4431, Inc. v. Cincinnati Ins. Cos.

504 F.Supp.3d 368

4431, INC., 4431 Assoc., LP, 3354 Walbert Assoc., LP, 3354 Walbert Avenue Associates, LLC, Blue Grille House and Wine Bar, 4131 Associates, Candlelight Inn, 2960 Center Valley Parkway, LLC, 3739 West Chester Pike, LLC, Melt Restaurant Group, LLC, Paxos Restaurants, Inc., Melt Real Estate Group, LP., and Top Cut Steakhouse, Plaintiffs,

v.CINCINNATI INSURANCE COMPANIES, the Cincinnati Insurance Company, the Cincinnati Casualty Company, and the Cincinnati Indemnity Company, Defendants.

No. 5:20-cv-04396

United States District Court, E.D. Pennsylvania.

Filed December 3, 2020

Christian M. Perrucci, Florio, Perrucci Steinhardt & Fader LLC, Robert A. Freedberg, Florio Perrucci Steinhardt & Cappelli LLC, Bethlehem, PA, for Plaintiffs.

Lawrence M. Silverman, Litchfield Cavo LLP, Philadelphia, PA, for Defendants.

OPINION

Defendants’ Motion to Dismiss for Failure to State a Claim, ECF No. 5—GRANTED

Joseph F. Leeson, Jr., United States District Judge

I. INTRODUCTION

This insurance coverage dispute stems from the ongoing COVID-19 pandemic and its impact on the ability of several restaurants to operate. Plaintiffs are twelve commercial entities that own and operate restaurants in Pennsylvania (collectively, "Plaintiffs"). They purchased four identical "All Risk" property insurance policies ("the Policies") from Defendants Cincinnati Insurance Company and related entities (collectively, "Cincinnati"). As with so many other businesses, Plaintiffs have been forced to limit their operations as a result of the COVID-19 pandemic, closing their restaurants for in-dining and bar service. After Cincinnati refused to pay Plaintiffs’ claims for pandemic-related loss of income under the Policies, Plaintiffs commenced this action in the Court of Common Pleas of Northampton County. Cincinnati removed the action to this Court on diversity grounds and now moves to dismiss the Complaint for failure to state a claim, arguing Plaintiffs’ losses are not covered by the terms of the Policies. Plaintiffs oppose the motion.

Upon consideration of Cincinnati's motion to dismiss and Plaintiffs’ opposition thereto, and for the reasons set forth below, the motion is granted, and Plaintiffs’ Complaint is dismissed.

II. BACKGROUND

A. Facts Alleged in Plaintiffs’ Complaint¹

Plaintiffs operated bar and dine-in services on the premises of and as part of several restaurants in Pennsylvania. Plaintiffs’ Complaint ("Compl."), ECF No. 1, ¶¶ 2, 22. Due to Orders issued by the Governor of Pennsylvania in response to the COVID-19 pandemic, Plaintiffs were forced to close on-premises dining and bar service at their restaurants beginning on March 19, 2020, and continuing to the present. Id. ¶¶ 3, 27-31. Their restaurants remain open only for takeout service. Id. ¶ 32. These closures have resulted in losses in excess of $100,000.00 per month since March 19, 2020, for each of Plaintiffs’ restaurants. Id.

Prior to March 2020, Plaintiffs purchased four "All Risk" insurance policies from Cincinnati.² See Compl. ¶ 4. The terms of the Policies are identical. Id. ¶ 14. The Policies provide as follows:

We will pay for the actual loss of "Business Income" and "Rental Value" you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct "loss" to property at a "premises" caused by or resulting from any Covered Cause of Loss.

Policy at 47. The Policies further state:

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 "loss" to property at "premises" which are described in the Declarations and for which a "Business Income" Limit of Insurance is shown in the Declarations. The "loss" must be caused by or result from a Covered Cause of Loss.

Id. at 102. And further:

We will pay Extra Expense you sustain during the "period of restoration". Extra Expense means necessary expenses you sustain ... during the "period of restoration" that you would not have sustained if there had been no direct "loss" to property caused by or resulting from a Covered Cause of Loss.

Id. at 48. The Policies also provide that Cincinnati "will pay for direct ‘loss’ to Covered Property at the ‘premises’ caused by or resulting from any Covered Cause of Loss." Id. at 32.

Relevant to Plaintiffs’ suit, the Policies also contain a provision regarding covered losses stemming from actions of "civil authority":

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

(a) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage; and

(b) 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.

Policy at 48.

The Policies define "Covered Causes of Loss" as used in the above provisions as "direct ‘loss’ unless the ‘loss’ is excluded or limited in this coverage part." Compl. ¶ 16. "Loss" is in turn defined as "[a]ccidental physical loss or accidental physical damage." Id. ; see, e.g. , Policy at 67. There are no exclusions or limitations for viruses under the Policies. See Compl. ¶¶ 17, 41-42.

The Policies were fully paid and in effect as of March 2020, and have remained fully paid and in effect at all times since March 2020. Compl. ¶¶ 23-24. At some point during or after March 2020, Plaintiffs submitted claims for loss of income under the Policies. Id. ¶ 34. Plaintiffs state that their loss of income is the result of mandatory physical closures due to the spread of COVID-19, and is covered under the terms of the Policies. Id. ¶ 45. Specifically, Plaintiffs claim the closures were the result of "a covered cause of loss which inflicted a direct physical loss and/or caused direct physical damage to their covered premises. Plaintiffs also have had to pay for disinfecting and cleaning the premises to prevent COVID-19 contamination." Id. Plaintiffs also state that they are entitled to "Civil Authority Coverage" under the Policies as a result of what they identify as Pennsylvania's "Civil Authority Orders"—i.e. , mandatory closure and stay at home orders issued by the Governor of Pennsylvania.³ Id. ¶¶ 57-62. Cincinnati denied all of Plaintiffs’ claims for lost business income. Id. ¶ 35.

Based upon the above averments, Plaintiffs assert a claim for declaratory judgment under 42 PA. CONS. STAT. § 7532,⁴ see Compl. ¶¶ 36-63, as well as a claim for breach of contract, see id. ¶¶ 64-69.

B. Procedural Background

On July 24, 2020, Plaintiffs commenced this action in the Court of Common Pleas of Northampton County. See ECF No. 1. Cincinnati filed a Notice of Removal on September 8, 2020, removing the case to this Court on the basis of diversity jurisdiction. See id. Shortly thereafter on September 15, 2020, Cincinnati filed the instant motion to dismiss the Complaint for failure to state a claim. See ECF No. 5. On September 23, 2020, Plaintiffs filed a motion to remand the action back to state court. See ECF No. 6. On October 14, 2020, after receiving correspondence from the parties indicating Plaintiffs’ wish to withdraw their motion to remand, the Court granted that request and extended the deadline for Plaintiffs’ response to the pending motion to dismiss. See ECF No. 10. Plaintiffs’ opposition to the motion to dismiss was filed on October 26, 2020, see ECF No. 11, and Cincinnati's reply in further support of its motion was filed on November 3, 2020, see ECF No. 13.

III. DISCUSSION

A. Whether Exercising Jurisdiction is Appropriate

1. Applicable Legal Principles

Although Plaintiffs’ motion to remand has technically been withdrawn, the question of whether this Court should exercise jurisdiction over the action and rule on Cincinnati's motion to dismiss is still one that the Court must address. This is due to the declaratory relief Plaintiffs seek. See Rarick v. Federated Serv. Ins. Co. , 852 F.3d 223, 227 (3d Cir. 2017) ("When an action seeks legal relief, federal courts have a virtually unflagging obligation to exercise jurisdiction.... When an action seeks declaratory relief, however, federal courts may decline jurisdiction under the [federal] Declaratory Judgment Act.") (internal quotation marks omitted).

The federal Declaratory Judgment Act ("DJA")⁵ provides in relevant part as follows:

In 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) (emphasis added).⁶ "[T]he DJA grants discretion to federal district courts, who have ‘no compulsion’ to exercise their jurisdiction over cases seeking declaratory judgment." Greg Prosmushkin, P.C. v. Hanover Ins. Grp. , No. CV 20-2561, 479 F.Supp.3d 143, 146–47(E.D. Pa. Aug. 14, 2020) (quoting Brillhart v. Excess Ins. Co. , 316 U.S. 491, 494, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942) ).

In Rarick v. Federated Service Insurance Company , 852 F.3d 223 (3d Cir. 2017), the Third Circuit established the "independent claim test" as the appropriate test for determining whether a district court should exercise jurisdiction over an action seeking both declaratory and legal relief based on issues of state law. The Rarick Court stated as follows with regard to the independent claim test:

When a

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