Opinion
Case No. CIV-20-778-SLP
2021-07-14
TOTALLY TICKETS, Plaintiff, v. SENTINEL INSURANCE COMPANY, LTD., Defendant.
Kenyatta R. Bethea, Holloway Bethea & Osenbaugh PLLC, Oklahoma City, OK, for Plaintiff. Jordan E. Sessler, Timila S. Rother, Crowe & Dunlevy, Oklahoma City, OK, Sarah D. Gordon, Andrew J. Sloniewsky, Steptoe & Johnson LLP, Washington, DC, for Defendant.
Kenyatta R. Bethea, Holloway Bethea & Osenbaugh PLLC, Oklahoma City, OK, for Plaintiff.
Jordan E. Sessler, Timila S. Rother, Crowe & Dunlevy, Oklahoma City, OK, Sarah D. Gordon, Andrew J. Sloniewsky, Steptoe & Johnson LLP, Washington, DC, for Defendant.
ORDER
SCOTT L. PALK, UNITED STATES DISTRICT JUDGE
Before the Court is Defendant's Rule 12(c) Motion for Judgment on the Pleadings to Dismiss Claims of Plaintiff and Memorandum of Law in Support [Doc. Nos. 17-18]. Plaintiff has responded [Doc. No. 24] and Defendant has replied [Doc. No. 25]. The Court is also in receipt of Defendant's Notices of Supplemental Authority [Doc. Nos. 29-30]. The matter is at issue and ready for determination. For the reasons set forth, Defendant's Motion is GRANTED.
Citations to the parties' briefing submissions reference the Court's ECF pagination.
I. Background
This is a declaratory judgment action to resolve a coverage dispute under a property insurance policy issued to Plaintiff, Totally Tickets (Totally Tickets), by Defendant, Sentinel Insurance Company, Ltd. (Sentinel). Totally Tickets seeks to recover under the policy for direct physical loss or injury resulting from the COVID-19 pandemic. Sentinel contends the policy does not provide coverage for the loss at issue. Sentinel further contends the policy's virus exclusion precludes coverage.
II. Governing Standard
Rule 12(c) of the Federal Rules of Civil Procedure governs. Rule 12(c) provides that a party may move for judgment on the pleadings "[a]fter pleadings are closed – but early enough not to delay trial[.]" Fed. R. Civ. P. 12(c).
"A motion for judgment on the pleadings under Rule 12(c) is treated as a motion to dismiss under Rule 12(b)(6)." Atlantic Richfield Co. v. Farm Credit Bank of Wichita , 226 F.3d 1138, 1160 (10th Cir. 2000). The court applies the same standards under either rule. Brown v. Montoya , 662 F.3d 1152, 1160 n. 4 (10th Cir. 2011). The court accepts as true the complaint's well-pleaded factual allegations and views them in the light most favorable to the plaintiff. Schrock v. Wyeth Inc. , 727 F.3d 1273, 1280 (10th Cir. 2013). But the court need not accept as true legal conclusions, and "naked assertions devoid of further factual enhancement" will not suffice. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quotation omitted).
"That they share governing standards does not mean that Rule 12(c) motions are the same as Rule 12(b) motions." Krontz v. CNG Logistics, LLC , No. 19-4081-SAC, 2020 WL 224525 (D. Kan. Jan. 15, 2020). "A motion proceeding under Rule 12(c) occurs only after the pleadings are closed and is designed to provide a means of disposing of cases when the material facts are not in dispute and a judgment on the merits can be achieved by focusing on the content of the pleadings and any facts of which the court will take judicial notice." Id. (internal quotation marks and citations omitted).
III. Factual Allegations of the Complaint
This action originated in state court and was removed to federal court on the basis of diversity-of-citizenship jurisdiction. See Notice of Removal [Doc. No. 1]. Consistent with federal practice nomenclature, the Court refers to the state-court petition as the Complaint.
Totally Tickets is a "ticket event company" with its headquarters located in Oklahoma City, Oklahoma. Compl. [Doc. No. 1-2], ¶ 1. Sentinel issued Policy No. 38 SBA B54211 SC (the Policy) to Totally Tickets for the period February 24, 2020 to February 24, 2021. Id. , ¶ 6. The Policy insures "Totally Tickets' property located within the State of Oklahoma." Id. , ¶ 3.
There appears to be a typographical error in Totally Tickets' reference to the Policy number. The Policy number is SBA BS4211. See Policy [Doc. No. 18-1].
"On or about March of 2020, the United States of America became infected by COVID-19 resulting in a pandemic." Id. , ¶ 7. "As a result of this pandemic and infection, Totally Tickets [sic] Property sustained direct physical loss or damage and will continue to sustain direct physical loss or damage covered by the policy, including but not limited to business interruption, extra expense, interruption by civil authority, limitations on ingress and egress, and expenses to reduce loss." Id. "As a direct result of this pandemic and infection, Totally Tickets' Property has been damaged, as described above, and cannot be used for its intended purpose." Id. As relief, Totally Tickets seeks a declaratory judgment that the Policy covers Totally Ticket's "losses and expenses related to the COVID-19 pandemic and infection ...." Id. , ¶ 10.
As Sentinel notes, "[t]here are no coverages in the [P]olicy designated as ‘expenses to reduce loss’ or ‘limitation of ingress and egress.’ " Def.'s Brf. at 13, n. 4. Thus, like Sentinel, the Court assumes Totally Tickets intends to reference the Extra Expense and Civil Authority coverages. Id.
In ruling on Sentinel's 12(c) Motion, the Court may consider the Policy, attached as an exhibit to the Motion. The Policy is integral to the allegations of the Complaint and Plaintiff has not challenged its authenticity. See, e.g., Dutcher v. Matheson , 840 F.3d 1183, 1187 n. 1 (10th Cir. 2016) ; Toone v. Wells Fargo Bank, N.A. , 716 F.3d 516, 521 (10th Cir. 2013).
A. Coverage
The Policy provides coverage for "direct physical loss of or physical damage to Covered Property ... caused by or resulting from a Covered Cause of Loss." Policy Form SS 00 07 07 05 [Doc. No. 18-1:35], ¶ A COVERAGE . The Policy defines "Covered Causes of Loss" as "risks of direct physical loss," unless the loss is excluded or limited by other Policy Provisions. Id. , 18-1:36, ¶ A. 3.
The Policy provides "Additional Coverages" for "Business Income" as follows:
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 physical damage to property at the "scheduled premises", including personal property in the open (or in a vehicle) within 1,000 feet of the "scheduled premises", caused by or resulting from a Covered Cause of Loss.
Id. , 18-1:44, ¶ A. 5. o. (1). "Scheduled premises" is defined as property located at the "premises described in the [Policy's] Declarations." Id. , 18-1:35, ¶ A. COVERAGE .
The Policy also provides coverage for "Extra Expense" as follows:
We will pay reasonable and necessary Extra Expense you incur during the
"period of restoration" that you would not have incurred if there had been no direct physical loss or physical damage to property at the "scheduled premises", including personal property in the open (or in a vehicle) within 1,000 feet, caused by or resulting from a Covered Cause of Loss.
Id. , 18-1:44, ¶ A. 5. p. (1).
Finally, the Policy provides Civil Authority coverage:
This insurance is extended to apply to the actual loss of Business Income you sustain when access to your "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."
Id. , 18-1:45, ¶ A 5. q. (1).
B. Exclusions
The Policy excludes from coverage any loss or damage caused by a virus. Specially, the Policy's Virus Exclusion provides:
[Sentinel] 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.
* * *
This exclusion applies whether or not the loss event results in widespread damage or affects a substantial area.
Policy Form SS 40 93 07 05, 18-1:145.
V. Discussion
Oklahoma law governs the issues presented in this action, where federal subject matter jurisdiction is predicated on diversity of citizenship. See, e.g., Universal Underwriters Ins. Co. v. Winton , 818 F.3d 1103, 1105-06 (10th Cir. 2016). The Policy, therefore, must be interpreted in accordance with Oklahoma law.
Plaintiff does not dispute Sentinel's position that Oklahoma law governs. See Def.'s Mem. at 15, n. 5.
A. Interpretation of Insurance Contracts
Under Oklahoma law, "[w]hen policy provisions are clear, consistent, and unambiguous, [the court must] look to the plain and ordinary meaning of the policy language to determine and give effect to the parties' intent." Porter v. Okla. Farm Bureau Mut. Ins. Co. , 330 P.3d 511, 515 (Okla. 2014). "The interpretation of an insurance contract and whether it is ambiguous is a matter of law for the Court to determine and resolve accordingly." Dodson v. St. Paul Ins. Co. , 812 P.2d 372, 376 (Okla. 1991). "An insurance contract is ambiguous only if it is susceptible to two constructions on its face from the standpoint of a reasonably prudent layperson, not from that of a lawyer." Haworth v. Jantzen , 172 P.3d 193, 196 (Okla. 2006). In determining whether a contract is ambiguous, the court "will not indulge in forced or constrained interpretations to create and then construe ambiguities[.]" Id.
The insured has the burden of showing that a covered loss occurred, while the insurer has the burden of showing that a loss falls within an exclusionary clause of the policy. See Pitman v. Blue Cross & Blue Shield of Okla. , 217 F.3d 1291, 1298 (10th Cir. 2000) (Once coverage is established, "the insurer has the burden of showing that a loss falls within an exclusionary clause of the policy."); McGee v. Equicor-Equitable HCA Corp. , 953 F.2d 1192, 1205 (10th Cir. 1992) ("It is a basic rule of insurance law that the insured carries the burden of showing a covered loss has occurred and the insurer must prove facts that bring a loss within an exclusionary clause of the policy."); Fehring v. Universal Fid. Life Ins. Co. , 721 P.2d 796, 799 (Okla. 1986) (insurer bears burden of proving applicability of exclusionary clause). An exclusion is a policy term eliminating coverage where it otherwise would have existed under the general declaration. Dodson , 812 P.2d at 377.
B. Coverage
1. Direct Physical Loss of or Damage to Property
Under any of the three coverage provisions at issue, Totally Tickets must allege direct physical loss or damage to property. Totally Tickets alleges in wholly conclusory fashion that as a result of the COVID-19 pandemic, Totally Tickets' property "sustained direct physical loss or damage and will continue to sustain direct physical loss or damage...." Compl., ¶ 7. These allegations are insufficient to support a claim for relief. See, e.g., Burnett v. Mortg. Elec. Registration Sys., Inc. , 706 F.3d 1231, 1235 (10th Cir. 2013) ("[M]ere labels and conclusions, and a formulaic recitation of the elements of a cause of action will not suffice; a plaintiff must offer specific factual allegations to support each claim." (internal quotation marks and citation omitted)). As Sentinel argues, numerous courts have found similar conclusory allegations insufficient under the governing Iqbal pleading standard. See Def.'s Mem. at 18-19 (citing cases).
In response to Sentinel's Motion, Totally Tickets argues that loss of ticket sales for events held at Chesapeake Event Center after March 17, 2020 was a direct effect of Oklahoma City's emergency proclamation dated March 17, 2020 issued in response to the COVID-19 pandemic. Pl.'s Resp. at 4. Totally Tickets claims the loss of ticket sales constitutes direct physical loss or physical damage. Id.
The Court considers these additional allegations to the extent Plaintiff alternatively seeks leave to amend.
The majority of courts to consider coverage issues involving similar policy language in the context of the COVID-19 pandemic have concluded that "direct physical loss" requires a showing of some "tangible damage" to property. See, e.g., Goodwill Indus. of Central Okla., Inc. v. Philadelphia Indem. Ins. Co. , 499 F. Supp. 3d 1098, 1103-04 (W.D. Okla. 2020) (collecting cases); see also Def.'s Mem. at 21-22 and n. 6 (citing additional cases). The Court finds Goodwill and the other cited authority persuasive.
To come within the purview of "direct physical loss" Totally Tickets must allege tangible damage. Loss of ticket sales due to the City's emergency proclamation does not suffice. Cf. Till Metro Entm't v. Covington Specialty Ins. Co. , No. 20-CV-255-GKF-JFJ, 545 F.Supp.3d 1153, 1162–63, (N.D. Okla. June 28, 2021) (applying Oklahoma law and concluding that loss of use of concert venue due to COVID-19 governmental closure orders did not constitute "direct physical loss" to trigger business income coverage under insurance policy); see also Malaube, LLC v. Greenwich Ins. Co. , No. 20-22615-CIV, 2020 WL 5051581 at * 7 (S.D. Fla. Aug. 26, 2020) (plaintiff's allegations insufficient to establish direct physical loss under property insurance policy because "interruption in business must be caused by some physical problem with the covered property," and the plaintiffs alleged only that the city-wide orders caused the closure of its restaurants); 10E, LLC v. Travelers Indem. Co. of Conn. , 483 F. Supp.3d 828, 835-36 (C.D. Calif. 2020) ("Under California law, losses from inability to use property do not amount to ‘direct physical loss or damage to property’ within the ordinary and popular meaning of that phrase."); Promotional Headwear Int'l v. Cincinnati Ins. Co. , 504 F. Supp. 3d 1191, 1200 & n. 53 (D. Kan. 2020) ("[T]he overwhelming majority of cases to consider business income claims stemming from the COVID-19 pandemic with similar policy language hold that "direct physical loss or damage" to property requires some showing of actual tangible harm to or intrusion on the property itself.").
Alternatively, Totally Tickets contends the meaning of "physical loss" is ambiguous under the terms of the Policy. Pl.'s Resp. at 4. Totally Tickets argues "[i]f physical loss is to be given its plain meaning then, loss of usefulness and/or functionality must be included in this meaning." Id. Otherwise, Totally Tickets contends the provision is rendered "meaningless or even redundant[.]" Id. at 5. As support, Totally Tickets cites Studio 417, Inc. v. Cincinnati Ins. Co. , 478 F. Supp. 3d 794 (W.D. Mo. 2020) (finding plaintiffs sufficiently alleged a "direct physical loss" based on allegations that "COVID-19 particles attached to and damaged their property, which made their premises unsafe and unusable").
Here, Totally Tickets makes no allegations that the virus was present at and actually contaminated the insured property.
The majority of courts have rejected Totally Tickets' argument and the rationale of Studio 417 . See, e.g., Till Metro , 545 F.Supp.3d at 1162–63, (collecting cases); see also Govinda, LLC v. Columbia Mut. Ins. Co. , No. CIV-20-542-R, 545 F.Supp. 3d 1167, 1171–72, (W.D. Okla. June 28, 2021) (citing cases and concluding the term "direct physical loss" is not ambiguous and "[t]o adopt Plaintiff's reading of the Policy would render the term "physical" without any meaning in the Policy"); Lisette Enters. Ltd. v. Regent Ins. Co. , No. 4:20-cv-00299-SMR-CFB, 537 F.Supp.3d 1038, 1045,(S.D. Iowa May 6, 2021) ("While a loss of use may, in some cases, entail a physical loss, it does not follow that the terms are synonymous; interpretation of physical loss as requiring only loss of use stretches "physical" beyond its ordinary meaning and may, in some cases, render the word "physical" meaningless." (internal quotations marks, alterations and citation omitted)). The Court agrees with the persuasive reasoning of these courts.
As set forth, physical loss or damage is required for all three types of coverage that Totally Tickets seeks, i.e., business income, extra expense and civil authority coverage, The Court concludes the language of the Policy is unambiguous and finds Totally Tickets' failure to plead tangible loss to property is dispositive.
2. Civil Authority Coverage
The Policy provides coverage to Totally Tickets for "actual loss of Business Income" for a period of thirty days "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 [its] ‘scheduled premises.’ " Policy Form SS 00 07 07 05, ¶ A. 5. q(1). The Policy defines "Covered Causes of Loss" as "risks of direct physical loss or damage," unless the loss is specifically excluded or limited in some other Policy provisions. Id. , ¶ A.3.
In addition to failing to plausibly allege direct physical loss or damage, Totally Tickets' Complaint includes only the most conclusory allegation concerning loss due to order of a civil authority. See Compl., ¶ 7 ("As a result of this pandemic and infection, Totally Tickets Property sustained direct physical loss or damage ... including ... interruption by civil authority ...."). Thus, the allegations do not state a plausible claim for relief based on civil authority coverage.
In response to Sentinel's Motion, Totally Tickets states the following:
As of March 16, 2020, no further tickets for large events to be held at the Chesapeake Arena were sold, nor were events held. Moreover, no further NBA games were scheduled at the Chesapeake Arena for the 2019-2020 season. There is no dispute as to the fact that the Chesapeake Arena is within the ‘immediate area’ of the insured premises.... As such, Plaintiff sustained actual loss of income due to the direct physical loss of access to the venue of Oklahoma City's Chesapeake Energy Arena. This is directly due to the NBA shutdown as well as the prohibition by civil order from Oklahoma City's Mayor Holt.
Pl.'s Resp. at 3.
Totally Tickets' statement is set forth in a section of its Response headed "Undisputed Facts." But in the "Argument and Authority" section of its Response, Totally Tickets fails to address the applicable Civil Authority Coverage provision or develop any factual or legal argument related thereto. Thus, it does not appear Totally Tickets seeks to invoke this policy provision.
It is unclear why Totally Tickets included a section on "undisputed facts" in the context of a Rule 12(c) Motion, particularly where the "facts" recited are wholly absent from the Complaint.
In any event, Totally Tickets' failure to address the issue is grounds alone on which to grant Sentinel's Motion.
As Sentinel argues, to obtain coverage under this provision, Totally Tickets must show that (1) access to its premises was "specifically prohibited" by a civil authority order and (2) the civil authority order was issued as a "direct result" of direct physical loss to property in the immediate area of the insured premises. As set forth above, and as briefed by Sentinel, Totally Tickets' allegations are wholly insufficient in this regard. See Def.'s Reply at 11-13. Totally Tickets "has not plausibly alleged that the closure orders were issued for a purpose other than to prevent the spread of COVID-19, or that the orders caused a direct physical loss to neighboring properties, just as it has not plausibly pled direct physical damage to its own premises." Cafe Plaza de Mesilla Inc. v. Cont'l Cas. Co. , 519 F.Supp.3d 1006, 1015 (D. N.M. 2021). Therefore, even if Totally Tickets attempts to invoke the Civil Authority coverage provision of the Policy, Sentinel is entitled to judgment on the pleadings.
C. Virus Exclusion
Because Totally Tickets has not alleged facts sufficient to demonstrate coverage, the Court addresses the Virus Exclusion only in the alternative. The Court finds that even if Totally Tickets had alleged facts sufficient to demonstrate coverage, dismissal would still be proper under the Virus Exclusion.
The Policy provides that Sentinel "will not pay for loss or damage caused directly or indirectly by any of the following ... (1) Presence, growth, proliferation, spread or any activity of ... virus." Policy Form SS 40 93 07 05 ¶ A. 2. i. The Virus Exclusion applies "regardless of any other cause or event that contributes concurrently or in any sequence to the loss." Id.
Totally Tickets argues the Virus Exclusion applies only to "damages to property caused directly by a virus." Pl.'s Resp. at 7 (emphasis added). Totally Tickets argues it does not allege such damages but rather, alleges damages "sustained secondary to the health risk that has caused venues across the country" to close. Id. Totally Tickets' argument ignores the plain language of the exclusion, which addresses loss caused directly or indirectly by a virus. The argument is also contrary to the factual allegations included in Totally Tickets' Complaint. See Compl., ¶ 7 ("As a result of this pandemic and infection, Totally Tickets Property sustained direct physical loss or damage and will continue to sustain direct physical loss or damage covered by the policy...."). As Sentinel argues, the "health risk" to which Totally Tickets refers is the coronavirus. Thus, the damages Totally Tickets alleges are those caused directly or indirectly by a virus. Cf. Mac Prop. Grp. LLC v. Selective Fire & Cas. Ins. Co. , 2020 WL 7422374 at *8 (N.J.Super.L. Nov. 5, 2020) ("Since the virus is alleged to be the cause of the governmental action, and the governmental action is asserted to be the cause of the loss, plaintiff cannot avoid the clear and unmistakable conclusion that the coronavirus was the cause of the alleged damage or loss" and, therefore the virus exclusion barred coverage.); see also Def.'s Mem. at 26-29 (collecting cases); Def.'s Reply at 15-16 (collecting cases). Because the Virus Exclusion bars coverage, Sentinel is entitled to judgment on the pleadings.
Here, there appears to be no dispute that the coronavirus underlying the COVID-19 pandemic is a virus for purposes of the Virus Exclusion. See Def.'s Brf. at 25, n. 8.
VI. Leave to Amend
In its Response, Totally Tickets asserts that "if this Court should find that the Complaint filed by Totally Tickets fails to conform to federal pleading requirements (since Plaintiff's Petition was originally filed in Oklahoma County), the Plaintiff respectfully requests leave to amend said complaint accordingly." Pl.'s Resp. at 7. Sentinel replies that leave to amend would be futile based on the applicable Policy language and relevant case authority. The Court agrees that leave to amend would be futile. As set forth, even if Totally Tickets were granted leave to address matters raised in its Response, Totally Tickets fails to demonstrate any plausible claim for relief. Totally Tickets cannot show any direct physical loss or damage to property arising from COVID-19. Moreover, the Virus Exclusion bars coverage. The Court, therefore, denies Totally Tickets leave to amend.
Notably, in this regard, the Court notes that Totally Tickets cites a single (and distinguishable) case addressing coverage in the context of the COVID-19 pandemic in support of its Response. Sentinel, conversely, has cited significant (and persuasive) authority from district courts within the Tenth Circuit and across the country in support of its Motion.
Further, Totally Tickets' mere suggestion that it should be permitted leave to amend is insufficient. Johnson v. Spencer , 950 F.3d 680, 721 (10th Cir. 2020) ("A district court may deny leave to amend when a plaintiff fails to file a written motion and instead merely suggests [it] should be allowed to amend if the court concludes [its] pleadings are infirm." (internal quotation marks and citation omitted)). The Court additionally notes that Totally Tickets has not complied with the Court's local rules in requesting leave to amend. See LCvR 15.1. These additional reasons serve as further grounds for denying Totally Tickets leave to amend.
VII. Conclusion
For the reasons set forth, Defendant's Rule 12(c) Motion for Judgment on the Pleadings to Dismiss Claims of Plaintiff [Doc. Nos. 17-18] is GRANTED and the case is dismissed with prejudice. A separate Judgment of Dismissal will be entered contemporaneously with this Order.
IT IS SO ORDERED this 14th day of July, 2021.