Detroit Entm't, LLC v. Am. Guarantee & Liab. Ins. Co.

660 F.Supp.3d 631

DETROIT ENTERTAINMENT, LLC, Plaintiff, v. AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, Defendant.

Case No. 21-cv-10661

United States District Court, E.D. Michigan, Southern Division

Signed March 7, 2023

Adam Michael Wenner, Honigman LLP, Detroit, MI, Andrea L. Hansen, Honigman LLP, Lansing, MI, J. Michael Huget, Honigman LLP, Ann Arbor, MI, Joseph David Jean, Scott Greenspan, Pillsbury Winthrop Shaw Pittman LLP, New York, NY, for Plaintiff.

Catherine Baiocchi, Leah Mantei, Michael Menapace, Wiggin and Dana LLP, New Haven, CT, Charles W. Browning, Tanya Marie Murray, Plunkett Cooney, Bloomfield Hills, MI, Josephine A. DeLorenzo, Plunkett Cooney, Troy, MI, Kenneth C. Newa, Plunkett & Cooney, Detroit, MI, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS (ECF No. 46)

MATTHEW F. LEITMAN, UNITED STATES DISTRICT JUDGE

Plaintiff Detroit Entertainment, LLC owns and operates the MotorCity Casino Hotel ("MotorCity") in Detroit, Michigan. In 2020, Detroit Entertainment insured MotorCity under an "all risk" commercial insurance policy (the "Policy") issued by Defendant American Guarantee and Liability Insurance Company ("AGLIC"). During that same year, Detroit Entertainment sought coverage under the Policy for losses it claimed to have suffered as a result of the COVID-19 pandemic. Detroit Entertainment said that it was entitled to that coverage because the COVID-19 virus caused physical damage to its property. AGLIC denied coverage for several reasons, including that the Policy excluded coverage for losses caused by the presence of a virus on Detroit Entertainment's premises.

On February 25, 2021, Detroit Entertainment filed this action against AGLIC. (See Compl., ECF No. 1-2; Sec. Am. Compl., ECF No. 44.) Detroit Entertainment alleges that AGLIC wrongfully denied its claim for insurance coverage. (See id.) AGLIC has now moved to dismiss Detroit Entertainment's claims. (See Mot. to Dismiss, ECF No. 46.)

The Court will GRANT the motion and will DISMISS Detroit Entertainment's Second Amended Complaint WITH PREJUDICE. All of the losses claimed by Detroit Entertainment were allegedly caused by the presence of the COVID-19 virus on its property, and, as noted above, the Policy excludes coverage for such losses. Thus, AGLIC did not breach the terms of the Policy when it denied Detroit Entertainment's claim for coverage.

I

A

"Detroit Entertainment owns and operates" MotorCity. (Sec. Am. Compl. at ¶1, ECF No. 44, PageID.2186.) MotorCity is "an award-winning and innovative entertainment complex in Detroit, Michigan." (Id.) At all times relevant to this action, Detroit Entertainment obtained insurance coverage for MotorCity from AGLIC. (See id. at ¶22, PageID.2196.) "AGLIC is a member of the Zurich group of insurance companies - one of the world's largest" insurance companies. (Id. at ¶2, PageID.2186.)

B

The Policy that Detroit Entertainment purchased from AGLIC is what is known as an "all risk" commercial insurance policy. (Id. at ¶22, PageID.2196.) The Policy "cover[s] not only more commonly occurring risks like fire, but also entirely unanticipated and novel risks that may arise." (Id.) The Policy "insures against," among other things, "direct physical loss of or damage caused by a Covered Cause of Loss to Covered Property." (Policy at § 1.01, ECF No. 44-2, PageID.2339.) In addition, the Policy covers losses that "result from" the "suspension" of an insured's business "due to direct physical loss of or damage to property [. . .] caused by a Covered Cause of Loss." (Id. at § 4.01.01, PageID.2350.) The Policy defines a "Covered Cause of Loss" as "[a]ll risks of direct physical loss of or damage from any cause unless excluded." (Id. at § 7.11, PageID.2384.)

One of the Policy's exclusions is the "Contamination Exclusion." (See id. at § 3.03.01.01, PageID.2347.) That exclusion bars coverage for losses caused by "Contamination, 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." (Id.) "Contamination" includes "[a]ny condition of property due to the actual presence of," among other things, "virus[es and] disease causing or illness causing agent[s]." (Id. at § 7.09, PageID.2384.)

C

"On March 10, 2020, Governor Gretchen Whitmer announced the first presumptive positive cases of COVID-19 in the state [of Michigan]." (Sec. Am. Compl. at ¶77, ECF No. 44, PageID.2233.) She then "declared a state of emergency." (Id.) "By mid-March 2020, Coronavirus and COVID-19 had spread rapidly throughout the area, with numerous new infections and deaths reported daily, as well as the closure of businesses and cancellation of events." (Id., PageID.2234.)

COVID-19 also "caused widespread physical loss of or damage to property in the Detroit area and throughout Michigan," including at MotorCity. (Id. at ¶78, PageID.2234-2235.) Detroit Entertainment insists that MotorCity was "repeatedly and continuously exposed to, invaded by, actually physically damaged and physically and materially altered by the presence of the airborne Coronavirus from infected patrons and employees." (Id. at ¶109, PageID.2247.) As "a result of [this alleged] direct physical loss of or damage to property caused by Coronavirus and COVID-19, and as a result of the loss of the ability to operate [MotorCity] in its normal and customary manner" (id. at ¶116, PageID.2250), Detroit Entertainment "closed [MotorCity] to the general public on March 16, 2020." (Id. at ¶114, PageID.2249.) While Detroit Entertainment has since "resumed operations of its various amenities" at MotorCity, it has done so with "operational adjustments, including limitations on [its] hours of operation." (Id., PageID.2250.) Detroit Entertainment says that its losses from closing MotorCity, limiting its operations, and undertaking substantial and costly mitigation efforts to "protect and preserve [its] property from further damage or loss," exceeded "$270 million." (Id. at ¶119, PageID.2251.)

D

"On or about March 23, 2020, Detroit Entertainment gave notice to AGLIC of [its] claim" for insurance coverage "arising from its losses from Coronavirus and COVID-19." (Id. at ¶¶ 198, 244, PageID.2292, 2310.) On December 31, 2020, "AGLIC issued a coverage letter reserving AGLIC's rights to deny coverage on various grounds, and effectively denying coverage insofar as AGLIC has still not agreed to provide the urgently needed coverage." (Id. at ¶248, PageID.2311.)

Two of AGLIC's reasons for denying coverage are relevant here. First, AGLIC asserted that Detroit Entertainment was not entitled to coverage because "the presence of the COVID-19 virus [did not] constitute[ ] direct physical loss or damage to property." (Id. at ¶249, PageID.2311.) Second, AGLIC said that even if Detroit Entertainment had suffered a "direct physical loss or damage to [its] property," it was still not entitled to coverage because "[t]he presence of the COVID-19 virus [fell] within the definition of Contamination" and Detroit Entertainment's losses were therefore excluded from coverage under the Contamination Exclusion. (Id. at ¶251, PageID.2312.)

Roughly one month after AGLIC reserved its right to entirely deny coverage, AGLIC concluded that Detroit Entertainment was actually entitled to limited coverage under the Policy. More specifically, on February 1, 2021, AGLIC "acknowledged" that Detroit Entertainment was entitled to coverage "of up to $100,000 under the Policy's INTERRUPTION BY COMMUNICABLE DISEASE coverage." (Id. at ¶255, PageID.2313.) That coverage was described in a standalone endorsement to the Policy. (See Endorsement, ECF No. 45-32.) The endorsement stated, among other things, that AGLIC "would pay for the actual Gross Earnings loss sustained by the Insured [. . .] resulting from the necessary Suspension of the Insured's business activities at an Insured Location if the Suspension [was] caused by order of an authorized governmental agency enforcing any law or ordinance regulating communicable diseases and that such portions of the location are declared uninhabitable due to the threat of the spread of communicable disease." (Id.) And it provided that "[t]his Coverage will not apply to loss or damage that is payable under any other provision in this Policy." (Id.)

Even though AGLIC had otherwise denied coverage, it provided the limited coverage under the communicable disease provision because (1) coverage under that provision did not require a direct physical loss to Detroit Entertainment's property and (2) the Contamination Exclusion did not apply to that provision. When AGLIC provided coverage under the communicable disease provision, it reiterated that "the Contamination Exclusion [w]as a basis [to] deny[ ] coverage for everything other than" the Policy's interruption by communicable disease coverage. (Sec. Am. Compl. at ¶255, ECF No. 44, PageID.2313.)

E

After AGLIC denied the majority of Detroit Entertainment's claim, Detroit Entertainment filed this action against AGLIC in the Wayne County Circuit Court for the State of Michigan. (See Compl., ECF No. 1-2.) AGLIC then removed this action to this Court. (See Notice of Removal, ECF No. 1.) In its Notice of Removal, AGLIC explained that this Court has diversity jurisdiction over this action under 28 U.S.C. § 1332(a). (See id., PageID.2-3.)

Following removal, AGLIC moved to dismiss Detroit Entertainment's Complaint. (See Mot., ECF No. 13.) Instead of ruling on that motion, the Court granted Detroit Entertainment leave to file a First Amended Complaint. (See Order, ECF No. 16.) The Court explained that it was granting leave to amend so that Detroit Entertainment could "remedy the alleged deficiencies in its claims identified by [AGLIC] in the motion to dismiss." (Id., PageID.374.) It further instructed Detroit Entertainment to "allege [in the First Amended Complaint] any and all additional facts, currently known to it, that may cure the alleged deficiencies in its...