Elite Union Installations, LLC v. Nat'l Fire Ins. Co. of Hartford

559 F.Supp.3d 211

ELITE UNION INSTALLATIONS, LLC, Plaintiffs,

v.NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, Defendant.

20-cv-4761 (LJL)

United States District Court, S.D. New York.

Signed September 13, 2021

Kenneth Jay Grunfeld, Richard Moss Golomb, Golomb & Honik, P.C., Philadelphia, PA, Daniel Buttafuoco, Woodbury, NY, for Plaintiffs.

H. Christopher Boehning, Yahonnes Sadiki Cleary, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Defendant.

OPINION AND ORDER

LEWIS J. LIMAN, United States District Judge:

Defendant National Fire Insurance Company of Hartford ("National Fire Insurance" or "Defendant") moves, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss the complaint filed by Plaintiff Elite Union Installations, LLC ("Elite" or "Plaintiff").

For the following reasons, the motion to dismiss the claims against National Fire is granted.

BACKGROUND

Defendant is an Illinois-based insurance company which conducts business and issues insurance policies to customers throughout the United States, including in New York. Dkt. No. 24 ("Amended Complaint" or "AC") ¶ 10; Dkt. No. 26 at 12. Plaintiff, a limited liability corporation which specializes in office project and furniture installation, purchased from Defendant CNA Paramount Policy, No. 6013994631, Dkt. No. 27-1 ("the Policy"). The Policy lasted for the period from June 27, 2019 to June 27, 2020. AC ¶¶ 10, 12. In exchange for indemnification for specified losses at its primary location in New York County at 19 West 34th Street, New York, New York 10001 (the "Covered Property"), Plaintiff paid policy premiums to Defendant. Id. ¶¶ 11, 15.

I. The Insurance Policy

The Policy includes three types of insurance coverage: "Business Property Coverage," "General Liability Coverage," and "Employee Benefits Liability Coverage." Dkt. No. 27-1 at 13. Several sections within the Business Property Coverage part of the Policy are relevant to Plaintiff's claim: Business Income Coverage, Extra Expense Coverage, and Denial of Access Coverage (Civil Authority). Under the Business Income Coverage and Extra Expense Coverage sections, Defendant agrees to the following coverage:¹

Business Income Coverage

The Insurer will pay for the actual loss of business income the Named Insured sustains during the period of restoration due to the necessary suspension or delay of operations caused by direct physical loss of or damage to property at a location directly caused by a covered peril.

* * *

Extra Expense Coverage

The Insurer will pay extra expense caused by direct physical loss of or damage to property at a location directly caused by a covered peril.

Id. at 79. The Policy notes that the "period of restoration" begins with "the time and date that the physical loss or damage that causes suspension of operations." Id. at 47–48. If the insured "resumes operations, with reasonable speed, the period of restoration ends on the earlier of ... the date when the premises where the loss or damage occurred could have been physically capable of resuming the level of operations which existed prior to the loss or damage; or ... the date when a new permanent premises is physically capable of resuming the level of operations which existed prior to the loss or damage, if business is resumed at a new permanent premises." Id. at 48. If the insured fails to resume operations with reasonable speed, the "period of restoration" ends on "the date when the premises where the loss or damage occurred could have been restored to the physical size, construction, configuration and material specifications which existed at the time of loss or damage, with no consideration for any increased period of time." Id.

The Civil Authority provisions, which fall under the Denial of Access Coverage section of the Business Property Coverage part of the Policy, state in relevant part:

Denial of Access Coverage

To the extent time element coverage is applicable at that location or reported unspecified location, the following coverages apply at the location or reported unspecified location where the suspension or delay of operations occurs:

Civil Authority

For up to the number of days shown on the Business Property Schedule of Coverages and Limits, the Insurer will pay, as provided, for:

The actual loss of business income the Named Insured sustains during the period of restoration due to the necessary suspension or delay of operations;

the actual loss of research and development business income the Named Insured sustains during the period of restoration due to the necessary suspension or delay of the research and development projects; and

extra expense, caused by action of civil authority that prohibits access to the location or reported unspecified location. Such action must result from a civil authority's response to direct physical loss of or damage to property located away from a location or reported unspecified location. That lost or damaged property must be within five miles of that location or reported unspecified location which sustains a business income or research and development business income loss or where extra expense is incurred. The loss or damage must be directly caused by a covered peril.

Id. at 86–87.

The Policy also contains several exclusions with respect to the Business Property Coverage part. These exclusions apply regardless of whether or not "any other cause or event ... may have contributed concurrently, or in any sequence, to produce such loss." Id. at 100. The Policy includes an exclusion entitled "Fungi, Wet Rot, Dry Rot, and Microbes," (the "Microbe Exclusion"), which provides in relevant part:

The Insurer will not pay for loss or damage caused directly or indirectly by or resulting from the presence, growth, proliferation, spread or any activity of fungi, wet or dry rot, or microbes. However, this exclusion does not apply when fungi, wet or dry rot, or microbes results from fire or lightning.

Id. A nearly identical provision can be found in the "Amendatory Endorsement – New York" section, which further refines coverage under the Business Property Coverage part:

The Insurer will not pay for loss caused by or resulting from the presence, growth, proliferation, spread or any activity of fungi, wet or dry rot or microbes. However, this exclusion does not apply when fungi, wet or dry rot, or microbes results from a covered peril.

Dkt. No. 27-2 at 177. The Policy notes that microbes include any "non-fungal microorganism; non-fungal, colony form organism; virus ; or bacteria." Dkt. No. 27-1 at 44 (emphasis added and internal numbering removed).

II. Impact of COVID-19 and "Civil Authority Orders" on Plaintiff

On March 7, 2020, Governor Cuomo declared a "Disaster Emergency" for the state of New York, authorizing New York state agencies "to take appropriate action to assist local governments and individuals in containing" the spread of the virus. AC ¶ 73; Dkt. No. 27-3 at 2. Governor Cuomo limited gatherings of large groups on March 12, 2020, Dkt. No. 27-4 at 5, and issued COVID-19-related stay-at-home orders for non-essential workers on March 20, 2020. AC ¶¶ 74, 75; Dkt. No. 27-5. The stay-at-home order stated that "essential business[es] or entit[ies] shall not be subject to the in-person restrictions," and could continue providing services as necessary. Dkt. No. 27-5 at 3. The Center for Disease Control ("CDC") and the World Health Organization ("WHO") issued warnings throughout the early months of 2020; these warnings addressed the health risks of COVID-19 and the virus’ mode of transmission, as well as preventive steps that individuals could take to slow the spread of the disease, including maintaining social distancing and frequently cleaning and disinfecting common surfaces. AC ¶¶ 61–72. Plaintiff alleges that compliance with the CDC recommendations made it impossible for Plaintiff to operate its business in the usual and customary manner. Id. ¶ 69.²

Plaintiff closed its physical office doors on March 16, 2020 "as a result of COVID-19 or the [Governor's] Orders." Id. ¶ 84. Initially, Plaintiff was able to continue working on several construction projects which had been deemed "essential" by the government. Id. ¶ 85. However, on March 27, 2020, Plaintiff was forced to cease all operations after New York narrowed the definition of what constituted "essential" construction work. Id. ¶ 86–87. Like many New York businesses during this time, Plaintiff was forced to lay off workers. Id. ¶ 88. The remaining employees continued work from home.

Plaintiff claims that the pandemic and the associated Orders damaged the Covered Property by making it "uninhabitable [to] employees and clients," and by requiring the company to make alterations to the property to ensure social distancing. Id. ¶¶ 89, 91. According to Plaintiff, "COVID-19 caused direct physical loss of and/or damage to the Covered Properties under the Policy by, among other things, damaging the properties, diminishing the functional physical space of the properties, intruding upon the properties, denying access to the properties, preventing employees and clients from physically occupying the properties, causing the property to be physically uninhabitable by employees and clients, causing its function to be nearly eliminated or destroyed, causing the properties to become substantially unusable, requiring repairs to the property such as alteration to ensure social distancing and to reduce the presence of COVID-19, and/or causing a suspension of business operations on the premises." Id. ¶ 91. These developments, Plaintiff claims, triggered coverage under the Policy. Plaintiff seeks declaratory relief that National Fire Insurance is responsible for covering the losses caused by the "Civil Authority Orders," or Executive Orders, issued by New York Governor Andrew Cuomo and the State of New York. AC ¶¶ 73–76.

PROCEDURAL HISTORY

Plaintiff filed a complaint against Defendant on June 22, 2020. Dkt. No. 1. On December 18, 2020, Plaintiff filed an amended complaint,...