Chief of Staff LLC v. Hiscox Ins. Co.

532 F.Supp.3d 598

CHIEF OF STAFF LLC, on behalf of itself and all others similarly situated, Plaintiff,

v.HISCOX INSURANCE COMPANY INC., Defendant.

20 C 3169

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

Signed March 31, 2021

Christopher L. Ayers, Pro Hac Vice, Stephen A. Weiss, Seeger Weiss LLP, Ridgefield Park, NJ, Frank Anthony Richter, James E. Barz, Robbins Geller Rudman & Dowd LLP, Chicago, IL, James E. Cecchi, Lindsey H. Taylor, Carella, Byrne, Cecchi, Olstein, Brody & Agnello, Roseland, NJ, Stuart Andrew Davidson, Robbins Geller Rudman & Dowd LLP, Boca Raton, FL, for Plaintiff.

Chloe M. Chetta, Pro Hac Vice, Barrasso Usdin Kupperman Freeman & Sarver, LLC, New Orfleans, LA, Judy Y. Barrasso, Pro Hac Vice, Celeste Ruth Coco-Ewing, Pro Hac Vice, Barrasso Usdin Kupperman Freeman & Sarver L.L.C., New Orleans, LA, Peter James Valeta, Wendy N. Enerson, Cozen O'Connor, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

Gary Feinerman, United States District Judge Chief of Staff, a hospitality support agency based in Connecticut, alleges in this putative class action that Hiscox Insurance Company, its insurer, wrongfully denied coverage for losses that it suffered due to government-ordered shutdowns arising from the COVID-19 pandemic. Doc. 28. Hiscox moves to dismiss the complaint under Civil Rule 12(b)(6), arguing that the policy does not cover Chief of Staff's claimed losses. Doc. 31. The motion is granted.

Background

In resolving a Rule 12(b)(6) motion, the court assumes the truth of the operative complaint's well-pleaded factual allegations, though not its legal conclusions. See Zahn v. N. Am. Power & Gas, LLC , 815 F.3d 1082, 1087 (7th Cir. 2016). The court must also consider "documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice," along with additional facts set forth in Chief of Staff's brief opposing dismissal, so long as those additional facts "are consistent with the pleadings." Phillips v. Prudential Ins. Co. of Am. , 714 F.3d 1017, 1020 (7th Cir. 2013) (internal quotation marks omitted). The facts are set forth as favorably to Chief of Staff as those materials allow. See Pierce v. Zoetis, Inc. , 818 F.3d 274, 277 (7th Cir. 2016). In setting forth the facts at the pleading stage, the court does not vouch for their accuracy. See Goldberg v. United States , 881 F.3d 529, 531 (7th Cir. 2018).

In March 2020, near the outset of the COVID-19 pandemic, the Governor of Connecticut issued a series of closure orders, one of which prohibited access to all nonessential businesses throughout the state. Doc. 28 at ¶ 32; see Ned Lamont, Governor, State of Conn., Exec. Order No. 7H: Protection of Public Health and Safety During COVID-19 Pandemic and Response—Restrictions on Workplaces for Non-Essential Business, Coordinated Response Effort (Mar. 20, 2020), https://portal.ct.gov/-/media/Office-of-the-Governor/Executive-Orders/Lamont-Executive-Orders/Executive-Order-No-7H.pdf. The orders forced Chief of Staff, located in Hartford, to cease operations. Doc. 28 at ¶¶ 14-15. Chief of Staff sought to recover its lost income under a commercial property insurance policy issued by Hiscox, id. at ¶ 48, the pertinent terms of which are set forth below. Hiscox denied coverage. Id. at ¶¶ 48, 50.

Discussion

The parties agree that the Hiscox policy is governed by Connecticut law. Doc. 32 at 6 & n.2; Doc. 37 at 5-6. Under Connecticut law, "[t]he terms of an insurance policy are to be construed according to the general rules of contract construction." Galgano v. Metro. Prop. & Cas. Ins. Co. , 267 Conn. 512, 838 A.2d 993, 997 (2004) ; see also Hanks v. Powder Ridge Rest. Corp. , 276 Conn. 314, 885 A.2d 734, 739 (2005) ("[W]here there is definitive contract language, the determination of what the parties intended by their contractual commitments is a question of law.") (internal quotation marks omitted). "[T]he determinative question is the intent of the parties, that is, what coverage the ... [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy." Karas v. Liberty Ins. Corp. , 335 Conn. 62, 228 A.3d 1012, 1020 (2019) (second, third, and fourth alterations in original). A court evaluating the parties’ expectations must be "mindful of the principle that provisions in insurance contracts must be construed as laymen would understand [them] and not according to the interpretation of sophisticated underwriters." R.T. Vanderbilt Co. v. Hartford Accident & Indem. Co. , 333 Conn. 343, 216 A.3d 629, 641 (2019) (alteration in original).

Chief of Staff asserts coverage under three of the Hiscox policy's coverage provisions: the "Business Income" provision, the "Excess Expense" provision, and the "Civil Authority" provision. Doc. 28 at ¶¶ 37-48, 69-115; Doc. 37 at 6-14. Hiscox contends that none of those provisions applies, Doc. 32 at 6-13; Doc. 38 at 2-10, but argues that even if one or more do, the policy's virus exclusion defeats coverage, Doc. 32 at 13-15; Doc. 38 at 10-13. Because none of the coverage provisions applies, there is no need to address the virus exclusion.

A. Business Income Provision

The Business Income provision states:

[Hiscox] will pay for the actual loss of Business Income [Chief of Staff] sustain[s] due to the necessary suspension of [its] "operations" during the "period of restoration." The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.

Doc. 32-1 at 14. "Business Income," in turn, is defined (with irrelevant exceptions) as the net income "that would have been earned or incurred if no physical loss or damage had occurred," plus normal operating expenses that continue to accrue. Id. at 15. Even assuming without deciding that the Governor's closure orders effected a "necessary suspension" of Chief of Staff's "operations" during some "period of restoration," the Business Income provision does not provide coverage because that suspension was not "caused by direct physical loss of or damage to property at the described premises." Id. at 14.

Chief of Staff contends that the closure of its business qualifies as a "direct physical loss of ... property at [its] premises"—though not "damage to" such property—because "it lost the use of its insured property for its intended purpose." Doc. 37 at 7. Hiscox takes the contrary view, contending that the term "direct physical loss" "unambiguously require[s] some physical manifestation [of] change" to the property, which is not alleged to have happened here. Doc. 32 at 7 (alterations in original) (quoting England v. Amica Mut. Ins. Co. , 2017 WL 3996394, at *6 (D. Conn. Sept. 11, 2017) ). Hiscox's reading is the far better one.

True enough, the noun "loss," standing alone, can refer to "depriv[ation] of ... a possession." Loss , Oxford English Dictionary (2d ed. 1989) (def. 2a); see also Loss , Webster's Third New International Dictionary (1961) (def. 1a) ("the act or fact of losing," "failure to keep possession," "deprivation"). But the noun "loss" in the Business Income provision is modified by the adjective "physical," which in context means "tangible, concrete." Physical , Oxford English Dictionary (3d ed. updated Mar. 2006) (def. 6); see also Physical , Black's Law Dictionary (11th ed. 2019) (def. 2) ("pertaining to real, tangible objects"); Physical , Webster's Third New International Dictionary , supra (def. 2b) ("of or relating to natural or material things as opposed to things mental, moral, spiritual, or imaginary"). So "physical loss" refers to a deprivation caused by a tangible or concrete change in or to the thing that is lost. But the complaint does not allege any such deprivation. Instead, the complaint alleges that Chief of Staff's loss of use of its property was due to the Governor's closure orders, Doc. 28 at ¶¶ 46-47—hardly a concrete or tangible "loss of ... property at [its] premises," Doc. 32-1 at 14.

Pressing the contrary result, Chief of Staff invokes the principle that "a policy should not be interpreted so as to render any part of it superfluous." Lexington Ins. Co. v. Lexington Healthcare Grp., Inc. , 311 Conn. 29, 84 A.3d 1167, 1184 (2014) (internal quotation marks omitted). Applying that principle—and noting that the Business Income provision covers losses "caused by direct physical loss of or damage to property," Doc. 32-1 at 14 (emphasis added)—Chief of Staff argues that "[i]f a loss could not occur without damage, then the Policy would contain surplus language," which means that " ‘direct physical loss’ must mean something other than ‘direct physical damage.’ " Doc. 37 at 7. Among those other meanings of "direct physical loss," Chief of Staff contends, is "loss of use," for otherwise, all "loss" would be "damage" and there would be no need for the provision to mention "loss" at all. Id. at 7-8.

Chief of Staff is correct that the phrases "direct physical loss" and "direct physical ... damage" are best read so as not to completely overlap and thereby render one or the other superfluous. But it does not follow that mere loss of use —without any tangible alteration to the physical condition or location of property at the insured's premises—falls within the meaning of either phrase. Read naturally, the two phrases can be read to exclude loss of use without rendering either superfluous. To illustrate, consider a thief who attempts to steal a desktop computer. If the thief succeeds, the computer is "physical[ly] los[t]" but not necessarily "physical[ly] ... damage[d]." If the thief cannot lift the computer, so instead of stealing it takes a hammer to its monitor in frustration, the computer would be "physical[ly] ... damage[d]" but not "physical[ly] los[t]." Yet if the thief were only to change the password on the system so that employees could not log...