Ceres Enters., LLC v. Travelers Ins. Co.

520 F.Supp.3d 949

CERES ENTERPRISES, LLC, Plaintiff,

v.TRAVELERS INSURANCE COMPANY, Defendant.

Case No. 1:20-CV-1925

United States District Court, N.D. Ohio, Eastern Division.

Signed February 18, 2021

Thomas J. Connick, Connick Law, Beachwood, OH, for Plaintiff.

Stephani A. Roman, Pro Hac Vice, Stephen E. Goldman, Pro Hac Vice, Wystan M. Ackerman, Robinson & Cole, Hartford, CT, Michele A. Chapnick, Gregory & Meyer, Troy, MI, for Defendant.

OPINION AND ORDER

J. Philip Calabrese, United States District Judge During the Covid-19 pandemic, hotels, restaurants, and other hospitality businesses have been particularly hard hit. Between State and local public health directives and consumer reluctance to travel and to dine out, especially in colder weather, many businesses in the hospitality industry have closed. Tragically, too many of these closures will be permanent. Those that have not closed have sustained deep and painful losses. Various governmental relief efforts have attempted to direct aid to those in the hospitality business, among others. This lawsuit presents another means by which some have, understandably, sought a financial lifeline to weather the difficulties and uncertainties in which the hospitality industry finds itself through no fault of its own or any particular actor in it.

Plaintiff Ceres Enterprises, LLC operates hotels in Ohio, Indiana, and Minnesota. When it sustained losses due to the pandemic, Plaintiff filed claims for lost business income under its insurance policy with Defendant Travelers Insurance Company. Plaintiff seeks a declaratory judgment on its own and on behalf of a putative class of other hospitality businesses that Defendant has coverage obligations under its policies due to the Covid-19 pandemic.

Defendant moved to dismiss the complaint. (ECF No. 6.) Because the policy at issue does not, as a matter of law, provide coverage for losses sustained due to Covid-19, as more fully explained below, the Court must GRANT Defendant's motion to dismiss.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff is an Ohio limited liability company that owns and operates hotels in Ohio, Indiana, and Minnesota. (ECF No. 1-3, ¶ 1, PageID #21.) Defendant is a property and casualty insurer, which issued a commercial business insurance policy to Plaintiff. (Id. , ¶¶ 2, 7, PageID #22–23.)

Plaintiff claims it lost business income because of the Covid-19 pandemic and that the insurance policy covers the loss. (Id. , ¶¶ 24, 27, PageID #26–28.) Further, Plaintiff alleges that Defendant has "summarily denied" insurance claims for losses caused by the Covid-19 pandemic. (Id. , ¶ 32, PageID #28.) On behalf of itself and putative class members, Plaintiff alleges three claims: (1) declaratory judgment; (2) breach of contract; and (3) breach of the covenant of good faith and fair dealing (insurance bad faith). (Id. , ¶¶ 54–85, PageID #35–41.)

A. Plaintiff's Insurance Policy

Plaintiff's policy provides coverage for "direct physical loss of or damage to property at the premises ... caused by or result[ing] from any Covered Cause of Loss." (ECF No. 1-4, PageID #108.) "Covered Cause of Loss" is defined as "risks of direct physical loss," subject to certain exclusions and limitations. (Id. , PageID #109.) The policy provides "Business Income and Extra Expense" coverage and "Civil Authority" coverage. (Id. , PageID #108–09.)

A.1. Business Income and Extra Expense Coverage

The policy covers the "actual loss of Business Income" sustained "due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration.’ " (ECF No. 1-4, PageID #108.) However, the loss must be "caused by direct physical loss of or damage to property at the premises" and the "loss or damage must be caused by or result from a Covered Cause of Loss," which also requires direct physical loss. (Id. ) Also, the policy provides Extra Expense coverage, which includes "reasonable and necessary expenses ... you incur during the ‘period of restoration’ and that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss." (Id. )

Business Income and Extra Expense coverage are both limited by the "period of restoration," which means the time between the "direct physical loss or damage ... caused by or resulting from any Covered Cause of Loss at the premises" and "the date when the property ... should be repaired, rebuilt or replaced" or "when business is resumed at a new permanent location." (Id. , PageID #119.)

A.2. Civil Authority Coverage

"When a Covered Cause of Loss causes damage to property other than property at the described premises," the policy also provides coverage. (Id. , PageID #109.) The loss must be "caused by action of civil authority that prohibits access to the described premises" where two conditions are met:

(1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than 100 miles from the damaged property; and

(2) 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.

(Id. )

A.3. Exclusions

The policy also identifies various coverage exclusions, five of which the parties discuss. First, the "ordinance or law" exclusion precludes coverage resulting from the "enforcement of any ordinance or law" that "regulat[es] the construction, use or repair of any property" or requires "the tearing down of any property, including the cost of removing its debris. (Id. , PageID #89.)

Second, the "governmental action" exclusion precludes coverage resulting from the "[s]eizure or destruction of property by order of governmental authority[.]" (Id. )

Third, the "acts or decisions" exclusion precludes coverage resulting from "[a]cts or decisions, including the failure to act or decide, of any person, group, organization or governmental body[.]" (Id. , PageID #94.) However, where an act or decision results in a Covered Cause of Loss, the policy provides coverage for "the loss or damage caused by that Covered Cause of Loss." (Id. )

Fourth, the "loss of use or market" exclusion precludes coverage resulting from "[d]elay, loss of use or loss of market[.]" (Id. , PageID #92.)

Finally, the "virus or bacteria" exclusion precludes coverage for loss or damage caused by "[a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease." (Id. , PageID #89.)

These exclusions apply whether they are the direct or indirect cause of any loss or damage. (Id. , PageID #87.) Where an exclusion applies, the "loss or damage is excluded regardless of any other cause or event that contributed concurrently or in any sequence to the loss." (Id. )

B. The Coverage Dispute

Plaintiff alleges it suffered covered insurance losses related to the Covid-19 pandemic and that Defendant owes it and other policyholders coverage under the insurance policies issued. For purposes of resolving the parties’ coverage dispute, the Court takes the following factual allegations as true and construes them in Plaintiff's favor at this stage of the proceedings.

Plaintiff owns and operates hotels in Ohio, Indiana, and Minnesota. (ECF No. 1-3, ¶ 1, PageID #21.) Defendant issued an insurance policy to Plaintiff, and the policy was in full force and effect during the relevant times. (Id. , ¶¶ 2, 7–9, PageID #22–23.) In March 2020, the President of the United States declared the COVID-19 pandemic a national emergency. (Id. , ¶ 23, PageID #26.) The State of Ohio, and other states, issued "mandatory Stay-At-Home Orders" that required "businesses, such as Plaintiff, to shut down and/or significantly suspend business operations, thus causing Plaintiff a loss of use of its Properties, and resulting in substantial loss of business income." (Id. , ¶ 24, PageID #26.)

Plaintiff alleges that the pandemic and closure orders caused "direct physical loss of Plaintiff's and Class Members’ properties." (Id. , ¶ 2, PageID #26–27.) Specifically, Plaintiff could not "fully rent its hotel, book catering events and serve restaurant customers" due to "COVID-19's actual or suspected physical presence at or in the vicinity of the Properties." (Id. , ¶ 12, PageID #23.) Plaintiff does not allege with certainty that the virus was present on its properties, but that "[b]ased on the prevalence of the virus ... it is probable that Plaintiff sustained direct physical loss of or damage to its properties due to the presence of coronavirus." (Id. , ¶ 34, PageID #28.) Plaintiff further alleges it "has unquestionably sustained direct physical loss as the result of the pandemic and/or civil authority orders issued by the Governor of Ohio." (Id. ) Plaintiff alleges Defendant denied its claims based on an inapplicable "virus/bacteria exclusion" that does not expressly exclude coverage for a pandemic. (Id. , ¶¶ 37–41, PageID #28–29.)

Based on these allegations, Plaintiffs raise three causes of action: (1) declaratory judgment; (2) breach of contract; and (3) insurance bad faith. (Id. , ¶¶ 54–85, PageID #35–41.) Defendant has moved to dismiss all three claims. (ECF No. 6.)

GOVERNING LEGAL STANDARD

At the motion to dismiss stage, a complaint must "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 Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A complaint "states a claim for relief that is plausible, when measured against the elements" of the cause of action asserted. Darby v. Childvine, Inc. , 964 F.3d 440, 444 (6th Cir. 2020) (citing Binno v. American Bar Ass'n , 826 F.3d 338, 345–46 ...