Hamilton Jewelry, LLC v. Twin City Fire Ins. Co.

560 F.Supp.3d 956

HAMILTON JEWELRY, LLC, d/b/a/ CF Brandt Jewelers & Jewelry Place by the Bay, Plaintiff,

v.TWIN CITY FIRE INSURANCE COMPANY, INC., Defendant.

Case No.: 8:20-cv-02248-PWG

United States District Court, D. Maryland, Southern Division.

Signed September 16, 2021

Christopher Larry LaFon, The Veritas Law Firm, Washington, DC, for Plaintiff.

Angel E. Reyes, Pro Hac Vice, Sarah D. Gordon, Pro Hac Vice, William L. Drake, Pro Hac Vice, Linda C. Bailey, Steptoe and Johnson PLLC, Washington, DC, for Defendant.

MEMORANDUM OPINION AND ORDER

Paul W. Grimm, United States District Judge

This insurance coverage case involves a local jeweler's claim for coverage under a business owner's insurance policy for the damages it allegedly sustained as a result of the government-mandated closure of non-essential businesses during the COVID-19 pandemic. Currently pending before this Court are the parties' cross-motions for judgment on the pleadings. I have reviewed the parties' filings and find a hearing unnecessary. See Loc. R. 105.6 (D. Md. 2021). For the reasons stated below, Twin City's motion for judgment on the pleadings is GRANTED, and Hamilton's motion for partial judgment on the pleadings is DENIED.

BACKGROUND

On March 23, 2020, Maryland's Office of the Governor issued an Executive Order requiring the temporary statewide closure of all non-essential businesses in an effort to control the spread of COVID-19 and reduce the accompanying threat to public health, welfare, and safety. ECF 2, Complaint ¶ 27. Plaintiff Hamilton Jewelry, LLC ("Hamilton"), a jewelry store and showroom located in Upper Marlboro, Maryland, was among the many non-essential businesses that was required to close its doors during the shutdown period. Id. ¶¶ 7, 30, 31, 35.

Prior to the COVID-19 pandemic and the resulting closure of non-essential businesses, Hamilton purchased a business owner's policy from Twin City Fire Insurance Company, Inc. ("Twin City") for the policy period commencing May 2, 2019 to May 2, 2020 (the "Policy"). Id. at ¶¶ 8–9; ECF 40-7, Policy. The Policy provides coverage for "direct physical loss of or physical damage to Covered Property" that is "caused by or result[s] from a Covered Cause of Loss." Policy at 29. "Covered Cause of Loss" is defined as "RISKS OF DIRECT PHYSICAL LOSS unless the loss is" otherwise excluded or limited by the Policy terms. Id. at 30 (capitalization provided by the Policy).

The Policy provides additional coverage for business income that is lost as a result of the necessary suspension of Hamilton's business operations. The Policy provides, in relevant part:

We will pay for the actual loss of Business Income^[1] 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 physical damage to property at the "scheduled premises"[.]

***

With respect to the coverage provided in this Additional Coverage, suspension means:

(a) The partial slowdown or complete cessation of your business activities; or

(b) That part or all of the "scheduled premises" is rendered untentantable [(sic.)] as a result of a Covered Cause of Loss if coverage for Business Income applies to the policy.

Id. at 38.

The Policy contains and is modified by an endorsement, captioned "Limited Fungi, Bacteria or Virus Coverage," that provides narrow coverage for certain loss or damage caused by a virus (the "Endorsement"). Id. at 123. As relevant here, the Endorsement provides coverage only when the damage-causing-virus is the result of a " ‘specified cause of loss’ other than fire or lightning." Id. at 124. The "specified cause[s] of loss" are particularly enumerated in the Policy and include "fire, lightning, explosion, windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow; ice or sleet; water damage." Id. at 53. If the damage-causing virus is the result of a "specified cause of loss," the Endorsement creates coverage only for "direct physical loss or direct physical damage to Covered Property". Id. at 124.

The Endorsement expressly excludes from coverage:

loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss:

(1) Presence, growth, proliferation, spread or any activity of "fungi", wet rot, dry rot, bacteria or virus.

(2) But if "fungi", wet rot, dry rot, bacteria or virus results in a "specified cause of loss" to Covered Property, we will pay for the loss or damage caused by that "specified cause of loss."

Id. at 123.

In March 2020, after ceasing its business operations, Hamilton notified Twin City that it would seek coverage under the Policy for the business income allegedly lost during the government mandated shutdown period. Complaint ¶ 36. Twin City denied Hamilton's claim on March 24, 2020. Id. ¶ 37.

On May 20, 2020, Hamilton filed a two-count complaint against Twin City in the Circuit Court for Prince George's County, Maryland. See generally Complaint Count I seeks a declaration that "Maryland's March 23, 2020 Executive Order ... prohibited Hamilton [ ] from operating its jewelry stores and showrooms" and that Hamilton's "loss of Business Income is covered under" the Policy. Id. 9–11. Count II alleges that by declining coverage for Hamilton's claim for lost business income, Twin City breached the Policy and denied Hamilton coverage in bad faith. Id. 11–13. Twin City removed the case to this Court, where the parties agreed to submit cross-motions for judgment on the pleadings under Fed. R. Civ. P. Rule 12(c) solely on the issue of whether the Policy provides coverage for Hamilton's claim. ECF 1, Notice of Removal; ECF 31, Joint Correspondence re: Permission to File Motions.

STANDARD OF REVIEW

The parties have filed cross-motions for judgment on the pleadings under Fed. R. Civ. P. 12(c). Motions for judgment on the pleadings are subject to the same standards used to evaluate motions to dismiss under Rule 12(b)(6). Drager v. PLIVA USA, Inc. , 741 F.3d 470, 474 (4th Cir. 2014). Accordingly, a court evaluating a motion for judgment on the pleadings must assume that the well-pleaded facts alleged in the complaint are true and must draw all reasonable factual inferences in favor of the non-moving party. Rock for Life-UMBC v. Hrabowski , 594 F. Supp. 2d 598, 605 (D. Md. 2009) ; Pennsylvania Nat'l Mut. Cas. Ins. Co. v. Beach Mart, Inc. , 932 F.3d 268, 274 (4th Cir. 2019). Courts may also properly consider documents that have been attached to a 12(c) motion provided it "was integral to and explicitly relied on in the complaint" and if the parties do not challenge its authenticity. Pulte Home Corp. v. Montgomery Cnty. , 271 F. Supp. 3d 762, 769–70 (D. Md. 2017). A Rule 12(c) motion should be granted when the pleadings "fail to state any cognizable claim for relief, and the matter can, therefore, be decided as a matter of law." Rock for Life , 594 F. Supp. 2d at 605 (quoting O'Ryan v. Dehler Mfg. Co. , 99 F. Supp. 2d 714, 717-18 (E.D. Va. 2000) ).

DISCUSSION

A. Standard for interpreting the Policy under Maryland law²

Maryland courts apply general principles of contract interpretation when reviewing and interpreting insurance policies. Agency Ins. Co. v. State Farm Mut. Auto. Ins. Co. , 193 Md.App. 666, 998 A.2d 936, 940 (2010). Accordingly, like other contracts, an insurance policy is to be construed as a whole to determine the parties' intentions, and courts "utilize the law of objective interpretation to ascertain the intent of the contracting parties, provided that intention does not violate an established principle of law." Mitchell v. AARP Life Ins. Program, New York Life Ins. Co. , 140 Md.App. 102, 779 A.2d 1061, 1069 (2001).

Maryland courts "look first to the contract language employed by the parties to determine the scope and limitations of the insurance coverage," and interpret policy language according to its "usual, ordinary and accepted meaning unless there is evidence that the parties intended to employ it in a special or technical sense." Agency Ins. Co. , 998 A.2d at 940 (quoting Clendenin Bros., Inc. v. U.S. Fire Ins. Co. , 390 Md. 449, 889 A.2d 387 (2006) ). "When the language of a contract is unambiguous, a court shall give effect to its plain meaning and there is no need for further construction by the court." Mitchell , 779 A.2d at 1069 (quoting Wells v. Chevy Chase Bank , 363 Md. 232, 768 A.2d 620 (2001) ). Maryland courts do not follow the rule applicable in many other jurisdictions that "insurance policies are to be most strongly construed against the insurer," but will nevertheless construe an ambiguous policy term "liberally in favor of the insured and against the insurer as drafter of the instrument. " Connors v. Gov't Emps. Ins. Co. , 442 Md. 466, 113 A.3d 595, 605 (2015) (quoting Megonnell v. United Servs. Auto. Ass'n , 368 Md. 633, 796 A.2d 758, 772 (2002) ) (emphasis in original). "A policy term is considered "ambiguous if, to a reasonably prudent person, the term is susceptible to more than one meaning." " James McHugh Constr. Co. v. Travelers Prop. Cas. Co. of Am. , 223 F. Supp. 3d 462, 467 (D. Md. 2016).

B. The Policy excludes damages caused by a virus

The primary dispute between Hamilton and Twin City is how the Endorsement, which creates narrow coverage for some damages caused by a virus while broadly excluding others, applies to Hamilton's alleged loss of business income during the COVID-19 pandemic. For the reasons explained below, I find that the Endorsement unambiguously excludes Hamilton's alleged damages from coverage under the Policy.

i. The doctrine of reasonable expectations is not applicable in Maryland

Hamilton begins by invoking "the doctrine of reasonable expectations," and argues that the application of that doctrine compels a...