Julio & Sons Co. v. Cont'l Cas. Co.

692 S.W.3d 877

JULIO & SONS COMPANY, et al., Appellants

v.CONTINENTAL CASUALTY COMPANY, Appellee

No. 05-23-00116-CV

Court of Appeals of Texas, Dallas.

Opinion Filed July 3, 2024

On Appeal from the 44th Judicial District Court, Dallas County, Texas, Trial Court Cause No. DC-21-02194, The Honorable Veretta Lynn Frazier, Judge

David H. Timmins, Husch Blackwell LLP, Dallas, Charles T. Frazier Jr., Alexander Dubose & Jefferson LLP, Dallas, H. Christopher Boehning, Daniel H. Levi, Yahonnes Cleary, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, for Appellee.

LaDawn H. Nandrasy, Scheef & Stone, LLP, Dallas, Amy Elizabeth Stewart, Amy Stewart PC, Dallas, P. Benjamin Duke, David A. Luttinger Jr., Covington & Burling, LLP, New York, Suzan F. Charlton, Covington & Burling, LLP, Washington, for Appellants.

Before Justices Nowell, Miskel, and Kennedy

OPINION

Opinion by Justice Nowell

This case involves an insurance coverage dispute between appellants (two restaurant groups collectively referred to as UJB) and appellee Continental Casualty Company. UJB filed a claim under a commercial property insurance policy for business interruption losses, among others, resulting from the COVID-19 pandemic. After Continental denied coverage because UJB did not establish any "direct physical loss of or damage to" their restaurants, UJB filed suit. Continental moved for summary judgment relying, in part, on Fifth Circuit and other federal circuit courts’ and state courts’ conclusions that COVID-19 does not cause direct physical loss of or damage to property as is necessary to trigger insurance overage. The trial court granted Continental’s motion for summary judgment. UJB challenges the trial court’s order on numerous grounds. We affirm.

Background

UJB owns Uncle Julio’s, Hacienda Colorado, and Bartaco restaurant chains. It operates approximately a dozen restaurants in Texas and fifteen restaurants in other states. UJB purchased an insurance policy (the Policy) from Continental in 2019 that covered any property losses for the October 30, 2019 through October 30, 2020 time period. The Policy broadly covered, among other things, "risks of direct physical loss of or damage to" any real or personal property, all "time element" losses for business interruption, losses due to orders of a "civil authority," and extra expenses associated with such losses. The Policy provided these coverages "except as hereafter excluded" but contained no exclusion for viruses.

After COVID-19 was declared a worldwide pandemic in early 2020, government officials around the country issued business restriction and stay-at-home orders and encouraged social distancing in an effort to reduce the spread of the deadly virus. UJB temporarily shut down restaurant operations in some locations and permanently closed in others. Thereafter, UJB submitted an insurance claim to Continental seeking coverage under the following provisions: (1) Business Interruption, (2) Denial of Access by Civil Authority, (3) Ingress-Egress, (4) Contingent Business Interruption, (5) Extra Expense, (6) Leasehold Interest, (7) Expenses Related to Reducing Loss, (8) Extended Period of Indemnity, (9) Loss Adjustment Expense, and (10) Professional Fees. On June 13, 2020, Continental denied coverage, in relevant part, because "[y]ou have not claimed that [UJB]’s operations were suspended because of any direct physical loss of or damage to property … and our investigation has revealed no evidence of such physical loss or damage."

On February 19, 2021, UJB filed an original petition requesting declaratory relief and alleged, in relevant part:

From March 2020 through the present, as a direct result of the COVID-19 pandemic and related government orders, UJB has suffered, and continues to suffer, physical loss of and damage to its covered property and severe "time element" losses and other covered losses and expenses due to necessary business interruptions of, and the prohibition of access to, its numerous Uncle Julio’s and Bartaco restaurants and other property.

UJB further asserted claims for breach of contract, breach of the implied covenant of good faith and faith dealing, and violations of the Texas Insurance Code. Continental filed a general denial.

The parties agreed to phased discovery. Phase I was limited to discovery related to UJB’s declaratory judgment and breach-of-contract claims. Phase II, if needed, would include the extracontractual claims and alleged damages. After the initial round of document production and depositions, the parties stayed additional discovery to allow Continental to move for summary judgment on the limited ground that UJB could not establish coverage under any Policy provisions. The parties also entered a Joint Factual Stipulation, which we quote as follows:

• No physical property at any covered restaurant location was tested for the presence of the coronavirus on property at any covered restaurant location at any time.

• No fact witness for Plaintiffs had personal knowledge of information confirming the physical presence or non-presence of the coronavirus on any covered property at any covered location.

• No fact witness for Plaintiffs had personal knowledge of any property at any covered restaurant location that was different in appearance or potential function, or that was missing or no longer in Plaintiffs’ physical possession because of the presence of the coronavirus.

• No fact witness for Plaintiffs has personal knowledge of any property at any covered restaurant location that was different in appearance or potential function, or that was missing or no longer in Plaintiffs’ physical possession, because of the presence of the coronavirus at the time the restaurant first reduced indoor dining capacity, discontinued indoor dining, and/or discontinued outdoor dining in or around March 2020.

• No fact witness for Plaintiffs has personal knowledge of information confirming that any person who contracted COVID-19 became infected by touching covered property at any restaurant location, or by entering a covered restaurant location.

• After each covered restaurant location first reduced indoor dining capacity, discontinued indoor dining, and/or discontinued outdoor dining in or around March 2020, some restaurant employees, management, customers, and/or third-party vendors were permitted to continue to enter the restaurant location for various purposes.

• Executive management of Uncle Julio’s and [B]artaco made the decisions to reduce dining capacity or to suspend any operations at each of their respective covered locations related to the COVID-19 pandemic.

• The references to "[n]o fact witness" in the stipulations above include executive management of Uncle Julio’s and [B]artaco.

On February 15, 2022, Continental filed a traditional motion for summary judgment. It argued, in part, that the applicable policy provisions required UJB to establish "direct physical loss of or damage to" covered property at each location. It contended that "consistent with [UJB’s] internal pre-litigation assessment" and "hundreds of federal and state courts around the country, including at least 22 decisions by Texas courts," the coronavirus that causes COVID-19 does not, as a matter of law, cause direct physical loss of or damage to property.

Alternatively, even if COVID-19 could cause direct physical loss of or damage to covered property, Continental argued any such loss or damage did not cause a necessary interruption of UJB’s business. Although most restaurants discontinued on-premises dining beginning in March 2020, a majority continued offering takeout and delivery services, resumed outdoor dining in subsequent weeks, and resumed reduced-capacity indoor dining by July 2020. Accordingly, Continental maintained UJB closed its restaurants in response to civil authority orders at a time when it was experiencing declining sales, and as soon as local restrictions permitted, UJB resumed on-premises dining at most of its locations despite COVID-19 continuing to spread through communities.

In its response, UJB argued that Continental did not meet its initial burden of establishing its entitlement to judgment as a matter of law, and the summary judgment burden never shifted to UJB as the non-movant. Alternatively, UJB contended it presented more than a scintilla of evidence to raise a genuine issue of material fact to overcome summary judgment.

UJB also encouraged the trial court not to "follow the herd" of non-binding federal and state case law concluding COVID-19 did not cause direct physical loss of or damage to property as a matter of law because the cases were factually distinguishable and conclusory in their analyses regarding the impact of COVID-19 on property. UJB presented a different theory. It argued, in part, that the physical impact of infectious virus particles on restaurant surfaces and in indoor air constituted "direct physical loss of or damage to property" under Texas law. Further, it asserted each restaurant suffered necessary business interruptions because the coronavirus caused the direct physical loss of or damage to each of its properties. UJB attached thousands of pages of documents to its response, including expert reports and affidavits of corporate executives.

On December 29, 2022, the trial court granted Continental’s motion for summary judgment and dismissed all of UJB’s claims. UJB filed a motion for new trial, which the trial court denied on March 23, 2023. This appeal followed.

Standard of Review

[1, 2] We review a summary judgment de novo. Trial v. Dragon, 593 S.W.3d 313, 316 (Tex. 2019). A traditional motion for summary judgment requires the moving party to show no genuine issue of material fact exists, and it is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); Lujan v. Navistar, Inc., 555 S.W.3d 79, 84 (Tex. 2018). If the movant carries this burden, the burden shifts to the nonmovant to raise a genuine issue of material fact. Lujan, 555...