Creative Consolidation v. Erie Ins. Exch.

311 A.3d 902

CREATIVE CONSOLIDATION, LLC d/b/a Masseria Restaurant, et al., Appellants

v.ERIE INSURANCE EXCHANGE, Appellee.

No. 22-CV-0950

District of Columbia Court of Appeals.

Argued February 14, 2024

Decided March 21, 2024

Appeal from the Superior Court of the District of Columbia (2022-CA-001109-B) (Hon. Shana Frost Matini, Trial Judge)

Matthew J. Schlesinger, with whom Dustin Cho, Scott J. Levitt, Georgia Kazakis and Tyler Weinblatt were on the brief, for appellants.

George E. Reede, with whom Jessica E. Port and Bryant S. Green were on the brief, for appellee.

Lorelie S. Masters and Michael S. Levine of Hunton Andrews Kurth, LLP filed a brief on behalf of the Medical Society of the District of Columbia as amicus curiae.

Rhonda D. Orin and Marshall Gilinsky of Anderson Kill P.C. filed a brief on behalf of United Policyholders as amicus curiae.

Laura A. Foggan of Crowell & Moring LLP filed a brief on behalf of The American Property Casualty Insurance Association as amicus curiae.

Before Blackburne-Rigsby, Chief Judge, and Deahl and Shanker, Associate Judges.

Blackburne-Rigsby, Chief Judge:

Appellants are ten restaurants and bars ¹across the District of Columbia and Virginia that closed their businesses to in-person dining in spring 2020 due to the COVID-19 pandemic. On appeal, they seek review of the trial court’s dismissal of their claims for business interruption and civil authority coverage under identical "allrisk" Erie Insurance Exchange ("Erie") Ultrapack Plus insurance policies (the "Policy"). Distinguishing their arguments from those made by other area restaurants in our decision in Rome's 1, LLC v. Erie Insurance Exchange, 290 A.3d 52 (D.C. 2023), appellants assert that the presence of the COVID-19 virus itself, rather than municipal orders, caused "direct physical loss of or damage to Covered Property" entitling them to coverage under the Policy. We disagree and affirm the trial court’s dismissal of their claims.

I. Background

A. The COVID-19 Virus

Appellants’ complaint states that a person infected with COVID-19 sheds the vi- rus onto surfaces they touch, after touching their eyes or nose, and into the air they breathe, and cites to scientific studies for the following statements about the COVID-19 virus. With incubation periods extending up to fourteen days, people can contract the COVID-19 virus before they present with its symptoms. Others may become infected without exhibiting symptoms at all. Asymptomatic and pre-symptomatic individuals can still transmit the virus, and in some cases can have a higher concentration of the virus than those who are symptomatic. Typically secreted by way of droplets or aerosol particles, the virus is particularly transmissible in indoor spaces, like restaurants or bars, where people sit in close proximity without masks. Although cleaning surfaces can remove some of the virus, doing so does not eliminate possible transmission where the virus is present in the air or continually reintroduced by other infected people. The virus can survive for at least seven days on common surfaces at room temperature.

B. Local Government COVID-19 Orders

On March 16, 2020, District of Columbia Mayor Muriel Bowser issued the first of several orders prohibiting all in-person indoor dining. Over the next several months, additional orders by Mayor Bowser required District of Columbia restaurants to maintain six-foot distances for lines of take-out customers, regularly disinfect high-touch surfaces, and post their disinfection protocols for customers to see. In May and June 2020, Mayor Bowser issued reopening orders that allowed restaurants to open first for outdoor dining with tables six feet apart and then for indoor dining at 5 % occupancy or below.

Virginia’s Governor Ralph Northam also issued a series of executive orders affecting restaurant operation during the COVID-19 pandemic.² A March 17, 2020 order restricted restaurants to ten or fewer diners, and subsequent orders limited any gathering to ten people and required the closure of restaurants. Across phases of reopening for the state, Governor Northam issued executive orders in May and June 2020 that mandated cleaning protocols and allowed restaurants first to operate at 50% occupancy of any outdoor spaces, then 50% of indoor occupancy, and later full operation with diners seated at least six feet apart.

C. The Policy

Appellants each purchased an "all-risks" insurance policy from Erie with start dates ranging from April 2019 to May 2020. Each appellant purchased Erie’s Ultrapack Plus Policy. The Policy states that Erie "will pay for direct physical ‘loss’ of or damage to Covered Property at the premises described in the ‘Declarations’ caused by or resulting from a peril insured against." The Policy defines "loss" as "direct and accidental loss of or damage to covered property."

Under its "Income Protection – Coverage 3" section, the Policy contains provisions for income-protection coverage, extra-expense coverage, and civil-authority coverage. The income-protection provision covers "loss of ‘income’ and/or ‘rental income’ [sustained] due to partial or total ‘interruption of business’ resulting directly from ‘loss’ or damage to property on the premises described in the ‘Declarations’ from a peril insured against."

Similarly, the extra-expense provision covers "necessary expenses [incurred] due to partial or total ‘interruption of business’ resulting directly from ‘loss’ or damage to property on the premises described in the 'Declarations’ from a peril insured against." The Policy defines "interruption of business" as "the period of time" beginning "with the date of direct loss’ to covered property" and lasting until "the date when the covered property should be repaired, rebuilt, or replaced with reasonable speed and similar quality."

The civil-authority coverage provision, listed under the section’s "Additional Coverages," states that "[w]hen a peril insured against causes damage to property other than property at the premises described in the ‘Declarations’," Erie "will pay for the actual loss of ‘income’ and/or ‘rental income’ [sustained] and necessary ‘extra expense’ caused by action of civil authority that prohibits access to the premises."

D. Trial Court Ruling

When appellants sought payment through the Policy for lost business income due to the COVID-19 pandemic, Erie denied them coverage. Appellants then filed a complaint in Superior Court against Erie, arguing that the losses they suffered were covered under the Policy. Appellants argued that they were unable to use their properties for their intended purpose "absent extensive repairs and remedial measures" and the "need to mitigate the threat or actual physical presence of the virus on door-handles, tables, silverware, surfaces, in heating and air conditioning systems and any other of the multitude of places the virus has or could be found."

Erie filed a motion to dismiss appellants’ complaint, which the Superior Court granted. The Superior Court reasoned that the restaurants’ complaint fell short of stating plausible facts establishing that COVID-19 caused them physical damage to trigger coverage under their Erie policy.

The trial court order, which predates our decision in Rose’s 1, LLC v. Erie Insurance Exchange, 290 A.3d 52 (D.C. 2023), also rejected the restaurants’ argument that the loss of the use of their property due to the COVID-19 pandemic and associated municipal orders was covered under the policy, finding instead that a "direct physical loss" under the Policy requires "physical alteration." Given our subsequent holding in Rose’s 1 that " ‘[d]irect physical loss of or damage’ requires a tangible, material alteration or change to covered property," id. at 59, appellants do not make this argument on appeal.

II. Discussion

[1–5] We review a grant of a motion to dismiss de novo. E.g., In re Est of Cur-seen, 890 A.2d 191, 193 (D.C. 2006). Like the trial court, we accept the complaint’s allegations as true and construe facts and inferences in favor of the plaintiff. Solers, Inc. v. Doe, 977 A.2d 941, 947 (D.C. 2009). To survive a motion to dismiss, a pleading must include well-pleaded factual allegations that plausibly give rise to an entitlement for relief. Mazza v. Housecraft, LLC, 18 A.3d 786, 790 (D.C. 2011) (adopting Iqbal pleading standard). Factual allegations "must be enough to raise a right to relief above the speculative level." Pietrangelo v. Wilmer Cutler Pickering Hale & Dorr, LLP, 68 A.3d 697, 709 (D.C. 2013) (citing Clampitt v. Am. Univ., 957 A.2d 23, 29 (D.C. 2008)). At the motion to dismiss stage, the legal sufficiency of the complaint is the only issue on review, not the merits of the plaintiff’s claim. Grayson v. AT&T Corp., 15 A.3d 219, 228-29 (D.C. 2011).

[6, 7] Any ambiguous terms in an insurance policy "are construed against the insurer and in favor of ‘the reasonable expectations of the purchaser of the policy.’ " Chase v. State Farm Fire and Cas. Co., 780 A.2d 1123, 1127 (D.C. 2001) (quot- ing Smalls v. State Farm Mut. Auto. Ins. Co., 678 A.2d 32, 35 (D.C. 1996)). "Nonetheless, the reasonable expectations doctrine is not a mandate for courts to rewrite insurance policies and reallocate their assignment of risks between insurer and insured." Id. at 1132.

A. Contamination Theory

Subsequent to the trial court’s order, we had occasion in Rose’s 1, 290 A.3d at 52, to review on appeal the question of whether restaurants are entitled to insurance coverage for their loss of income during the COVID-19 pandemic under the same Erie policy. In Rose’s 1, a group of other area restaurants appealed the trial court’s grant of summary judgment to Erie, arguing that their loss of income due to the mandated COVID-19 closures was a "direct physical loss of or damage to" their property covered by the policy. Id. While the contamination theory was not raised by the parties in Rose’s 1, we acknowledged that other state courts that had relied on such a...