Gerleman Mgmt., Inc. v. Atl. States Ins. Co.

506 F.Supp.3d 663

GERLEMAN MANAGEMENT, INC., d/b/a Splash Seafood Bar and Grill, et al., Plaintiffs,

v.ATLANTIC STATES INSURANCE COMPANY, Defendant.

No. 4:20-cv-183-JAJ

United States District Court, S.D. Iowa, Central Division.

Signed December 11, 2020

James W. Carney, Nicholas J. Mauro, Carney & Appleby PLC, Des Moines, IA, for Plaintiffs.

Rene Charles Lapierre, Klass Law Firm LLP, Sioux City, IA, for Defendant.

ORDER

JOHN A. JARVEY, Chief Judge

This matter comes before the Court pursuant to Defendant's Motion to Dismiss for Failure to State a Claim Upon Which Relief Can Be Granted filed on November 2, 2020 [Dkt. No. 25]. Plaintiffs filed a resistance [Dkt. No. 30], on November 18, 2020, and Defendant replied [Dkt. No. 31] to Plaintiffs' resistance on November 25, 2020. For the reasons stated below, Defendant's Motion to Dismiss Motion is GRANTED .

I. Introduction

A. Background

Plaintiffs are businesses operating and managing various restaurants in Polk County, Iowa. Pls.' Second Am. Compl. [Dkt. No. 24], ¶ 3. Plaintiffs' Second Amended Complaint alleges they purchased Business Income and Civil Authority insurance from Defendant. Id. ¶ 11. Plaintiffs did not attach the insurance policy to any of their complaints, but Defendant attached the policy to its answer to Plaintiffs' original complaint. [Dkt. Nos. 3-1, 3-2, 3-3]. Because the insurance policy and Governor Reynolds's proclamation are integral to and embraced by Plaintiffs' claims, the Court may consider the policy and the proclamation without converting Defendant's Motion to Dismiss into a motion for summary judgment. See Zean v. Fairview Health Servs. , 858 F.3d 520, 526 (8th Cir. 2017) (citations omitted).

On March 17, 2020, Iowa Governor Kim Reynolds issued a proclamation related to the COVID-19 pandemic. In relevant part, the proclamation stated:

All Restaurants and Bars are hereby closed to the general public except that ... food and beverages may be sold if such food or beverages are promptly taken from the premises, such as on a carry-out or drive-through basis, or if the food or beverage is delivered to customers off the premises.

Office of the Governor of Iowa Kim Reynolds, Gov. Reynolds Issues a State of Public Health Disaster Emergency , iowa.gov, https://governor.iowa.gov/press-release/gov-reynolds-issues-a-state-of-public-health-disaster-emergency (Mar. 17, 2020).

Plaintiffs' claim they are entitled to coverage under the insurance policy. Pls.' Second Am. Compl. [Dkt. No. 24], ¶ 67. Specifically, they allege they are entitled to coverage under the Business Income, Extra Expense, and Civil Authority provisions of their policy. Id. Additionally, Plaintiffs contend Defendant should be estopped from invoking the Virus Exclusion provision of the policy. Id. ¶ 69.

In relevant part, the Business Income provision states:

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 the property at the described premises. The loss of or damage must be caused by or result from a Covered Cause of Loss.

Def.'s App. Supp. Mot. Dismiss, App. Part 2 [Dkt. No. 25-3 at 24].

The Extra Expense provision states, in relevant part:

(1) We will pay the 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.

Id. at 25.

The Civil Authority provision provides:

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 due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.

Def.'s App. Supp. Mot. Dismiss, App. Part 1 [Dkt. No. 25-2 at 36]. The Virus Exclusion states: "We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease." Def.'s App. Supp. Mot. Dismiss, App. Part 3 [Dkt. No. 25-4 at 27].

B. Plaintiffs' Claims

In relevant part, Plaintiffs' Second Amended Complaint alleges the following:

11. To protect its businesses in the event they suddenly had to suspend operations for reasons outside of their control, Plaintiffs purchased Businessesowners' Coverage that included both Business Income and Civil authority insurance coverage from Defendant[.]

...

22. The policies do not define the phrase "direct physical loss of or damage to....", nor do they define "direct", "physical", "loss", or "damage" individually.

23. The use of the disjunctive "or" in the phrase "direct physical loss of or damage to" means that coverage is triggered if either a physical loss of property or damage to property occurs.

24. The Policies' use of the disjunctive "or" between the terms "physical loss" and "damage" necessarily means that either a "loss" or "damage" is required, and that "loss" is distinct from "damage."

...

42. The action of this Civil Authority resulted in the necessary suspension of Plaintiffs' operations as they economically could not operate their businesses solely on a take-out or delivery basis.

43. The proclamation caused "direct physical loss of or damage to" Plaintiffs' covered property under the Policy by precluding Plaintiffs from conducting their operations, precluding customers from patronizing the business, and otherwise frustrating the intended purposed of Plaintiffs' businesses, all thereby causing the necessary suspension of operations during a period of restoration.

44. Governor Reynolds' March 17, 2020 Order prohibited access to Plaintiff's Covered Property, and the area immediately surrounding the Covered Property, in response to dangerous physical conditions resulting in and from a Covered Cause of Loss.

45. Losses caused by COVID-19 and/or the Governor Reynolds' proclamation triggered the Business Income, Extra Expense, and Civil Authority provisions of the Policy.

...

48. Plaintiffs, in an effort to mitigate their income losses, have attempted to provide takeout services at six of the insured facilities, which has not proven to be financially sustainable or worthwhile.

...

51. Plaintiffs have fully complied with their obligations under the policy.

52. On April 9, 2020 Gerleman Management, Inc. received a letter from Donegal Insurance Group stating that Donegal had "completed our investigation and have determined that there is no coverage for your claim." The denial-of-coverage letter is attached hereto and made a part of the allegations of the Petition.

...

64. Based on information and belief, Defendant directly or indirectly participated in the insurance industry's efforts to effect state Insurance Commissioners, including the State of Iowa's Insurance Commissioner, to approve the suggested virus exclusion. 65. Defendant incorporated suggested provisions of the Insurance Services Office, Inc. into the policy issued to Plaintiffs, including the definition of covered losses, Civil Authority, and virus exclusions.

...

67. Plaintiffs claim damages that are covered under the business interruption and loss of income policy issued by the Defendants, including claims under the Business Income, Extra Expense, and Civil Authority provisions. 68. Donegal Insurance Group has denied coverage under policy BSR-8995377.

...

71. Plaintiffs' Policy is a contract under which Defendants were paid premiums in exchange for its promise to pay Plaintiffs' losses for claims covered by the Policy.

...

78. At all times material hereto, Plaintiffs maintained reasonable expectations that the loss of business income and additional expenses would be covered under the Policies under the circumstances described herein.

79. The losses described herein are covered losses under the policy.

80. Plaintiffs have complied with the applicable provisions of the Policy.

81. No valid policy exclusion exists to preclude coverage.

82. To the extent the Virus Exclusion would potentially apply, Defendants should be estopped from claiming the virus exclusion excludes coverage under these circumstances.

83. By denying coverage for the claims and losses set forth herein, Defendants have breached its coverage obligations under the Policies.

...

85. Defendants have a contractual obligation to fully and completely investigate a claim of an insured for policies which they have written and for which they have received commissions.

...

87. Defendants denied coverage for Plaintiffs' claim based on a virus exclusion contained in the policy.

88. Defendants failed to make any investigation of the claim and did not inquire if any facility that was insured had any evidence of infestation of the coronavirus or any other virus at any time, or if any employee or customer had become infected with the corona virus or other virus at any time.

89. That there was a complete failure in any manner in good faith to investigate the Plaintiffs' claim and the claim was summarily denied.

90. That the Defendants have acted in bad faith in denying the Plaintiffs' claim, and failing in good faith to investigate Plaintiffs' claim pursuant to Iowa Administrative Code section 191-15.41 (507A) and Iowa Code section 507A(4)(b).

Pls.' Second Am. Compl. [Dkt. No. 24], ¶¶ 11, 22–24,42–45, 48, 51–52, 64, 67, 71, 78–83, 85, 87–90.

Plaintiffs' Second Amended Complaint raises the following claims: Count I requests a declaratory judgment, Count II is a breach of contract claim, and Count III is a bad faith claim. Plaintiffs seek a declaratory judgment stating that their claims are covered by the Business Income, Extra Expense, and Civil Authority provisions. They also seek loss of income, costs and attorneys fees, punitive damages, and all other relief the court deems proper. Plaintiffs seek a jury trial on...