Chefs' Warehouse Inc. v. Employers Ins. Co. of Wausau

THE CHEFS' WAREHOUSE, INC., Plaintiff, v. EMPLOYERS INSURANCE COMPANY OF WAUSAU, Defendant.

No. 20 Civ. 4825 (KPF)

United States District Court, S.D. New York

September 15, 2021

OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge

Plaintiff The Chefs' Warehouse, Inc. brings this breach of contract action against Defendant Employers Insurance Company of Wausau to recover losses Plaintiff incurred as a result of the COVID-19 pandemic and related governmental restrictions on non-essential businesses. Plaintiff alleges that Defendant breached its insurance coverage obligations under a first-party property policy (the “All-Risk Policy” or “Policy”) by denying coverage for these losses, and seeks compensatory damages and declaratory relief.

Defendant has moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), on the grounds that Plaintiff has failed to allege any losses covered by the Policy, or in the alternative, that recovery for such losses is expressly excluded under the terms of the Policy. For the reasons that follow, the Court grants Defendant's motion, though it also grants Plaintiff leave to file an amended complaint.

BACKGROUND^[1]

A. Factual Background

1. The Parties

Plaintiff is a Delaware corporation with its principal place of business in Connecticut. (Compl. ¶ 3). Plaintiff provides specialty food products to restaurants, cruise lines, hotels, casinos, country clubs, and other culinary establishments in markets across the United States and Canada. (Id. at ¶¶ 8-10). Defendant is a corporation incorporated and headquartered in Wisconsin that does business in New York. (Id. at ¶ 5). As relevant here, Plaintiff purchased an insurance policy from Defendant that provides coverage for “all risks of direct physical loss or damage” unless “excluded or limited” elsewhere in the Policy. (Id. at ¶ 13; All-Risk Policy § I.C).

2. The All-Risk Policy and Defendant's Denial of Plaintiff's Coverage Claim

Plaintiff's Policy with Defendant provided business interruption (or “Time Element”) coverage for a term running from August 1, 2019, to August 1, 2020. (All-Risk Policy § I.B). The Policy covers Plaintiff's actual losses sustained (id. § III.B.1 (defining “Gross Earnings”)) and extra expenses incurred (id. § III.B.2 (defining “Extra Expense”)) from a business interruption caused by “direct physical loss or damage” to property that is covered under the Policy (id. § VII.5 (defining “covered loss” as a “loss to covered property caused by direct physical loss or damage insured by this Policy” (emphasis added))). The Policy defines the period of liability as beginning “from the time of physical loss or damage of the type insured” and ending “when with due diligence and dispatch the building and equipment could be” “repaired or replaced” and “made ready for operations.” (Id. § III.C.1.a. (1)-(2)). This case turns on whether Plaintiff has adequately pleaded that COVID-19 and the concomitant governmental restrictions on businesses caused “direct physical loss or damage, ” as necessary to trigger Defendant's coverage obligations under the Policy.

The Policy's Time Element provisions detail the types of business interruptions covered by the Policy. (See All-Risk Policy § III.E). Of particular relevance here is the Policy's “Contingent Time Element” provision, which provides coverage for business interruptions stemming from physical loss or damage that occurs at one of Plaintiff's direct or indirect customers. (Id. § III.E.4).^[2] The Policy's Time Element coverage also extends to business interruptions caused by an order of “Civil or Military Authority” precipitated by the type of direct physical injury or loss covered by the Policy. (Id. § III.E.2).^[3]As such, coverage under the Policy may be activated by physical loss or damage that affects property other than that owned and controlled by Plaintiff. In any event, a valid claim under the Policy requires that covered property sustain “direct physical loss or damage.”

The Policy also contains a number of exclusions from coverage, only one of which is potentially applicable here. In relevant part, the Policy excludes from coverage any business losses resulting from “[c]ontamination, and any cost due to contamination including the inability to use or occupy property or any cost of making property safe or suitable for use or occupancy, except as provided elsewhere in this Policy, ” “unless directly resulting from a covered loss.” (All-Risk Policy § II.C.4.a). The Policy defines contamination as “[a]ny condition of property that results from a contaminant, ” with “contaminant” defined as “[a]ny foreign substance, impurity, pollutant, hazardous material, poison, toxin, pathogen or pathogenic organism, bacteria, virus, disease causing or illness causing agent, fungus, mold or mildew.” (Id. §§ VII.3-.4 (emphases added)).

On April 29, 2020, Plaintiff provided notice to Defendant of an insurance claim for Time Element losses, including under the Civil Authority and Contingent Time Element provisions, in connection with the pandemic-induced business interruptions faced by Plaintiff and its direct and indirect customers. (Compl. ¶¶ 75-79). Defendant denied this claim in full on May 4, 2020. (Id. at ¶ 82). In denying the claim, Defendant noted that “[t]he Time Element coverages available under your policy requires physical damage by a peril insured against.” (Id. at ¶ 83). Defendant further explained that “[a]s there was no physical damage and contamination is an excluded peril, there is no coverage provided for [Plaintiff's] business interruption loss.” (Id. at ¶ 84). On the basis of this denial, Plaintiff filed the instant suit.

3. The COVID-19 Shutdown Orders

In early 2020, in response to the COVID-19 global pandemic, state and local governments across the United States issued orders suspending or substantially limiting the operations of non-essential businesses. (Compl. ¶ 25; see also List of State and Local COVID-19 Orders). In mid-March 2020, state and local governments in major markets that Plaintiff services, including New York, Southern and Northern California, Chicago, and Washington, D.C., issued “stay at home” or “shelter in place” orders. (Compl. ¶ 28). As an example, on March 16, 2020, New York City Mayor Bill de Blasio issued an order mandating the closure of all restaurants, bars, and cafés due to the risks posed by COVID-19, see N.Y.C. Emergency Exec. Ord. No. 100, § 7 (Mar. 16, 2020), and on March 20, 2020, then-New York Governor Andrew Cuomo issued a stay-at-home order requiring the statewide closure of all “non-essential” businesses, including restaurants, hotels, and caterers, see N.Y. Exec. Ord. No. 202.8 (Mar. 20, 2020). (Id. at ¶¶ 30-31). Plaintiff avers that some of these orders were “explicitly based on the belief that COVID-19 causes physical loss or damage to property.” (Id. at ¶ 45). Plaintiff further alleges that as a result of these orders, both it and its “direct and indirect customers” were shuttered. (Id.).

B. Procedural Background

On June 23, 2020, Plaintiff initiated this action against Defendant and Liberty Mutual Insurance Company by filing its Complaint. (Dkt. #1). Defendant responded to the Complaint by filing its Answer on August 28, 2020. (Dkt. #15). Following an initial pretrial conference on September 29, 2020 (see Minute Entry for Sept. 29, 2020), the Court endorsed the parties' proposed case management plan (Dkt. #20). Also on September 29, 2020, the parties entered a stipulation of voluntary dismissal without prejudice as to Liberty Mutual Insurance Company (Dkt. #22), which stipulation the Court endorsed the same day (Dkt. #23).

On January 4, 2021, Defendant submitted a letter motion seeking a pre-motion conference regarding its anticipated motion for judgment on the pleadings. (Dkt. #30). Plaintiff filed a letter in opposition to Defendant's application on January 7, 2021. (Dkt. #31). The Court entered an order granting Defendant leave to file its motion, without requiring the parties to participate in a pre-motion conference. (Dkt. #32).

Defendant filed its motion for judgment on the pleadings on February 8, 2021. (Dkt. #34). On March 11, 2021, Defendant filed a notice of supplemental authority in support of its motion for judgment on the pleadings. (Dkt. #39). Plaintiff filed its opposition papers, as well as a request that the Court take judicial notice of certain publicly available insurance documents and regulatory filings on March 15, 2021. (Dkt. #40-42). Plaintiff subsequently filed a notice of supplemental authority on April 8, 2021. (Dkt. #44). Defendant filed its reply on April 12, 2021 (Dkt. #45), and subsequently filed six notices of supplemental authority (Dkt. #46-48, 50-52). Accordingly, the motion is fully briefed and ripe for review.

DISCUSSION

A. Applicable Law

1. Motions for Judgment on the Pleadings

Federal Rule of Civil Procedure 12(c) provides that “[a]fter the pleadings are closed - but early enough not to delay trial - a party may move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). Courts apply the same procedure to evaluate motions for judgment on the pleadings under Rule 12(c) as for motions to dismiss under Rule 12(b)(6). Altman v. J.C. Christensen & Assocs Inc., 786 F.3d 191, 193 (2d Cir. 2015). This procedure requires courts to “draw all reasonable inferences in [the non-movant's] favor, assume all well-pleaded factual allegations to be true, and determine whether they plausibly give rise to an entitlement to relief.'” Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (internal quotation marks omitted) (quoting Selevan v. N.Y. Thruway Auth., 584 F.3d 82, 88 (2d Cir. 2009)). The non-movant is entitled to relief if he or she alleges “enough facts to...