Big Red Mgmt. Corp. v. Zurich Am. Ins. Co.

579 F.Supp.3d 665

BIG RED MANAGEMENT CORP., on behalf of itself and all others similarly situated, Plaintiff,

v.ZURICH AMERICAN INSURANCE COMPANY, Defendant.

CIVIL ACTION NO. 20-2113-KSM

United States District Court, E.D. Pennsylvania.

Filed January 7, 2022

Daniel E. Bacine, Jeffrey A. Barrack, Mark R. Rosen, Meghan Jane Talbot, Barrack Rodos & Bacine, Philadelphia, PA, for Plaintiff Big Red Management Corp.

Archis A. Parasharami, Mayer Brownllp, Evan M. Tager, Mayer Brown LLP, Patrick F. Hofer, Clyde & Co. US LLP, Washington, DC, Bronwyn F. Pollock, Douglas A. Smith, Mayer Brown LLP, Los Angeles, CA, Eric D. Freed, Stephen S. Kempa, Cozen O'Connor, Philadelphia, PA, for Defendant.

MEMORANDUM

MARSTON, District Judge

Plaintiff Big Red Management Corporation ("Big Red") brings breach of contract and declaratory judgment claims against its insurer, Defendant Zurich American Insurance Company ("Zurich"), seeking coverage for lost business income caused by government closure orders issued in response to the COVID-19 pandemic. (Doc. No. 40.) Presently before the Court is Zurich's motion to dismiss Big Red's claims. (Doc. No. 41.) For the reasons below, Zurich's motion is granted.

I. BACKGROUND

Big Red manages over a dozen restaurants in and around Philadelphia. (Doc. No. 41-2 at 12.) From July 2019 through July 2020, its restaurants were covered by a Property Portfolio Protection, General Liability Coverage and Business Automobile Policy ("the Policy") issued by Zurich. (Doc. No. 40 ¶ 2.)

A. The Policy

The Policy is an "all-risk" policy, which means that it covers loss caused by any "fortuitous cause or event" that is not specifically excluded from coverage. (Doc. No. 41-2 at 59.) The Policy enumerates eighteen "Excluded Causes of Loss," including "microorganisms" (the "Microorganism Exclusion"):

We will not pay for loss or damage consisting of, directly or indirectly caused by, contributed to, or aggravated by the presence, growth, proliferation, spread, or any activity of "microorganisms", unless resulting from fire or lightning. Such loss or damage is excluded regardless of any other cause or event, including a "mistake", "malfunction", or weather condition, that contributes concurrently or in any sequence to the loss, even if such other cause or event would otherwise be covered....

(Id. at 79.) The Policy defines "Microorganism" as including "any type or form of organism of microscopic or ultramicroscopic size including, but not limited to, fungus, wet or dry rot, virus , algae, or bacteria, or any by-product." (Id. at 65 (emphasis added).) Notwithstanding the Microorganism Exclusion, the Policy includes additional coverage that will pay for physical loss and the cost of repair "when ‘microorganisms’ are the result of a ‘covered cause of loss.’ " (Id. at 91 (emphasis added).)

The Policy also includes additional coverage for the loss of "business income" and "extra expenses" caused by "Civil Authority" (the "Civil Authority Coverage"):

We will pay for the actual loss of "business income" you sustain for up to the number of days shown on the Declarations for Civil Authority resulting from the necessary "suspension", or delay in the start, of your "operations" if the "suspension" or delay is caused by order of civil authority that prohibits access to the "premises" or "reported unscheduled premises". That order must result from a civil authority's response to direct physical loss of or damage to property located within one mile from the "premises" or "reported unscheduled premises" which sustains a "business income" loss. The loss or damage must be directly caused by a "covered cause of loss."

(Id. at 128; see also id. at 137 (providing additional coverage for "extra expenses" incurred due to acts of Civil Authority subject to the same conditions as the loss of "business income" additional coverage).)

B. The Closure Orders

On March 6, 2020, Governor Tom Wolf issued a "Proclamation of Disaster Emergency" recognizing the threat of "imminent disaster and emergency" the COVID-19 pandemic posed to the Commonwealth of Pennsylvania.¹ See Pa. Office of the Governor, Proclamation of Disaster Emergency (Mar. 6, 2020), https://www.governor.pa.gov/wp-content/uploads/2020/03/20200306-COVID19-Digital-Proclamation.pdf. Despite recognizing the potential for emergency, the Governor did not issue any closure orders at that time. (Doc. No. 40 ¶ 13.) The Montgomery County Commissioners issued a similar "Declaration of Disaster Emergency" on March 8, 2020, but, like the Governor, did not issue any closure orders. (Id. ¶ 14.)

On March 14, 2020, the Pennsylvania Department of Community and Economic Development issued guidance advising non-essential businesses in Bucks, Chester, Delaware, and Montgomery counties to close and advising restaurants to remain open for takeout and delivery only. See Pa. Dep't of Cmty. & Econ. Dev., Wolf Administration Issues Guidance to Non-essential Businesses as Part of COVID-19 Mitigation Efforts (Mar. 14, 2020), https://dced.pa.gov/newsroom/wolf-administration-issues-guidance-to-non-essential-businesses-as-part-of-covid-19-mitigation-efforts/. The City of Philadelphia issued the first closure order on March 16, 2020; however, this order allowed "[f]ood establishments" to remain open for "online and phone orders for delivery and pick-up." See City of Phila., City Announces New Restrictions on Business Activity in Philadelphia (Mar. 16, 2020), https://www.phila.gov/2020-03-16-city-announces-new-restrictions-on-business-activity-in-philadelphia/. On March 19, 2020, the Commonwealth followed suit and issued an order requiring all non-life sustaining businesses to close (together with the City of Philadelphia's March 16, 2020 order, the "Closure Orders"). See Pa. Office of the Governor, Order of the Governor of the Commonwealth of Pennsylvania Regarding the Closure of All Businesses that Are Not Life Sustaining (Mar. 19, 2020), https://www.governor.pa.gov/wp-content/uploads/2020/03/20200319-TWW-COVID-19-business-closure-order.pdf. As with the City of Philadelphia's order, the Commonwealth's order allowed "[b]usinesses that offer carry-out, delivery, and drive-through food and beverage service [to] continue." Id.

C. Big Red's Losses

Big Red claims that, "[a]s a consequence of the [COVID-19] Pandemic (including specifically damage to property caused by the coronavirus), and the various [Closure] Orders issued in the Commonwealth, Plaintiff and the Additional Insureds have suffered Covered Losses under the Policy." (Doc. No. 40 ¶ 25.) Big Red submitted a claim under the policy for the business income and extra expenses it lost while the Closure Orders were in effect. (Id. ¶ 30.) Zurich denied its claim on July 28, 2020 (id. ¶ 31), and Big Red filed suit (Doc. No. 1).

II. ANALYSIS

A. Legal Standard

1. Motion to Dismiss

To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Zuber v. Boscov's , 871 F.3d 255, 258 (3d Cir. 2017) (quotation marks omitted). In reviewing a motion to dismiss, the court must accept as true the factual allegations in the complaint and all reasonable inferences that can be drawn from those allegations. Id. However, the court is not "compelled to accept unsupported conclusions and unwarranted inferences, or a legal conclusion couched as a factual allegation." Castleberry v. STI Grp. , 863 F.3d 259, 263 (3d Cir. 2017) (quotation marks omitted). "[T]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

"As a general matter, a district court ruling on a motion to dismiss may not consider matters extraneous to the pleadings." In re Burlington Coat Factory Sec. Litig. , 114 F.3d 1410, 1426 (3d Cir. 1997). "However an exception to the general rule is that a document integral to or explicitly relied upon in the complaint may be considered without converting the motion to dismiss into one for summary judgment." Id. (cleaned up). Similarly, the Court "may consider an undisputably authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document." Pension Benefit Guar. Corp. v. White Consol. Indus., Inc. , 998 F.2d 1192, 1196 (3d Cir. 1993).

2. Interpretation of Insurance Contract

Under Pennsylvania law, " ‘the interpretation of a contract of insurance is a matter of law for the courts to decide.’ " Allstate Prop. & Cas. Ins. Co. v. Squires , 667 F.3d 388, 391 (3d Cir. 2012) (quoting Paylor v. Hartford Ins. Co. , 536 Pa. 583, 640 A.2d 1234, 1235 (1994) ); see also Pa. Env't Def. Found. v. Pennsylvania , 255 A.3d 289, 304 (Pa. 2021). Courts applying Pennsylvania law are required to give effect to a contract's clear and unambiguous language. 401 Fourth St., Inc. v. Invs. Ins. Grp. , 583 Pa. 445, 879 A.2d 166, 171 (2005) ; see also Wilson v. Hartford Cas. Co. , 492 F. Supp. 3d 417, 426 (E.D. Pa. 2020). A contract's terms "are ambiguous if they are subject to more than one reasonable interpretation when applied to a particular set of facts." Madison Constr. Co. v. Harleysville Mut. Ins. Co. , 557 Pa. 595, 735 A.2d 100, 106 (1999) ; see also Atain Ins. Co. v. E. Coast Bus. Fire, Inc. , Civil Action No. 17-2545, 2018 WL 637579, at *2 (E.D. Pa. Jan. 31, 2018) ("Contract language is ambiguous if it is reasonably capable of more than one meaning."). However, courts must not "distort the meaning of the language or resort to a strained contrivance in order to find an ambiguity," and must give effect to a contract's clear and unambiguous terms. Madison Constr. Co. , 735 A.2d at 106.

B. Discussion

Zurich argues that Big Red cannot state a claim for breach of contract and is not entitled to a declaratory judgment for four reasons: (1) the Civil Authority Coverage does not apply to losses caused by "microor...