Broadway 104, LLC v. XL Ins. Am., Inc.

545 F.Supp.3d 93

BROADWAY 104, LLC d/b/a Café du Soleil, Plaintiff,

v.XL INSURANCE AMERICA, INC., Defendant.

20-cv-3813 (PKC)

United States District Court, S.D. New York.

Signed June 23, 2021

Bradley K. King, Ahdoot & Wolfson, PC, New York, NY, Tina Wolfson, Ahdoot & Wolfson, PC New York, NE, for Plaintiff.

James R. Martin, Zelle LLP, Washington, DC, Dan Millea, Zelle LLP, Minneapolis, MN, Matthew Luis Gonzalez, Zelle LLP, New York, NY, for Defendant.

OPINION AND ORDER

CASTEL, U.S.D.J.

Plaintiff Broadway 104, LLC, doing business as Café du Soleil (the "Café"), operates a small Manhattan restaurant that has suffered financial losses during the Covid-19 pandemic and suspended operations following state and municipal shutdown orders. Defendant XL Insurance America, Inc. ("XL") issued the Café a commercial insurance policy that provided for business interruption coverage in the event of direct physical loss of or damage to its property. In April 2020, the Café submitted a written claim to XL, seeking coverage for business losses arising out of the pandemic and the government shutdown orders. XL disclaimed coverage and asserted that the Café’s policy did not cover the claimed losses.

The Café’s First Amended Complaint (the "Complaint") brings claims for breach of contract and breach of the duty of good faith and fair dealing, and also seeks a declaration that XL wrongfully disclaimed coverage. (Docket # 34.) The claims are brought on behalf of a putative class. XL moves to dismiss the Complaint pursuant to Rule 12(b)(6), Fed. R. Civ. P.

Because the Complaint does not plausibly allege that the Café’s suffered a covered loss under the XL policy, the motion to dismiss will be granted.

BACKGROUND.

The Café is a small, family-owned restaurant in New York City. (Compl't ¶ 2.) It is a sit-down restaurant that primarily serves in-person customers. (Compl't ¶ 2.)

The Complaint recounts the events of March 2020, when New York City (the "City") became the "epicenter" of Covid-19 in the United States. (Compl't ¶¶ 21-30.) It states that on March 17, 2020, all of the City's bars and restaurants were closed by order of the mayor, with the exception of takeout and delivery orders. (Compl't ¶ 29.) On March 22, 2020, Governor Andrew Cuomo implemented a stay-at-home order, which applied to non-essential businesses and workers and remained in place for months. (Compl't ¶ 30.)

XL issued Commercial Property Policy number PHK-0951383-00 (the "Policy") to plaintiff. (Compl't ¶ 12; Gonzalez Dec. Ex. A.) The Policy was effective from June 25, 2019 to June 25, 2020. (Id.) Several provisions of the Policy are relevant to the Café’s claims for relief. The Policy included coverage for the loss of "Business Income" and stated in part:

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

(Compl't ¶ 15; Gonzalez Dec. Ex. A at p. 49 of 162.) It also provided that XL "will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss." (Gonzalez Dec. Ex. A at p. 33 of 162.) "Covered Causes of Loss" is defined as "direct physical loss unless the loss is excluded or limited in this policy." (Id. at p. 75 of 162.) The Policy included a coverage provision stating that XL "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" under certain specified circumstances. (Compl't ¶ 20; Gonzalez Dec. Ex. A at p. 50 of 162.) An exclusion to the Policy headed "NEW YORK – EXCLUSION OF LOSS DUE TO VIRUS OR BACTERIA" (the "Virus Exclusion") stated as follows: "We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease." (Compl't ¶ 35 & Gonzalez Dec. Ex. A at p. 66 of 162.)

The Complaint alleges that due to restrictions adopted by state and local authorities that were intended to mitigate the spread of Covid-19, the Café "suffered a direct physical loss of use of its restaurant and resulting significant loss of business income ...." (Compl't ¶ 33.) It alleges that "[b]y mid-March, 2020, Plaintiff was forced to suspend business operations at the restaurant ...." (Compl't ¶ 33.)

The Café submitted a claim to XL seeking coverage for the loss of business income, and XL denied coverage in a letter dated April 3, 2020. (Compl't ¶ 33.) The Complaint alleges that XL "heavily relied" on the Virus Exclusion, and that XL also asserted that the Café’s lost business income was not covered because such loss was not a direct physical loss or damage to business property. (Compl't ¶ 35.)

The Café asserts that its lost revenue "should have been covered by the Policy because the COVID-19 pandemic is such a devastating, far-ranging, and unforeseen event that it does not fall within a reasonable interpretation of the ‘virus’ exclusion in the Policy endorsement ...." (Compl't ¶ 36.) It also asserts that its business closure was not the direct result of Covid-19 contamination, but of the virus's presence in the surrounding area and of closures mandated by civil authorities. (Compl't ¶¶ 36, 38.) The Complaint asserts that XL's reliance on the Virus Exclusion is contrary to the exclusion's text and purpose. (Compl't ¶¶ 38-41.)

The Complaint brings three causes of action. First, it asserts breach of contract, and alleges that XL wrongfully disclaimed coverage based on mischaracterizations of the Policy. (Compl't ¶¶ 49-53.) Second, it asserts breach of a duty of god faith and fair dealing, and alleges that XL has acted in bad faith and evaded "the spirit of the bargain." (Compl't ¶¶ 54-59.) Third, it seeks a declaration that XL is obligated to insure the Café because its business was restricted due to "civil authority business closures." (Compl't ¶¶ 60-66.) Subject matter jurisdiction is premised on the minimal diversity requirement of the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2). (Compl't ¶¶ 7-9.)

RULE 12(b)(6) STANDARD.

Rule 12(b)(6) requires a complaint to "contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). In assessing the sufficiency of a pleading, a court must disregard legal conclusions, which are not entitled to the presumption of truth. Id. Instead, the Court must examine the well-pleaded factual allegations and "determine whether they plausibly give rise to an entitlement to relief." Id. at 679, 129 S.Ct. 1937. "Dismissal is appropriate when ‘it is clear from the face of the complaint, and matters of which the court may take judicial notice, that the plaintiff's claims are barred as a matter of law.’ " Parkcentral Global Hub Ltd. v. Porsche Auto. Holdings SE, 763 F.3d 198, 208-09 (2d Cir. 2014) (quoting Conopco, Inc. v. Roll Int'l, 231 F.3d 82, 86 (2d Cir. 2000) ).

A complaint is " ‘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.’ " Cohen v. Rosicki, Rosicki & Assocs., P.C., 897 F.3d 75, 80 (2d Cir. 2018) (quoting L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011) ). The Court may therefore consider such documents, including those submitted by a defendant, as part of a Rule 12(b)(6) motion without converting the motion into one for summary judgment. Holowecki v. Fed. Exp. Corp., 440 F.3d 558, 565-66 (2d Cir. 2006). In an insurance coverage dispute, a court adjudicating a motion to dismiss may properly consider a policy referenced in the complaint. See, e.g., New Image Roller Dome, Inc. v. Travelers Indem. Co. of Illinois, 310 Fed. App'x 431, 432 (2d Cir. 2009)

DISCUSSION.

I. The Complaint Does Not Plausibly Allege that the Café Suffered a "Direct Physical Loss" of Property.

"In determining a dispute over insurance coverage, [courts] first look to the language of the policy." Lend Lease (US) Const. LMB Inc. v. Zurich Am. Ins. Co., 28 N.Y.3d 675, 681, 49 N.Y.S.3d 65, 71 N.E.3d 556 (2017) (quotation marks omitted). "Insurance contracts are governed by the general rules of contract interpretation. When resolving disputes concerning the scope of coverage, [courts] look to the specific language in the relevant insurance policies." Chen v. Ins. Co. of the State of Pennsylvania, 36 N.Y.3d 133, 138, 139 N.Y.S.3d 579, 163 N.E.3d 447 (2020). "The language of a policy, when clear and unambiguous, must be given its plain and ordinary meaning." Id. "Insurance policies must be construed in a way that affords a fair meaning to all of the language employed by the parties in the contract and leaves no provision without force and effect." Selective Ins. Co. of Am. v. Cty. of Rensselaer, 26 N.Y.3d 649, 655, 27 N.Y.S.3d 92, 47 N.E.3d 458 (2016) (quotation marks and alterations omitted).

The Policy provides in relevant part: "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 at premises .... The loss or damage must be caused by or result from a Covered Cause of Loss." (Gonzalez Dec. Ex. A at p. 49 of 162.) Thus, under the unambiguous terms of the Policy, the parties agreed that XL would provide...