LDWB #2 LLC v. FCCI Ins. Co.

LDWB #2 LLC D/B/A LONESOME DOVE AUSTIN,A LIMITED LIABILITY COMPANY, Plaintiff v. FCCI INSURANCE COMPANY, Defendant

Case No. 1:20-CV-425-LY

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS AUSTIN DIVISION

July 1, 2021

REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

TO: THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE

Before the Court are Defendant FCCI Insurance Company's Fed. R. Civ. P. 12(c) Motion for Judgment on the Pleadings, filed March 12, 2021 (Dkt. 29); Defendant FCCI Insurance Company's Opposed Motion for Protective Order, filed May 7, 2021 (Dkt. 33); and the associated response and reply briefs. The District Court referred the motions to the undersigned Magistrate Judge for report and recommendation and disposition, respectively, pursuant to 28 U.S.C. § 636(b)(1), Federal Rule of Civil Procedure 72, and Rule 1 of Appendix C of the Local Rules of the United States District Court for the Western District of Texas.

I. Background

Plaintiff LDWB #2 LLC d/b/a Lonesome Dove Austin owns and operates the Lonesome Dove Austin restaurant, located at 121 West 5th Street, Austin, Texas 78701-2908 (the "Property" or the "Premises"). On June 15, 2019, Defendant FCCI Insurance Company issued Plaintiff a commercial property insurance policy (the "Policy") covering the Property from June 15, 2019 to June 15, 2020. Dkt. 26-1 at 5. The Policy generally provides coverage for "direct physical loss of or damage to" Plaintiff's Property and business personal property, with some exclusions. Id. at 28. At issue here, the Policy contains a Business Income and Extra Expense Coverage Form providing for loss of business income and extra expenses (commonly referred to as "business interruption losses") sustained "due to the necessary 'suspension' of your 'operations' during the 'period of restoration'" where the suspension was "caused by direct physical loss of or damage to [Plaintiff's] property." Id. at 44. The Policy further provides civil authority coverage for loss of business income and extra expenses sustained when "a Covered Cause of Loss causes damage to property other than property at the described premises . . . caused by action of civil authority that prohibits access to the described premises." Id. at 45. The Policy also contains a virus exclusion provision excluding coverage for "loss or damage caused by or resulting from any virus." Id. at 55.

On March 11, 2020, the World Health Organization declared the COVID-19¹ outbreak a global pandemic. Dkt. 26 at ¶ 25. Shortly thereafter, state and local governments issued numerous civil authority orders (the "Civil Authority Orders") to protect public health by limiting the spread of COVID-19, including orders limiting gatherings and restricting operation of non-essential businesses such as bars and restaurants. For example, on March 14, 2020, the City of Austin issued an order banning community gatherings of 250 people or more, including such gatherings at bars and restaurants. Dkt. 26-2. On March 19, 2020, the Governor of Texas issued an executive order relating to COVID-19 preparedness and mitigation prohibiting "eating or drinking at bars, restaurants and food courts" from March 20, 2020 through April 3, 2020, subject to extension thereafter. Dkt. 26-3 at 2-3. The executive order encouraged Texans to use "drive-thru, pickup, or delivery options at restaurants and bars." Id. at 2. On March 24, 2020, the City of Austin issued a "Stay Home - Work Safe" order requiring all City of Austin residents to "shelter at their place of residence" through April 13, 2020, except to perform essential activities. Dkt. 26-4 at 2. The orderfurther stated that restaurants could remain open as "essential businesses," but could provide only delivery or carryout services. Id. at 5. Subsequent city and state orders limited the functions and capacity of restaurants. Dkt. 26 ¶ 32. On December 23, 2020, the City of Austin issued another order encouraging restaurants and bars to close indoor seating spaces and limit outdoor dining to fifty percent capacity. Id. ¶ 34.

As a result of the civil authority orders, Plaintiff alleges that its "bustling" restaurant was rendered "nonfunctional for its intended purposes" and that it suffered serious financial losses as a result. Id. ¶ 5. Plaintiff alleges that "the necessary suspension of Plaintiff's business operations caused by the Orders constitute a Covered Cause of Loss as defined in the Policy," and Plaintiff submitted a claim to Defendant to recover for those losses. Id. ¶ 39. Defendant denied the claim, contending that Plaintiff's losses were not covered under the terms of the Policy.

After Defendant denied its claim, Plaintiff filed this suit. Plaintiff asks the Court to issue a declaratory judgment under 28 U.S.C. § 2201 that:

1) The Civil Authority Orders constitute a direct physical loss of or damage to the Premises as defined in the Policy;

2) The necessary suspension of Plaintiff's business operations caused by the Civil Authority Orders constitute a direct physical loss as defined in the Policy;

3) The Civil Authority Orders constitute a prohibition of access to Plaintiff's Insured Premises by a Civil Authority as defined in the Policy;

4) The Civil Authority Orders trigger coverage under the Policy if Plaintiff can prove that there has been a direct physical loss of or damage to the property as defined in the policy;

5) The Civil Authority Orders trigger coverage under the Civil Authority provision of the Policy if Plaintiff can prove that there has been a physical loss of or damage to the property;6) The presence of COVID-19 triggers coverage under the Policy if Plaintiff can prove that there has been a direct physical loss of or damage to the property as defined in the policy;

7) The required physical alterations triggers coverage under the Policy if Plaintiff can prove there has been a direct physical loss of or damage to the property as defined in the policy; and

8) The claim preparation coverage is available for making a claim under the Policy.

Id. ¶¶ 42-51.

Defendant now moves for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that Plaintiff's claimed losses due to the COVID-19 pandemic are not covered under the Policy because they do not constitute a "direct physical loss of or damage to" Plaintiff's Property.

II. Legal Standards

The Court applies the following standards to the Motion for Judgment on the Pleadings.

A. Rule 12(c)

The standard for Rule 12(c) motions for judgment on the pleadings is identical to the standard for Rule 12(b)(6) motions to dismiss for failure to state a claim. Waller v. Hanlon, 922 F.3d 590, 599 (5th Cir. 2019). In deciding a Rule 12(b)(6) motion to dismiss for failure to state a claim, the court "accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quotation marks omitted). The Supreme Court has explained that a complaint must contain sufficient factual matter "to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the [nonmovant] pleads factual content that allows the court to draw thereasonable inference that the [movant] is liable for the misconduct alleged." Ashcroft, 556 U.S. at 678.

While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of its entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).

Twombly, 550 U.S. at 555 (cleaned up). The court's review is limited to the complaint, any documents attached to the complaint, and any documents attached to the motion to dismiss that are central to the claim and referenced by the complaint. Lone Star Fund V. (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010).

B. Texas Insurance Law

In a diversity action, federal courts are bound to apply the forum state's substantive law. Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938). Accordingly, the Court must apply Texas law in this case, as the parties agree. "Texas law provides that insurance policies are construed according to common principles governing the construction of contracts, and the interpretation of an insurance policy is a question of law for a court to determine." Am. Int'l Specialty Lines Ins. Co. v. Rentech Steel L.L.C., 620 F.3d 558, 562 (5th Cir. 2010).

Unless the policy dictates otherwise, courts give words and phrases their ordinary and generally accepted meaning, reading them in context and in light of the rules of grammar and common usage. Nassar v. Liberty Mut. Fire Ins. Co., 508 S.W.3d 254, 258 (Tex. 2017). If policy language can be given a definite or certain legal meaning, it is not ambiguous, and courts construe it as a matter of law. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003).

The paramount rule is that courts enforce unambiguous policies as written. . . . If an insurance contract, just like any other contract, uses unambiguous language, that's that. Our first task, then, is purelylegal: deciding whether the Policy is ambiguous. And under Texas contract law, "ambiguity" means more than "lack of clarity." A policy is not ambiguous merely because different parties—or different judges—offer conflicting interpretations. . . . A policy is only ambiguous if, giving effect to all provisions, its language is "subject to two or more reasonable interpretations."

Pan Am Equities, Inc. v. Lexington Ins. Co., 959 F.3d 671, 674 (5th Cir. 2020) (citations omitted). If a policy is...