Opinion
Civil No. 3:20-CV-00917 (AVC)
2021-11-10
LEAL, INC., plaintiff, v. TWIN CITY FIRE INSURANCE COMPANY, defendant.
Mark P. Kindall, Douglas Patrick Needham, Izard, Kindall & Raabe, LLP, West Hartford, CT, Edwin John Kilpela, Jr., Gary F. Lynch, Kelly Iverson, Lynch Carpenter, LLP, Pittsburgh, PA, for Plaintiff. Anthony Anscombe, Steptoe & Johnson LLP, Chicago, IL, Gerald P. Dwyer, Jr., Peter Meggers, Stephani Roman, Robinson & Cole LLP, Hartford, CT, Sarah Gordon, Steptoe & Johnson LLP, Washington, DC, for Defendant.
Mark P. Kindall, Douglas Patrick Needham, Izard, Kindall & Raabe, LLP, West Hartford, CT, Edwin John Kilpela, Jr., Gary F. Lynch, Kelly Iverson, Lynch Carpenter, LLP, Pittsburgh, PA, for Plaintiff.
Anthony Anscombe, Steptoe & Johnson LLP, Chicago, IL, Gerald P. Dwyer, Jr., Peter Meggers, Stephani Roman, Robinson & Cole LLP, Hartford, CT, Sarah Gordon, Steptoe & Johnson LLP, Washington, DC, for Defendant.
RULING ON THE DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS
Alfred V. Covello, United States District Judge
This is an insurance coverage dispute in which the plaintiff, Leal, Inc. (hereinafter "Leal"), alleges that the defendant, Twin City Fire Insurance Company (hereinafter "Twin City"), unlawfully denied Little Stars coverage under its insurance policy. It is brought pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201(a) and common law tenets concerning breach of contract.
28 U.S.C. § 2201(a) provides in pertinent part that "[i]n a case of actual controversy within its jurisdiction ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such." 28 U.S.C. § 2201(a).
Twin City has moved for an order rendering judgment on the pleadings, pursuant to Federal Rule of Civil Procedure 12(c). The issue presented is whether Leal can recover under its insurance policy for damages it incurred in connection with governmental closure orders. For the following reasons, the court concludes that the policy's virus exclusion applies to prohibit recovery and, therefore, Twin City's motion for judgment on the pleadings is granted.
FACTS
Examination of the complaint, the answer, and any attachments thereto, discloses the following facts.
The plaintiff, Leal, is an Ohio corporation that owns and operates a boutique clothing store in Columbus, Ohio.
The defendant, Twin City, is an insurance company that provided Leal with an insurance policy. Twin City is headquartered in Indiana.
Leal contracted for a business owner's policy (hereinafter "the policy"). The policy covered the period from June 17, 2019, through June 17, 2020. Leal paid its policy premiums.
The policy provided that the insurer would "pay for direct physical loss of or physical damage to Covered Property at the premises ... caused by or resulting from a Covered Cause of Loss." The policy defined "Covered Causes of Loss" as "RISKS OF DIRECT PHYSICAL LOSS," unless the loss is specifically excluded or limited by other provisions in the policy. The policy also provides for business income and extra expense coverage. This provision of the policy provides coverage "for the actual loss of Business Income you sustain due to the necessary suspension of your ‘operations’ during the ‘period of restoration’." Such suspension of operations "must be caused by direct physical loss of or physical damage to property at the ‘scheduled premises’ ...." Coverage under the extra expense portion of the policy also requires a showing of "direct physical loss or physical damage to property."
The Policy further provides coverage for business income from dependent properties. Specifically, this provision covers "actual loss of Business Income you sustain due to direct physical loss or physical damage at the premises of a dependent property caused by or resulting from a Covered Cause of Loss."
The policy defines "Dependent Property" as "property owned, leased or operated by others whom you depend on to: (a) Deliver materials or services to you or to others for your account ... (b) Accept your products or services; (c) Manufacture your products ... (d) Attract customers to your business premises."
The policy extends civil authority coverage "to the actual loss of Business Income [Leal] 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 your ‘scheduled premises."
The " ‘Fungi,’ Wet Rot, Dry Rot, Bacteria And Virus" exclusion (hereinafter "the virus exclusion" or "the exclusion") provides that:
"We 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."
Section B.1, the virus endorsement, states the policy's "[l]imited coverage for ‘Fungi’, Wet Rot, Dry Rot, Bacteria and Virus" and provides follows:
1. Limited Coverage For "Fungi", Wet Rot, Dry Rot, Bacteria and Virus
a. The coverage described in 1.b below only applies when the ‘fungi’, wet or dry rot, bacteria or 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.
(1) A "specified cause of loss" other than fire or lightning;
(2) Equipment Breakdown Accident occurs to Equipment Breakdown Property, if Equipment Breakdown applies to the affected premises.
b. We will pay for loss or damage by "fungi", wet rot, dry rot, bacteria and virus. As used in this Limited Coverage, the term loss or damage means:
(1) Direct physical loss or direct physical damage to Covered Property caused by "fungi", wet rot, dry rot, bacteria or virus, including the cost of removal of the "fungi", wet rot, dry rot, bacteria or virus;
(2) The cost to tear out and replace any part of the building or other property as needed to gain access to the "fungi", wet rot, dry rot, bacteria or virus; and
(3) The cost of testing performed after removal, repair, replacement
or restoration of the damaged property is completed, provided there is a reason to believe that "fungi", wet rot, dry rot, bacteria or virus are present.
Policy Endorsement "Limited Fungi, Bacteria or Virus Coverage," Sec. B.1.a-b. Coverage pursuant to section B.1.b is dependent on the fact that the "fungi, wet rot, dry rot, bacteria or virus" resulted from the causes in section B.1.a.
Subsection B.1.f provides as follows:
f. 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 or 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 or 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 another number of days is indicated in the Declarations. The days need not be consecutive. If a covered suspension of ‘operations’ was caused by loss or damage other than ‘fungi’, wet or dry rot, bacteria or virus, but remediation of ‘fungi’, wet or dry rot, bacteria or virus prolongs the ‘period of restoration’, we will pay for loss and expense sustained during the delay (regardless of when such a delay occurs during the ‘period of restoration’), but such coverage is limited to 30 days unless another number of days is indicated in the Declarations. The days need not be consecutive.
Id. at B.1.f.
On March 9, 2020, the governor of Ohio declared a state of emergency throughout the state.
On March 22, 2020, the governor entered an order closing all non-essential businesses in the state, which covered Leal's clothing store. As a result, on March 23, 2020, Leal closed its business operations.
Leal sought insurance coverage for its business losses under its policy, with a date of loss of March 23, 2020. The defendant denied coverage.
On July 2, 2020, Leal filed a complaint seeking declaratory relief against the defendant, The Hartford Financial Services Group, Inc. d/b/a The Hartford (hereinafter "the Hartford"), and Twin City. On September 29, 2020, Leal filed a notice of voluntary dismissal of its claims against the Hartford, leaving Twin City as the only remaining defendant.
STANDARD
Rule 12(c) of the Federal Rules of Civil Procedure provides that "[a]fter the pleadings are closed — but early enough not to delay trial — a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). "On a 12(c) motion, the court considers ‘the complaint, the answer, any written documents attached to them, and any matter of which the court can take judicial notice for the factual background of the case.’ " L-7 Designs Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011) (citing Roberts v. Babkiewicz, 582 F.3d 418, 419 (2d Cir. 2009) ). On a Rule 12(c) motion to dismiss, the court "will accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the complainant." Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905, 922 (2d Cir. 2010) (citations omitted). However, the "[p]laintiffs’ failure to include matters of which as pleaders they had notice and which were integral to their claim — and that they apparently most wanted to avoid — may not serve as a means of forestalling the district court's decision ...." L-7 Designs Inc., 647 F.3d at 422 (citations omitted). "A complaint will only be dismissed under Rule 12(c) if it appears beyond doubt that the [nonmoving party] can prove no set of facts in support of his claim which would entitle him to relief." Patel v. Searles, 305 F.3d 130, 135 (2d Cir. 2002) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ).
"A complaint is [also] deemed to include any written instrument attached to it as an exhibit, materials incorporated in it by reference, and documents that, although not incorporated by reference, are ‘integral’ to the complaint." L-7 Designs Inc., 647 F.3d at 422 (citations omitted).
DISCUSSION
I. Choice of Law
"In cases where jurisdiction is based on the diversity of the parties’ citizenship, a federal court will apply the choice-of-law rules of the forum state." Bigio v. Coca-Cola Co., 675 F.3d 163, 169 (2d Cir. 2012). "Connecticut's choice of law approach for contracts is the ‘most significant relationship’ test of the Restatement (Second) ... § 188." Reichhold Chemicals, Inc. v. Hartford Accident & Indem. Co., 252 Conn. 774, 781, 750 A.2d 1051 (2000). However, "[t]he threshold choice of law question in Connecticut ... is whether there is an outcome determinative conflict between the applicable laws of the states with a potential interest in the case. If not, there is no need to perform a choice of law analysis, and the law common to the jurisdictions should be applied." Lumbermens Mut. Cas. Co. v. Dillon Co., 9 F. App'x 81, 83 (2d Cir. 2001) ; see also NovaFund Advisors, LLC v. Capitala Grp., LLC, 2021 WL 2109112 (D. Conn. May 25, 2021).
"[W]here there is a ‘false conflict’ such that the laws of both states relevant to the set of facts are the same, or would produce the same decision in the lawsuit, there is no real conflict between them. In such a case, the case ought to be decided under the law that is common to both states." Greystone Cmty. Reinvestment Ass'n, Inc. v. Berean Cap., Inc., 638 F. Supp. 2d 278, 287 (D. Conn. 2009) (citations omitted).
In this case, there is no conflict between the laws of the states of Ohio and Connecticut on the relevant issues and, therefore, the court need not conduct a choice of law analysis and applies the law common to both states. See Cosmetic Laser, Inc. v. Twin City Fire Insurance Co., Civil No. 20CV638(SRU), 554 F.Supp.3d 389, 398 (D. Conn. Aug. 11, 2021) (concluding that "the application of either Ohio or Connecticut law would produce the same outcome in this suit because those states’ laws regarding breach of an insurance contract are the same in all relevant respects.").
In Ohio, "interpretation of an insurance policy is a question of law," Motorists Mut. Ins. Co. v. Brickner, Nos. 09AP-281, 9AP-282, 2009 WL 2940196, at *2 (Ohio Ct. App. Sep. 10, 2009) (citation omitted), and subject to "the familiar rules of construction and interpretation applicable to contracts generally." Gomolka v. State Auto. Mut. Ins. Co., 70 Ohio St. 2d 166, 167, 436 N.E.2d 1347 (1982). Pursuant to Ohio contract law, courts "examine the insurance contract as a whole and presume that the intent of the parties is reflected in the language used in the policy." Chicago Title Ins. Co. v. Huntington Nat'l Bank, 87 Ohio St. 3d 270, 273, 719 N.E.2d 955 (1999). The courts also recognize that terms in a policy are "given their natural and commonly accepted meaning." Gomolka, 70 Ohio St. 2d at 167-68, 436 N.E.2d 1347. Ohio courts "must enforce the contract as written" where policy terms are "clear and unambiguous," Cincinnati Indemn. Co. v. Martin, 85 Ohio St.3d 604, 710 N.E.2d 677, 679 (1999), but "[t]he general rule of liberal construction cannot be employed to create an ambiguity where there is none." Erie Ins. Exchange v. Bullock, 2015-Ohio-5406, 55 N.E.3d 460, 465 (Ohio Ct. App. 2015).
In Connecticut, "[a]n insurance policy is to be interpreted by the same general rules that govern the construction of any written contract." Connecticut Med. Ins. Co. v. Kulikowski, 286 Conn. 1, 5, 942 A.2d 334 (2008) (citations omitted). " ‘If the terms of the policy are clear and unambiguous, then the language ... must be accorded its natural and ordinary meaning.’ " Id. (quoting Schilberg Integrated Metals Corp. v. Cont'l Cas. Co., 263 Conn. 245, 267, 819 A.2d 773 (2003) ). "[A] provision in an insurance policy is ambiguous when it is reasonably susceptible to more than one reading." Metro. Life Ins. Co. v. Aetna Cas. & Sur. Co., 255 Conn. 295, 305, 765 A.2d 891 (2001). Similar to analysis of Ohio contracts of insurance, "any ambiguity in the terms of an insurance policy must be construed in favor of the insured ...." Connecticut Med. Ins. Co., 286 Conn. at 6, 942 A.2d 334 (citations omitted); see Laboy v. Grange Indem. Ins. Co., 144 Ohio St. 3d 234, 237, 41 N.E.3d 1224 (2015).
II. Virus Exclusion
(a) Ambiguity
Twin City argues that Leal's claims should be dismissed because the plain language of the policy indicates there is no coverage in this case. Specifically, Twin City cites the policy's virus exclusion and argues that Leal seeks coverage for losses that "fall squarely within" that exclusion. It contends that the exclusion applies because COVID-19 caused Leal's losses and COVID-19 is a "virus" encompassed by the exclusion. Twin City points out that the vast majority of courts have held that the same exclusion applied to bar coverage for COVID-19 related business interruption losses.
Leal argues in opposition that the virus exclusion does not apply to its claims. It asserts that the exclusion is ambiguous and that ambiguity in an insurance contract must be construed in favor of the insured. It argues that even if its losses were caused by COVID-19, the limited virus exclusion does not apply because a narrowed definition of "loss or damage" indicates the exclusion applies where a fungi or virus "permeates into covered property and causes damage to the structure." According to Leal, "excluded losses are limited to damages associated with removal, repair, and remediation of property affected by fungi or fungi-related afflictions." It argues that "[t]o the extent the COVID-19 virus could be considered a concurrent or sequential cause of Leal's loss, it is simply not the type of virus that would trigger the Fungi Endorsement (or its anti-concurrent causation language) in the Policy."
Twin City replies that the terms of the policy are clear and there is no need for further fact-finding. With respect to the argument that COVID-19 is not the type of "virus" covered by the exclusion, Twin City argues that "[n]othing supports interpreting ‘virus’ to mean only ‘viruses caused by or relating to fungi.’ " Specifically, Twin City states that "the use of the disjunctive ‘or’ in ‘fungi, wet rot, dry rot, bacteria or virus’ means that the exclusion applies equally to loss or damage caused directly or indirectly by virus as it does to loss or damage caused by other perils." With respect to the limited coverage provisions regarding permeating damage to the structure, Twin City states that the provision "does not state that this is the only way in which a virus can cause loss or damage."
The virus exclusion states that:
"We 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."
The parties do not dispute that COVID-19 is a virus. A "plain and ordinary" reading of the exclusion provision reveals that it precludes coverage for any loss or damage stemming "directly or indirectly" from COVID-19. The meaning of the virus exclusion is unambiguous. Leal argues that including "virus" with " ‘fungi,’ wet rot, dry rot, bacteria," makes the scope of the exclusion ambiguous. However, as noted "[t]he general rule of liberal construction cannot be employed to create an ambiguity where there is none." Erie Ins. Exchange v. Bullock, 2015-Ohio-5406, 55 N.E.3d 460, 465 (Ohio Ct. App. 2015). "That a word may be known by the company it keeps is, however, not an invariable rule, for the word may have a character of its own not to be submerged by its association." Russell Motor Car Co. v. United States, 261 U.S. 514, 519, 43 S.Ct. 428, 67 L.Ed. 778 (1923). Here, the terms "fungi," "wet rot," "dry rot," "bacteria," and "virus" are separated by the disjunctive "or." The term "virus" has a clear meaning of its own, not obscured by being placed next to the other terms. See Mortar & Pestle Corp. v. Atain Specialty Ins. Co., 508 F.Supp.3d 575, 582 (N.D. Cal. 2020) (noting that the exclusion "lists, in the disjunctive, four independent bases for exclusion, one of which is ‘virus(es).’ "). "Fungi and viruses are inherently different, take different forms, and behave differently in the environment." LJ New Haven LLC v. AmGUARD Ins. Co., 511 F.Supp.3d 145, 154 (D. Conn. 2020) (holding that virus exclusion barred coverage for loss of business due to COVID-19 shutdown orders); see also One40 Beauty Lounge LLC v. Sentinel Ins. Co., Ltd., No. 3:20-CV-00643 (KAD), 2021 WL 5206387, at *2 (D. Conn. Nov. 9, 2021) ; Cosmetic Laser, Inc. v. Twin City Fire Ins. Co., No. 3:20-CV-638(SRU), 554 F.Supp.3d 389, 402 (D. Conn. Aug. 11, 2021) (holding that the same virus exclusion at issue in this case barred coverage and noting that "[b]ecause the Policy defines ‘fungi’ expansively, ‘virus’ should be interpreted similarly expansively. It would be incongruous to give ‘virus’ an unusually restrictive meaning."); see also System Optics Inc. v. Twin City Ins. Co., No. 5:20-CV-1072, 2021 WL 2075501, at *6 (N.D. Ohio May 24, 2021) (holding that same virus exclusion at issue here barred relief).
In System Optics Inc. v. Twin City Ins. Co., No. 5:20cv1072, 2021 WL 2075501, at *6 (N.D. Ohio May 24, 2021), the court observed that COVID-19 is a disease cause by a virus. (recognizing that "[t]he Centers for Disease Control and Prevention ("CDC") has explained that ‘COVID-19 is a new disease, caused by a novel (or new) coronavirus that has not previously been seen in humans.’ (https://www.cdc.gov/coronavirus/2019-ncov/faq.html#Basics, last visited 5/5/2021)."). The System Optics court went on to note, however, that "this distinction does not help [the plaintiff]. It concedes, as it must, that the COVID-19 disease (and the pandemic that resulted) was caused by a virus, and the Virus Exclusion broadly covers all losses caused ‘directly or indirectly’ by a virus." Id.
Further, the provisions regarding loss or damage that Leal cites do not create ambiguity for purposes of the application of the virus exclusion. Those provisions do not state that they are the exclusive forms of damage that a virus may cause.
The conclusion that the virus exclusion is unambiguous is consistent with opinions of this court and courts in various other districts.
See, e.g., One40 Beauty Lounge LLC v. Sentinel Ins. Co., Ltd., No. 3:20-CV-00643 (KAD), 2021 WL 5206387, at *2 (D. Conn. Nov. 9, 2021) ; Little Stars, LLC d/b/a The Little Gym of Gilbert v. Sentinel Ins. Co., Ltd., No. 3:20-CV-00609 (AVC), 554 F.Supp.3d 378 (D. Conn. August 12, 2021) ; Cosmetic Laser, Inc. v. Twin City Fire Ins. Co., No. 3:20-CV-00638(SRU), 554 F.Supp.3d 389, 401–02 (D. Conn. Aug. 11, 2021) ; DOTEXAMDR, PLLC v. Hartford Underwriters Insurance Co., No. 3:20-CV-00698 (MPS), 2021 WL 3409279 (D. Conn. Aug. 4, 2021).
See, e.g., ABC Children's Dentistry, LLC v. Hartford Ins. Co. d/b/a Sentinel Ins. Co., No. 1:20-CV-10044 (NLH)(MJS), 2021 WL 4272767 (D.N.J. Sept. 21, 2021) ; Hamilton Jewelry, LLC, d/b/a CF Brandt Jewelers & Jewelry Place by the Bay v. Twin City Fire Ins. Co., No. 8:20-CV-02248 (PWG), 2021 WL 4214837 (D. Md. Sept. 16, 2021) ; Ets-Hokin v. v. Sentinel Ins. Co., No. 4:20-cv-06518 (JST), 2021 WL 4472692 (N.D. Cal. Aug. 27, 2021) ; Graileys, Inc. d/b/a Graileys Fine Wines v. Sentinel Ins. Co., Ltd., No. 3:20-CV-01181-M, 2021 WL 3524032 (N.D. Tex. Aug. 9, 2021) ; Identity Dental Marketing, LLC v. Twin City Fire Ins. Co., No. 20-CV-06883, 2021 WL 3524111 (N.D. Ill. Jul. 19, 2021) ; Totally Tickets v. Sentinel Ins. Co., No. 5:20-CV-00778-SLP, 549 F.Supp.3d 1309 (W.D. Okla. Jul. 14, 2021) ; Hartford Fire Ins. Co. v. Moda, LLC, No. X06-UWY-CV-20-6056095-S, 2021 WL 2474216 (Conn. Super. Ct. June 15, 2021) ; Pure Fitness LLC v. Twin City Fire Ins. Co., No. 2:20-CV-775-RDP, 2021 WL 512242 (N.D. Ala. Feb. 11, 2021) ; Moody v. Hartford Fin. Grp., Inc., 513 F.Supp.3d 496 (E.D. Pa. 2021) ("A virus spreading around the world, which was then classified as a pandemic, fits squarely within the plain language of the exclusion."); Digital Age Mktg. Grp., Inc. v. Sentinel Ins. Co. Ltd., 512 F.Supp.3d 1270 (S.D. Fla. 2021) ; Franklin EWC, Inc. v. Hartford Fin. Servs. Grp., Inc., 506 F.Supp.3d 854 (N.D. Cal. 2020) ; Founder Inst. Inc. v. Hartford Fire Ins. Co., 497 F. Supp. 3d 678 (N.D. Cal. 2020) ; Wilson v. Hartford Cas. Co., 492 F. Supp. 3d 417 (E.D. Pa. 2020) ("The Policy language here ... is conspicuously displayed, clear, and unambiguous."). This court is not persuaded by the court's decision in Urogynecology Specialist of Fla. LLC v. Sentinel Ins. Co., Ltd., 489 F. Supp. 3d 1297 (M.D. Fla. 2020), that the virus exclusion is ambiguous.
(b) Civil Authority Orders
Twin City argues that the virus exclusion encompasses civil authority orders in response to viruses because the exclusion applies to losses "caused directly or indirectly" by a virus.
Leal argues in opposition that its "losses were not caused by fungi, wet rot, dry rot, bacteria, or virus, but rather by the Mandated Shutdown Rules requiring Leal to discontinue the use of its commercial property as a boutique clothing store." It avers that "[t]he motivation for the Mandated Shutdown Rules is not part of the causal chain that caused Leal's ‘physical loss’ of property." Leal maintains that "the anti-concurrent causation language" in the exclusion "contravenes [it's] reasonable expectations of coverage."
Twin City replies that "[c]ourts in Ohio and Connecticut have resoundingly rejected Plaintiff's argument that the governmental orders aimed at slowing the spread of the virus prevent the application of the Virus Exclusion." According to Twin City, Leal's argument that the exclusion's "anti-concurrent causation language" contravenes it's "reasonable expectations of coverage" "is unavailing" as "the plain language of the Policy itself contravenes Plaintiff's reasonable expectations. A reasonable policyholder would recognize that the language of the Policy governs."
While Leal argues that civil authority orders were the direct cause of its losses, the exclusion applies to losses or damage "caused directly or indirectly" by a virus. The court's in Ohio and Connecticut have recognized that based on such language, the government orders in response to the COVID-19 pandemic satisfy the causation requirements for application of the virus exclusion. LJ New Haven LLC v. AmGUARD Ins. Co., 511 F. Supp.3d 145, 151 (D. Conn. 2020) (explaining that "[w]hen this second sentence is combined with the "direct[ ] or indirect[ ]" causation language of the first sentence, it makes the causal scope of the virus exclusion broad and suggests that it should apply as long as a virus acts as a link somewhere in the causal chain producing the loss or damage at issue."); System Optics, Inc. v. Twin City Fire In. Co., 2021 WL 2075501 (N.D. Ohio May 24, 2021) (recognizing that "[w]hile the government closure orders may have been the final link in the loss sequence chain, there is no question that the coronavirus was the first link that set the sequence in motion.").
Likewise in this case, even if the governor's orders were the direct cause of Leal's losses, the orders were in response to COVID-19. Consequently, COVID-19 "directly or indirectly" caused all of the losses for which Leal claims coverage.
In addition, the anti-concurrent causation clause supports applying the virus exclusion to civil authority orders responding to COVID-19. The clause provides that "loss or damage [caused by a virus] is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss." Courts have recognized the validity of such clauses. See LJ New Haven LLC v. AmGUARD Ins. Co., 511 F. Supp. 3d 145, 152 (D. Conn. 2020) ("Connecticut courts have recognized ... that the ‘anti-concurrent causation’ clause in the virus exclusion ... displaces the ‘efficient proximate cause’ analysis ....")
Further, "even if the principle of ‘strictly construing’ insurance policy exclusions counsels against reading the broad causation language in the virus exclusion to embrace every link in the causal chain ... remoteness is not an issue here." Id. Rather, the relevant language of the complaint here and the government orders make clear that "it was a short step from the emergence of the virus to the curtailment of," id., Leal's business activities. In an insurance contract case in Connecticut and Ohio, "[t]he determinative question is the intent of the parties ... as disclosed by the provisions of the policy." R.T. Vanderbilt Co. v. Cont'l Cas. Co., 273 Conn. 448, 462, 870 A.2d 1048 (2005) (citations omitted); see Chicago Title Ins. Co. v. Huntington Nat'l Bank, 87 Ohio St. 3d 270, 273, 719 N.E.2d 955 (1999). "[T]he policyholder's expectations should be protected as long as they are objectively reasonable from the layman's point of view." R.T. Vanderbilt, 273 Conn. at 463, 870 A.2d 1048 (citations omitted). However, the policyholder's alleged reasonable expectations cannot "render meaningless the words by which the parties expressed their bargain." Hammer v. Lumberman's Mut. Cas. Co., 214 Conn. 573, 591, 573 A.2d 699 (1990) (citations omitted). The court concludes that, given its "natural and ordinary meaning," the policy here "expresses the reasonable expectations of the parties," Lumberman's Mut. Cas. Co., 214 Conn. at 591, 573 A.2d 699, and the virus exclusion applies to preclude insurance coverage for Leal's alleged COVID-19-related losses.
(c) Regulatory Estoppel
Twin City argues that the doctrine of regulatory estoppel does not save Leal's claim. Specifically, Twin City argues that Leal's argument that "approval of the Virus Exclusion was procured as a result of false statements" and, therefore, is subject to regulatory estoppel, is unavailing. Twin City notes that "no Ohio court has recognized this regulatory estoppel theory. In the lone instance that an Ohio court has considered it, that court declined to apply regulatory estoppel because the policy exclusion at issue was clear and unambiguous." Twin City also states that Connecticut court's have not recognized the doctrine. According to Twin City, even if Ohio and Connecticut recognized the doctrine, Leal has failed to allege sufficient facts to satisfy its requirements.
In its opposition memorandum, Leal argues that "Twin City should be estopped from enforcing the Virus Exclusion on principles of regulatory estoppel and public policy." Specifically, Leal argues that "in the absence of governing authority from the Ohio Supreme Court requiring otherwise, it makes little sense to grant Twin City and the rest of the insurance industry carte blanche to push through exclusions by telling regulators the excluded perils are not covered when, in fact, they are."
In its reply, Twin City states that Leal "does not cite any case applying its regulatory estoppel argument to COVID-19 related claims. Courts have widely rejected the applicability of regulatory estoppel, including with respect to this exact Virus Exclusion."
Where the policy exclusion was unambiguous, the Ohio court rejected the application of promissory estoppel. M & M Metals Int'l., Inc. v. Cont'l Cas. Co., Nos. C-060551, C-060571, 2008 WL 683970 (Ohio Ct. App. Mar. 14, 2008). Similarly, the Connecticut supreme court declined to apply the doctrine in the face of a "clear and unambiguous" term. Buell Indus., Inc. v. Greater N. Y. Mut. Ins. Co., 259 Conn. 527, 547, 791 A.2d 489 (2002). Leal has failed to cite any case in Connecticut or Ohio applying the regulatory estoppel doctrine in the context of an unambiguous virus exclusion and the court declines to do so here.
(d) Time Element Coverage
In a footnote, Leal argues that if the court concludes that the virus exclusion applies, it should permit its "claim to move forward under the separate coverage provided by the Fungi Endorsement ‘for up to 30 days of coverage for business interruption if ‘loss or damage to property caused by ... virus’ [that] causes a suspension of [business] operations ....’ "
Twin City argues in opposition that although the limited virus coverage provision states that Twin City "will pay for loss or damage by ... [a] virus," under certain circumstances, Leal has failed to state the requisite facts warranting such coverage. Twin City notes that this limited coverage only applies under specific circumstances that include "(1) A ‘specified cause of loss’ other than fire or lightning; [or] (2) Equipment Breakdown Accident ...," neither of which occurred here. Further, Twin City notes that even if Leal meets these limited circumstances, subpart B.1.f of the endorsement provides "Time Element" coverage only "if the loss which resulted in ... virus does not in itself necessitate a suspension of ‘operations’, but such suspension is necessary due to loss or damage to property caused by ... virus ..." According to Twin City, Leal "alleges no specified cause of loss here, nor does it allege a ‘loss which resulted in ... virus.’ " Therefore, according to Twin City, Leal is not entitled to coverage under this limited provision.
To the extent Leal seeks to recover under the policy's endorsement providing "Limited Fungi, Bacteria or Virus Coverage," it has failed to state facts warranting such coverage. First, it has not stated sufficient facts to satisfy the limited circumstances under which that provision applies. In addition, it has failed to state a "cause of loss" or a "loss which resulted in [a] virus." See e.g., One40 Beauty Lounge LLC v. Sentinel Ins. Co., Ltd., No. 3:20-CV-00643 (KAD), 2021 WL 5206387, at *4 (D. Conn. Nov. 9, 2021) ; Cosmetic Laser, Inc. v. Twin City Fire Ins. Co., No. 3:20-CV-00638(SRU), 554 F.Supp.3d 389, 403–05 (D. Conn. Aug. 11, 2021) ; System Optics Inc. v. Twin City Ins. Co., No. 5:20-cv-1072, 2021 WL 2075501, at *7 (N.D. Ohio May 24, 2021) ("It is inappropriate to consider § B.1.f. in a vacuum separate and apart from the other provisions in the endorsement."); Colgan v. Sentinel Ins. Co., 515 F. Supp. 3d 1082, 1088-89 (N.D. Cal. 2021) ; J&H Lanmark, Inc. v. Twin City Fire Ins. Co., No. 5:20-333-DCR, 2021 WL 922057, at *4 (E.D. Ky. March 10, 2021).
In System Optics, the court considered a similar claim for coverage under this limited provision and concluded that "[b]ecause there is no basis upon which to single out subsection f. for separate analysis, the Court finds that it does not provide standalone coverage for losses associated with viruses." System Optics, 2021 WL 2075501, at *7. Similarly here, the court finds no basis for coverage under this limited provision.
The court noted that despite the Texas district court's ruling to the contrary in Independence Barbershop, LLC v. Twin City Fire Ins. Co., 499 F.Supp.3d 331, 336-37 (W.D. Tx. 2020), "courts have declined to follow the Independence Barbershop court and found that the Time Element clause does not provide standalone coverage." System Optics, 2021 WL 2075501, at *7 n.8 (citing Q Clothier New Orleans LLC v. Twin City Fire Ins. Co., No. 20-cv-1470, 535 F.Supp.3d 574, 585–86 (E.D. La. Apr. 23, 2021) (collecting cases)). The court agrees and declines to follow the decision in Independence Barbershop, 499 F.Supp.3d at 336-37.
Leal also requests that the court certify coverage questions to the Ohio supreme court. The court declines to exercise its discretion to do so. See Tri Cty. Wholesale Distributors, Inc. v. Labatt USA Operating Co., LLC, No. 2:13-CV-317, 2014 WL 32307, at *2 (S.D. Ohio Jan. 6, 2014) ; Known Litig. Holdings, LLC v. Navigators Ins. Co., No. 3:12-CV-00269 (JBA), 2013 WL 12284920, at *4 (D. Conn. Dec. 5, 2013).
III. Civil Authority Coverage
Twin City argues that Leal fails to state a claim for civil authority coverage because it does not allege a covered loss nor "that it was specifically prohibited from accessing its business premises." Twin City states that "the governmental orders were issued to address the spread of coronavirus, not property damage or loss."
Leal does not respond to this argument.
Twin City replies that because Leal has failed to respond, the "[p]laintiff therefore concedes there is no civil authority coverage."
"A court may, and generally will, deem a claim abandoned when a plaintiff fails to respond to a defendant's arguments that the claim should be dismissed." Walker v. City of New York, No. 14-cv-808(ER), 2015 WL 4254026, at *3 (S.D.N.Y. July 14, 2015) (quoting Lipton v. Cnty. of Orange, N.Y., 315 F. Supp. 2d 434, 446 (S.D.N.Y. 2004) ); see also Rosado v. Potter, No. 3:04-CV-00758(PCD), 2007 WL 30864, at *8 (D. Conn. Jan. 4, 2007) ("Plaintiff does not respond to this argument in its opposition memorandum, and on that basis the premise is deemed conceded."), aff'd, 295 F. App'x 423 (2d Cir. 2008) ; Barlow v. Connecticut, 319 F. Supp. 2d 250, 266-67 (D. Conn. 2004) ; Lewis v. Town of Waterford, 2006 WL 2401646, *2 (D. Conn. Aug. 17, 2006) (finding abandonment when claim not addressed).
The court concludes that Leal has abandoned its claim for civil authority coverage as it neither identified any issues of material fact, nor offered any legal argument in support of this claim. Twin City's motion for judgment on the pleadings is granted with respect to this claim.
CONCLUSION
The defendant's motion for judgment on the pleadings (document no. 40) is GRANTED.
It is so ordered this 10th day of November 2021, at Hartford, Connecticut.