverage Form" ("Business Income Form"): Business Income, Extra Expense, Civil Authority, Extended Business Income, and Sue and Labor. (Compl. ¶¶ 28–38; Ex. B at 34–42.) The Business Income Form provides in relevant part:

A. Coverage

1. 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.... The loss or damage must be caused by or result from a Covered Cause of Loss.

....

2. Extra Expense

....

b. 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.

....

5. Additional Coverages

a. Civil Authority

....

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

(1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property; and

(2) 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.

....

c. Extended Business Income

(1) Business Income Other Than "Rental Value"

If the necessary "suspension" of your "operations" produces a Business Income loss payable under this policy, we will pay for the actual loss of Business Income you incur during the period that:

(a) Begins on the date property ... is actually repaired, rebuilt or replaced and "operations" are resumed; and

(b) Ends on the earlier of:

(i) The date you could restore your "operations", with reasonable speed, to the level which would generate the business income amount that would have existed if no direct physical loss or damage had occurred; or

(ii) 30 consecutive days after the date determined in (1)(a) above.

However, Extended Business Income does not apply to loss of Business Income incurred as a result of unfavorable business conditions caused by the impact of the Covered Cause of Loss in the area where the described premises are located.

Loss of Business Income must be caused by direct physical loss or damage at the described premises caused by or resulting from any Covered Cause of Loss.

....

C. Loss Conditions

....

2. Duties In The Event Of Loss

a. You must see that the following are done in the event of loss:

(1) Notify the police if a law may have been broken.

(2) Give us prompt notice of the direct physical loss or damage. Include a description of the property involved.

(3) As soon as possible, give us a description of how, when, and where the direct physical loss or damage occurred.

(4) Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses ....

(5) As often as may be reasonably required, permit us to inspect the property ....

(6) Send us a signed, sworn proof of loss ....

(7) Cooperate with us in the investigation or settlement of the claim.

(8) If you intend to continue your business, you must resume all or part of your "operations" as quickly as possible.

(Id. , Ex. B at 34–39.) The "Duties In The Event Of Loss" provision is commonly referred to as a "Sue and Labor" provision.³ (Compl. ¶ 37.)

The Governor of Florida, Ron DeSantis ("Governor DeSantis") declared a state of emergency for the State of Florida on March 9, 2020, in response to the COVID-19 pandemic. (Id. ¶ 45.) On March 17, 2020, Governor DeSantis issued an executive order requiring that restaurants reduce occupancy capacity by fifty percent and abide by the Center for Disease Control's ("CDC") social distancing guidelines. (Id. ¶ 46.) Governor DeSantis subsequently suspended all indoor dining services on March 20, 2020, limiting restaurants to delivery or take-out services. (Id. ¶ 47.) All indoor dining services were suspended until May 4, 2020, when Florida commenced Phase 1 of its reopening plan, which allowed restaurants to operate indoor dining at twenty-five percent occupancy capacity. (Id. ¶ 49.) As of May 18, 2020, Florida restaurants could increase indoor occupancy to fifty percent of capacity, as well as continue providing delivery, take-out, and socially distant outdoor dining services. (Id. ¶ 50.)

Skillets submitted claims to Defendant on June 22, 2020, and July 13, 2020, for relief under the Policy from losses incurred due to the pandemic. (Id. ¶¶ 57–59.) On July 17, 2020, Defendant responded that no coverage existed under the Policy for Skillets's losses. (Id. ) Skillets thereafter filed suit in this Court, alleging that the pandemic structurally altered and diminished the functional space in its restaurants, and that Governor DeSantis's orders restricting Florida restaurants (the "closure orders") prohibited its access to property covered under the Policy. (Id. ¶¶ 55–56.) Skillets principally argues that the phrase "direct physical loss of or damage to property" (hereinafter "direct physical loss") does not require actual physical or structural alteration to apply coverage, but that, even if structural alteration is required, its allegations that the coronavirus was actually present in covered property constitute structural alteration. (Pls.’ Br. Opp'n 6–14, ECF No. 34.) As a result, Skillets maintains that it suffered lost business income and incurred extra expenses covered under the Policy. (Compl. ¶¶ 57–60.) Plaintiff also argues that the Policy's lack of virus exclusion coverage supports its claim for pandemic-related losses, and that the Complaint sufficiently alleges that Skillets, as well as all bars and restaurants near Skillets, suffered physical loss or damage due to the pandemic to warrant coverage under the Policy's Civil Authority provision. (Pls.’ Br. Opp'n 20–26.)

Defendant moves to dismiss the Complaint, arguing that Florida courts have uniformly held that losses incurred by Florida restaurants as a result of the ongoing pandemic and the related closure orders do not constitute direct physical loss. (Def.’s Br. Supp. 9–17, ECF No. 33.) Therefore, Defendant argues that this Court should similarly find that the same language here precludes coverage under the Policy. Finally, Defendant asserts that the Civil Authority provision does not supplant coverage because...