Gateway Clippers Holdings LLC v. W. Bend Mut. Ins. Co.

557 F.Supp.3d 925

GATEWAY CLIPPERS HOLDINGS LLC, Plaintiff,

v.WEST BEND MUTUAL INSURANCE COMPANY, Defendant.

Case No. 4:20CV1676 HEA

United States District Court, E.D. Missouri, Eastern Division.

Signed August 26, 2021

Daniel Scott Levy, Richard S. Cornfeld, Law Office of Richard S. Cornfeld LLC, St. Louis, MO, Kevin Paul Green, Mark C. Goldenberg, Thomas P. Rosenfeld, Goldenberg Heller PC, Edwardsville, IL, for Plaintiff.

Elaine M. Moss, Kathleen Ann McCarthy, Knight Nicastro LLC, St. Louis, MO, for Defendant.

OPINION, MEMORANDUM AND ORDER

HENRY EDWARD AUTREY, UNITED STATES DISTRICT JUDGE

This matter is before the Court on Defendant's Motion to Dismiss, [Doc. No. 16]. Plaintiff opposes the Motion. For the reasons set forth below, the Motion will be granted.

Facts and Background

This case is one of the many cases involving insurance coverage for certain economic losses and ill effects to businesses attributable to the COVID-19 pandemic. Plaintiff is the owner and operator of 20 franchised Great Clips hair salons in the St. Louis Metropolitan area in Missouri and Illinois. Plaintiff purchased a business insurance policy from Defendant which provided for indemnification for actual business losses incurred when business operations are involuntarily suspended, interrupted, or curtailed because of direct physical loss of or damage to its property. Plaintiff alleges that in March of 2020, it closed all of its Missouri and Illinois salons for up to two months as a result of the risks of staying open during the COVID pandemic. Plaintiff also incurred extra expenses for items necessary to keep the salons open, such as plexiglass dividers, masks, and extra cleaning supplies.

Plaintiff submitted claims for loss of business income and necessary extra expense incurred. Plaintiffs allege that Defendants have refused to pay Plaintiffs though Plaintiffs experienced a "physical loss of" their insured properties due to the COVID-19 pandemic.

Plaintiff brought this action Defendant insurer under the policy. The Complaint brings nine counts: Business Income Breach of Contract, Count I; Breach of The Implied Covenant of Good Faith and Fair Dealing Applicable to Business Income, Count II; Declaratory Relief in Connection with Business Income, Count III; Extra Expense Breach of Contract, Count IV; Breach of The Implied Covenant of Good Faith and Fair Dealing in Connection with Extra Expense Coverage, Count V; Declaratory Relief in Connection with Extra Expense Coverage, Count VI; Civil Authority Breach of Contract, Count VII; Breach of the Implied Covenant of Good Faith and Fair Dealing Applicable to Civil Authority Coverage, Count VIII; and Declaratory Relief in Connection with Civil Authority Coverage, Count IX. Defendants have moved to dismiss under Fed.R.Civ.P. 12(b)(6), arguing the Complaint fails to state a claim upon which relief can be granted.

Standard of Review

Federal Rule of Civil Procedure 8(a) requires that a pleading contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R.Civ.P. 8(a)(2). If a pleading fails to state a claim upon which relief can be granted, an opposing party may move to dismiss it. See Fed. R. Civ. P. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotations and citation omitted). The factual content of the plaintiff's allegations must "allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Cole v. Homier Distrib. Co. , 599 F.3d 856, 861 (8th Cir. 2010) (quoting Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ). If a claim fails to allege one of the elements necessary to recovery on a legal theory, that claim must be dismissed for failure to state a claim upon which relief can be granted. Crest Constr. II, Inc. v. Doe , 660 F.3d 346, 355 (8th Cir. 2011).

When ruling on a motion to dismiss, the Court "must liberally construe a complaint in favor of the plaintiff," Huggins v. FedEx Ground Package Sys., Inc. , 592 F.3d 853, 862 (8th Cir. 2010), and must grant all reasonable inferences in its favor, Lustgraaf v. Behrens , 619 F.3d 867, 872–73 (8th Cir. 2010). Although courts must accept all factual allegations as true, they are not bound to take as true "a legal conclusion couched as a factual allegation." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotations and citation omitted); Iqbal , 556 U.S. at 677–78, 129 S.Ct. 1937. Indeed, "[c]ourts should dismiss complaints based on ‘labels and conclusions, and a formulaic recitation of the elements of a cause of action.’ " Hager v. Ark. Dep't of Health , 735 F.3d 1009, 1013 (8th Cir. 2013) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).

Discussion

The relevant policy provisions are:

A. Coverage

We will pay for direct physical loss of or damage to Covered Property at the premises described in the declarations caused by or resulting from any Covered Cause of Loss. ...

3. Covered Causes of Loss

Direct physical loss unless the loss is excluded or limited.

This coverage is extended to include (1) Business Income; (2) Extra Expense; and (3) Civil Authority coverage subject to the terms and conditions detailed below:

5. Additional Coverages and Coverage Extensions

...

b. Business Income

(1) Business Income (a) 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 the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.... ...

e. Civil Authority

When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises provided that both of the following apply:

(1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property; and

(2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.

...

n. Extra Expense

(1) We will pay necessary Extra Expense you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss....

The Policy also contains (1) a Virus Exclusion and (2) a

Consequential Losses Exclusion:

B. Exclusions

...

2. We will not pay for loss or damage caused by or resulting from any of the following:

...

b. Consequential Losses

Delay, loss of use or loss of market. ...

l. Virus Or Bacteria

(1) Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.

...

4. Business Income and Extra Expense Exclusions

a. We will not pay for: ... (1) Any other consequential loss.

The policy at issue only covers "actual loss of Business Income" due to the "necessary ‘suspension’ of ‘operations’ during the ‘period of restoration’ " and only if the suspension was "caused by direct physical loss of or damage to property at the described premises." The policies do not define "loss" or "damage" as used in the phrase "direct physical loss of or damage to property." Plaintiff alleges that it had a physical loss of its insured properties arising from the COVID-19 pandemic." It argues that it "suffered a ‘loss of’ its properties when it was unable to use them for the hair salon business and its customers suffered a loss of the properties when they were unable to access them for salon services." Since it is a legal conclusion that Plaintiff suffered a loss of r properties, the Court will not assume such allegations are true, but the Court will determine that legal conclusion based on Plaintiffs’ pleaded facts.

Contract Claims

Under Missouri law, a court interpreting an insurance policy should "give[ ] the policy language its plain meaning, or the meaning that would be attached by an ordinary purchaser of insurance." Seaton v. Shelter Mut. Ins. Co. , 574 S.W.3d 245, 247 (Mo. banc 2019) (quoting Doe Run Res. Corp. v. Am. Guar. & Liab. Ins. , 531 S.W.3d 508, 511 (Mo. banc 2017) ). In addition, courts "should not interpret policy provisions in isolation but rather evaluate policies as a whole." Ritchie v. Allied Prop. & Cas. Ins. Co. , 307 S.W.3d 132, 135 (Mo. banc. 2009). When an insurance policy is "clear and unambiguous," the court must enforce the policy as written. Seaton , 574 S.W.3d at 247.

Under the plain meaning of the policy language and evaluating the policy as a whole, Plaintiff's decision to close the salons did not constitute a "direct physical loss of" its property. Nothing physical happened to the salons. Rather, there only was a change in circumstances. The coronavirus pandemic, the associated opinions of industry groups, and the public may have caused demand for salon services to plummet, but the transitory reduction of the properties’ functionality, based on no direct physical occurrence, does not amount to a loss of the properties under the plain meaning of the policies.

In line with many other courts before it, the Court concludes that Plaintiff did not plead a "direct physical loss of" its property because it did not plead any "physical alteration of property, or, put another way, a tangible...