Hartford Fire Ins. Co. v. Moda, LLC

346 Conn. 64

288 A.3d 206

HARTFORD FIRE INSURANCE COMPANY

v.MODA, LLC, et al.

SC 20678

Supreme Court of Connecticut.

Argued September 15, 2022

Officially Released January 27, 2023^*

Christine A. Montenegro, pro hac vice, with whom were Tony Miodonka, Stamford, and, on the brief, Joshua A. Siegel and Jerold Oshinsky, pro hac vice, for the appellants (defendants).

Jonathan M. Freiman, New Haven, with whom were Anjali S. Dalai, pro hac vice, and, on the brief, Mark K. Ostrowski, Hartford, Sarah E. Dlugoszewski, Hartford, Sarah D. Gordon, pro hac vice, James E. Rocap III, pro hac vice, and Johanna Dennehy, pro hac vice, for the appellee (plaintiff).

Brian E. Spears, Southport, and John N. Ellison, pro hac vice, filed a brief for United Policyholders as amicus curiae.

Wystan M. Ackerman, Hartford, and Denis J. O'Malley filed a brief for the American Property Casualty Insurance Association as amicus curiae.

Robinson, C. J., and McDonald, D'Auria, Mullins, Ecker and Alexander, Js.

ECKER, J.

This is one of two cases decided today in which we must determine whether business losses suffered during the COVID-19 pandemic are covered by insurance for "direct physical loss of or direct physical damage to ... [p]roperty ...." See Connecticut Dermatology Group, PC v. Twin City Fire Ins. Co. , 346 Conn. 33, 288 A.3d 187 (2023) ( Connecticut Dermatology ). The plaintiff is Hartford Fire Insurance Company (Hartford Fire). Before the pandemic, Hartford Fire sold two insurance policies to the defendants, Moda, LLC, and its affiliates (collectively, Fisher).¹ The parties brought their claim and counterclaim to determine whether those policies provide coverage for losses suffered by Fisher during the pandemic. We agree with the trial court that Fisher's losses are not covered by the relevant policies, and we therefore affirm the granting of summary judgment in favor of Hartford Fire.

The record reflects the following facts. Fisher sells shoes to department stores and other retailers across the country. In the first months of 2020, disaster struck at Fisher, as it did around the world, in the form of the COVID-19 pandemic. To slow the spread of the SARS-CoV-2 virus, state governments issued orders temporarily closing all nonessential businesses. Fisher's "major retail customers ... shuttered their storefronts [and] canceled ... orders, placed months prior, from [Fisher's] spring lines." (Internal quotation marks omitted.) As a result, Fisher's warehouses "overflow[ed] with spring inventory, which, due to the seasonal nature of the retail business, [was] effectively unsellable." (Internal quotation marks omitted.) Fisher alleged that it has "suffered immense financial injuries" and may "have no choice but to liquidate" unless its losses are insured. (Internal quotation marks omitted.)

Before the pandemic, Fisher purchased two insurance policies from Hartford Fire, which were in effect from October, 2019, to October, 2020: (1) a multi-flex business policy (package policy), and (2) an ocean marine policy (marine policy). The package policy covers "direct physical loss of or direct physical damage to ... [c]overed [p]roperty caused by or resulting from a [c]overed [c]ause of [l]oss." The policy defines a "[c]overed [cause] of [l]oss" as "direct physical loss or direct physical damage that occurs during the [p]olicy [p]eriod and in the [c]overage [t]erritory unless the loss or damage is excluded or limited [by the] policy." Covered property includes specified premises and "[b]usiness [p]ersonal [p]roperty," such as "[s]tock."

In addition to property loss or damage, the package policy covers the loss of business income incurred (1) "due to the necessary interruption of ... business operations during the [p]eriod of [r]estoration due to direct physical loss of or direct physical damage to property caused by or resulting from a [c]overed [c]ause of [l]oss at [s]cheduled [p]remises";² (2) "when access to ... ‘[s]cheduled [p]remises’ is specifically prohibited by order of a civil authority as the direct result of a [c]overed [c]ause of [l]oss to property in the immediate area of [the] ‘[s]cheduled [p]remises’ "; and (3) in the event of an "interruption of ... business operations ... due to loss or damage to property caused by ... [a] virus," if the virus "is the result of" a "[s]pecified [c]ause of [l]oss," which is defined to include "aircraft or vehicles ...." (Internal quotation marks omitted.)

Excluded from the package policy's coverage, however, is any "loss or damage caused directly or indirectly by" the "[p]resence, growth, proliferation, spread or any activity of ... [a] virus." This virus exclusion is subject to an exception for loss or damage caused by a " ‘[s]pecified [c]ause of [l]oss,’ " which includes "aircraft or vehicles ...."

The marine policy that Fisher purchased from Hartford Fire protects Fisher's shoes while they are in transit and storage. It "insures against all risks of direct physical loss or direct physical damage to [i]nsured [p]roperty from any external cause," subject to specific exclusions. "Insured [p]roperty" includes Fisher's "shoes and related accessories."

Hartford Fire initiated this action seeking a judgment declaring that Fisher's losses are not covered by the package policy.³ Fisher filed an answer and counterclaim, alleging (1) breach of the package and marine insurance policies, (2) breach of the implied covenant of good faith and fair dealing, and (3) violation of the Connecticut Unfair Insurance Practices Act (CUIPA), General Statutes § 38a-815 et seq., via the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq., by, among other things, "refusing to pay claims without conducting a reasonable investigation based [on] all available information" and "failing to promptly settle claims, [when] liability has become reasonably clear ...."

Hartford Fire moved for summary judgment on its declaratory judgment complaint and Fisher's counterclaim, arguing that neither the package policy nor the marine policy covered Fisher's losses because Fisher had not suffered a "direct physical loss of or direct physical damage to" property. (Internal quotation marks omitted.) Alternatively, Hartford Fire claimed that the virus exclusion in the package policy "expressly exclude[s] coverage for any loss or damage caused by a virus, and [Fisher's] COVID-19 related business losses were caused by the ... coronavirus ...." Fisher opposed Hartford Fire's motion for summary judgment, contending that it had suffered "three distinct forms of direct physical loss of or damage to property: contamination of its property, loss of use of its property, and loss of value of its inventory." (Emphasis omitted; internal quotation marks omitted.)

Fisher further argued that the virus exclusion in the package policy was inapplicable because its business losses were not caused by the COVID-19 virus but, rather, by the "business interruption caused by orders of civil authority used to control a pandemic ...."

The trial court concluded that there was no coverage under either policy. With respect to the package policy, the court reasoned that Fisher's losses were exempted from coverage by the virus exclusion because "[t]here [could] be no doubt that the cause of [Fisher's] damages [was] the [SARS-CoV-2] virus ...." With respect to the marine policy, the court reasoned that, "under New York law, the words ‘direct’ and ‘physical’ in an insurance policy limit an insurance company's coverage obligations to physical damage to the property itself." Fisher therefore could not "succeed on [its argument that it was] entitled to coverage based on loss of access to the property and the fact that [its] inventory became outdated or diminished in value." The court rejected Fisher's argument that its property had been " ‘contaminated’ " on the ground that "there [were] no allegations in the counterclaim or evidence in the record indicating that [its] shoes [had] somehow been infected with the ... virus." Having determined that "the language of both the package policy and the marine policy clearly and unambiguously [did] not cover [Fisher's] alleged losses," the trial court concluded that Harford was "entitled to summary judgment" on its claim and Fisher's counterclaim. This appeal followed.⁴

Our review of a trial court's interpretation of an insurance contract is de novo; e.g., National Grange Mutual Ins. Co. v. Santaniello , 290 Conn. 81, 88, 961 A.2d 387 (2009) ; as is our review of a trial court's decision to grant summary judgment. E.g., Graham v. Commissioner of Transportation , 330 Conn. 400, 415, 195 A.3d 664 (2018). In deciding a motion for summary judgment, the court must view the evidence in the light most favorable to the nonmoving party. E.g., Heisinger v. Cleary , 323 Conn. 765, 776, 150 A.3d 1136 (2016). Summary judgment is appropriate if "there [is] no genuine issue as to any material fact" and "the moving party is entitled to judgment as a matter of law." (Internal quotation marks omitted.) Id. ; see Practice Book § 17-49.

ITHE PACKAGE POLICY

It is well established that "any ambiguity in the terms of an insurance policy must be construed in favor of the insured because the insurance company drafted the policy." (Internal quotation marks omitted.) Lexington Ins. Co. v. Lexington Healthcare Group, Inc. , 311 Conn. 29, 38, 84 A.3d 1167 (2014).⁵ However, we "will not torture words to import ambiguity ...." (Internal quotation marks omitted.) Id. "If the terms of the policy are clear and unambiguous, then the language ... must be accorded its natural and ordinary meaning." (Internal quotation marks omitted.) Id.

Coverage under the package policy is limited to cases of "direct physical loss of or direct physical damage to ... [p]roperty ...." In the companion case that we decide today, Connecticut Dermatology , we interpreted a policy with almost identical language. See Connecticut Dermatology, PC v. Twin City Fire Ins. Co. , su...