Count Basie Theatre Inc. v. Zurich Am. Ins. Co.

NOT FOR PUBLICATION

OPINION

HON. BRIAN R. MARTINOTTI UNITED STATES DISTRICT JUDGE

Before the Court is Defendant Zurich American Insurance Company's (“Zurich”) Partial Motion to Dismiss the Plaintiff Count Basie Theater, Inc.'s (“Count Basie”) Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (ECF No. 28.) Count Basie opposes the motion (ECF No. 29) and Zurich filed a reply (ECF No. 30). Having reviewed the parties' submissions filed in connection with the Motion and having declined to hold oral argument pursuant to Federal Rule of Civil Procedure 78(b), for the reasons set forth below and for good cause having been shown, Zurich's Partial Motion to Dismiss is GRANTED.

I. Background^[1]

For the purpose of this motion to dismiss, the Court accepts the factual allegations in the Third Amended Complaint as true and draws all inferences in the light most favorable to Plaintiffs.

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See Phillips v. Cnty. of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008). The Court also considers any “document integral to or explicitly relied upon in the complaint.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (quoting Shaw v. Digit. Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996)).

Count Basie owns, and/or operates out of, six insured premises in Red Bank, Monmouth County, New Jersey. (Compl. (ECF No. 1-1) ¶ 1.) Zurich is a commercial property and casualty insurance company, which issued a commercial package property insurance policy (the “Policy”) to Count Basie for the period between November 1, 2019 and November 1, 2020. (Id. ¶¶ 1, 4.) The Policy contains a Schedule of Locations for the six insured premises under the Policy. (Id. ¶ 6.)

The Policy includes numerous forms of Additional Coverages available to Count Basie. (Id. ¶ 20.) Under the Historic Properties Additional Coverages, Zurich provided Count Basie with Communicable Disease Business Income Coverage. (Id. ¶¶ 21-22.) The Communicable Disease Business Income Coverage provides:

If the Business Income Coverage Form (Excluding Extra Expense) is included in this Commercial Property Coverage Part, the coverage provided at a “premises” or “reported unscheduled premises” will also cover the actual loss of “business income” you sustain resulting from the necessary “suspension” of your “operations” if the “suspension” is caused by an order of an authorized public health official or governmental authority that prohibits access to the “premises” or “reported unscheduled premises, ” or a portion of that “premises” or “reported unscheduled premises.” That order must result from the discovery or suspicion of a communicable disease or threat of the spread of a communicable disease at that “premises” or “reported unscheduled premises.”

(Id. ¶ 22.) The Policy includes further coverage under the Business Income Coverage Form. (Id. ¶ 51.) The Business Income Coverage provides:

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 a “premises” at which a

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Limit of Insurance is shown on the Declarations for Business Income. The loss or damage must be directly caused by a “covered cause of loss.” We will not pay more than the applicable Limit of Insurance shown on the Declarations for Business Income at that “premises.”

(ECF No. 1-1 ¶ 52; Policy, Ex. 2 (ECF No. 28-3) at 137.) Apart from the Business Income Coverage, the Policy includes Civil Authority Coverage, which provides:

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.”

(ECF No. 1-1 ¶ 91; ECF No. 28-3 at 137.) The Policy defines a “covered cause of loss” as “a fortuitous cause or event, not otherwise excluded, which actually occurs during this policy period.” (ECF No. 28-3 at 55.)

The Policy also contains certain “excluded causes of loss, ” which includes microorganisms (the “Microorganism Exclusion”), stating in relevant part:

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

We will also not pay for loss, cost, or expense arising out of any request, demand, order, or statutory or regulatory requirement that requires any insured or others to test for monitor, clean up, remove

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treat, detoxify, or neutralize, or in any way respond to, or assess the effects of “microorganisms”.

(Id. at 75.) The Policy defines “microorganism” as “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 60.)

In March 2020, Governor Philip D. Murphy of the State of New Jersey issued a series of executive orders (the “Executive Orders”), which Count Basie alleges to have prohibited access to its business facilities. (ECF No. 1-1 ¶¶ 27-29.) One Executive Order explains “suspending operations at these businesses is part of the State's mitigation strategy to combat COVID-19 and reduce the rate of community spread[.]” (ECF No. 28-4 at 3.) Thereafter, Count Basie submitted a claim under the Policy to Zurich for lost business income caused by its compliance with the Executive Orders. (ECF No. 1-1 ¶ 97.) Zurich determined Count Basie was entitled to recover under the Communicable Disease Business Income Coverage and issued payment in the amount of $100, 000, allegedly representing the upper limit of the coverage. (Id. ¶¶ 98-99.) Zurich also determined Count Basie was not entitled to coverage for its loss of business income under any other provision of the Policy. (Id.)

On December 3, 2020, Count Basie filed a Complaint in the Superior Court of New Jersey, Law Division, Monmouth County, against Zurich. (ECF No. 5-1 at 7; ECF No. 6-1 at 7.) The Complaint seeks a declaratory judgment that Count Basie is entitled to recover: (1) under the Communicable Disease Business Income Coverage up to the Blanket Limits of Insurance in the amount of $1, 900, 001 for its business income losses at three insured premises, and $100, 000 per occurrence at each of the other three insured premises, (2) under the Business Income Coverage for its business income losses at three insured premises up to the Blanket Limits of Insurance of

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$1, 900, 001, and (3) under the Civil Authority Coverage up to the Policy limits for its business income losses and extra expenses at all of its insured properties. (ECF No. 1-1 ¶¶ 156-57.)

On January 12, 2021, Zurich removed this case from the state court to the United States District Court for the District of New Jersey. (ECF No. 1.) On February 2, 2021, Zurich filed a Motion to Dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (ECF No. 5.) On February 8, 2021, Count Basie filed a Motion to Remand. (ECF No. 6.) Zurich's Motion to Dismiss was stayed pending the Court's decision on Count Basie's Motion to Remand. (ECF No. 14.) On March 22, 2021, Zurich filed an opposition to Count Basie's remand motion (ECF No. 15) to which Count Basie replied on March 31, 2021 (ECF No. 17). On April 7, 2021, the Court held oral argument on Count Basie's remand motion (ECF No. 18) and permitted simultaneous supplemental briefings, which were filed on April 21, 2021 (ECF Nos. 21, 22).

On August 24, 2021, the Court issued an Opinion and Order (the “August 2021 Opinion”) denying Count Basie's motion to remand and ordering the parties to establish a briefing schedule for any motion to dismiss. (ECF Nos. 24-25.) On September 20, 2021, Zurich filed a Partial Motion to Dismiss Count Basie's Complaint. (ECF No. 28.) On October 18, 2021, Count Basie filed an opposition to the motion (ECF No. 29), and on November 8, 2021, Zurich replied (ECF No. 30).

II. Legal Standard

In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a district court is “required to accept as true all factual allegations in the complaint and draw all inferences from the facts alleged in the light most favorable to [the non-moving party].” Phillips, 515 F.3d at 228. “[A] complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations

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omitted). However, “a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do.” Id. at 548 (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A court is “not bound to accept as true a legal conclusion couched as a factual...