Mareik Inc. v. State Farm Fire & Cas. Co.

537 F.Supp.3d 818

MAREIK INC. d/b/a Nicole Miller Philadelphia, Plaintiff

v.STATE FARM FIRE AND CASUALTY COMPANY, Defendant

CIVIL ACTION NO. 20-2744

United States District Court, E.D. Pennsylvania.

Filed May 5, 2021

Daniel C. Levin, Arnold Levin, Fred S. Longer, Laurence S. Berman, Levin Sedran & Berman, Kenneth J. Grunfeld, Richard M. Golomb, Golomb & Honik PC, Philadelphia, PA, for Plaintiff.

Nicholas A. Cummins, Pamela A. Carlos, Bennett, Bricklin & Saltzburg LLC, Philadelphia, PA, for Defendant.

MEMORANDUM OPINION

NITZA I. QUIÑONES ALEJANDRO, District Judge

INTRODUCTION

Plaintiff Mareik Inc., a fashion boutique, filed an amended complaint against Defendant State Farm Fire and Casualty Company ("State Farm"), pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201 - 2202, seeking a determination of the rights and duties arising from an "all-risk" Businessowners Coverage insurance policy issued by State Farm (the "Policy").

[ECF 16]. In the amended complaint, Plaintiff avers that it was forced to temporarily suspend its normal business operations to comply with local COVID-19-related shutdown orders, which resulted in a loss of business income. Plaintiff filed a claim under the Policy for this loss, which State Farm denied. Thereafter, Plaintiff commenced this action seeking declaratory relief.

Before this Court is State Farm's motion to dismiss for failure to state a claim upon which relief can be granted, filed pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6). [ECF 19]. In its motion, State Farm argues that its Policy does not provide coverage for the type of economic loss Plaintiff alleges to have suffered. Plaintiff opposes the motion.¹ [ECF 21]. For the reasons set forth herein, State Farm's motion to dismiss is granted.

BACKGROUND

When considering a Rule 12(b)(6) motion, a court must accept as true all factual allegations in the amended complaint and all reasonable inferences that can be drawn therefrom, viewed in the light most favorable to the non-moving party. Fowler v. UPMC Shadyside , 578 F.3d 203, 210-11 (2009) (citing Ashcroft v. Iqbal , 556 U.S. 662, 667, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). The relevant factual allegations² are summarized as follows:

Plaintiff is a retail fashion boutique in Philadelphia, Pennsylvania. In March 2020, the Mayor of the City of Philadelphia ordered the temporary closure of nonessential businesses due to the COVID-19 pandemic (the "Shutdown Order"). Plaintiff ceased operations in compliance with the Shutdown Order. In June 2020, the City of Philadelphia entered a "yellow phase" of reopening, allowing some nonessential businesses to resume operations under certain safety requirements. Plaintiff reopened in accordance with these requirements. However, due to the Shutdown Order and business operation restrictions, Plaintiff sustained a substantial loss of business income.

Prior to the COVID-19 Pandemic, State Farm had issued Plaintiff an "all-risk" Businessowners Coverage insurance policy (the "Policy"). Shortly after the Shutdown Order was issued, Plaintiff, on March 21, 2020, submitted a claim for its business losses under the Policy's "Civil Authority" provision within the "Loss of Income and Extra Expense" endorsement (the "Endorsement"). State Farm denied the claim on the basis that Plaintiff did not suffer an "accidental direct physical loss to" its property, and because Plaintiff's reported loss fell within the Policy's enumerated exclusions.

The "Civil Authority" provision in the Policy's Endorsement provides:

(a) When a Covered Cause Of Loss causes damage to property other than property at the described premises, we will pay for the actual Loss Of Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises, provided that both of the following apply:

(1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile within the damaged property; and

(2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause Of Loss that caused the damage, or the action is taken to enable a civil authority to have access to the damaged property.

(Endorsement, ECF 19-1, Ex. A at SFFC 25) (internal quotations omitted).

Under the Covered Causes Of Loss section, the Policy provides that it "insures for accidental direct physical loss to Covered Property unless the loss is [subject to an exclusion]." (Policy, ECF 19-1, Ex. A at SFFC 45). "Covered Property" is defined to include "buildings, meaning the buildings and structures at the described premises" and "Business Personal Property located in or on the buildings at the described premises[.]" (Policy at 44).

Relevant here, "Section 1–Exclusions" provides:

1. We do not insure under any coverage for any loss which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss; or (d) whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these:

...

j. Fungi, Virus Or Bacteria

(1) Growth, proliferation, spread or presence of "fungi" or wet or dry rot; or

(2) Virus, bacteria or other microorganism that induces or is capable of inducing physical distress, illness or disease; [...]

(Id. at 47).

LEGAL STANDARD

To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must allege facts sufficient to "nudge[ ] [his or her] claims across the line from conceivable to plausible." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The complaint may not merely allege a plaintiff's entitlement to relief—it must "show such an entitlement with its facts." Fowler , 578 F.3d at 211 (internal quotations omitted). Mere "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. A claim will not survive a motion to dismiss if, after construing the factual allegations in the light most favorable to the plaintiff, the court finds the plaintiff could not be entitled to relief. Fowler , 578 F.3d at 210. Although a plaintiff is entitled to all reasonable inferences from the facts alleged, a plaintiff's legal conclusions are not entitled to deference, and the court is "not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain , 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986). Under Pennsylvania law, "[c]ontract interpretation is a question of law" for a court to decide. 4431, Inc. v. Cincinnati Insurance Companies , 504 F.Supp.3d 368, 381 (E.D. Pa. 2020) (granting motion to dismiss based on insurance contract interpretation).

In deciding a Rule 12(b)(6) motion, a court must limit its inquiry to the facts alleged in the complaint and its attachments, matters of public record, and "undisputedly authentic document[s] that a defendant attaches as an exhibit to a motion to dismiss," if the plaintiff's claims are based on those documents. Pension Benefit Guar. Corp. v. White Consol. Indus., Inc. , 998 F.2d 1192, 1196 (3d Cir. 1993). Here, Plaintiff's claims are based on the Policy and Endorsement which were attached as an exhibit to State Farm's motion to dismiss. Plaintiff does not dispute the authenticity of these documents. Accordingly, this Court will consider the Policy and Endorsement.

DISCUSSION

The issue before this Court is whether the Policy provides coverage for the type of economic loss Plaintiff suffered. In the amended complaint, Plaintiff seeks declaratory judgment that its economic loss, caused by the Shutdown Order's restrictions on its business operations, constitutes "direct physical loss to Covered Property" and, thus, entitles Plaintiff to coverage under the Policy. Specifically, Plaintiff relies on the "Civil Authority" provision of the Policy Endorsement for coverage. This provision provides that State Farm must pay the "actual Loss Of Income" sustained when "a Covered Cause Of Loss causes damage to property other than property at the described premises," provided that "[a]ccess to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage" and "the action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause Of Loss that caused the damage...." (Endorsement at 25). The "Covered Causes of Loss" provision specifies that State Farm "insure[s] for accidental direct physical loss to Covered Property" unless the loss is excluded. (Policy at 45). The Policy defines "Covered Property" as "buildings, meaning the buildings and structures at the described premises" and "Business Personal Property located in or on the buildings at the described premises[.]" (Policy at 44).

In its motion to dismiss, State Farm argues that Plaintiff's loss of business income does not constitute a "direct physical loss" within the meaning of the Policy and that, even if it did, the Policy exclusions preclude coverage. This Court will address these arguments in turn.

Direct Physical Loss Coverage

Pennsylvania courts apply "traditional principles of contract interpretation" to insurance contracts. Kurach v. Truck Ins. Exchange , 235 A.3d 1106, 1116 (Pa. 2020). As such, courts are "to ascertain and give effect to the intent of the contracting parties as embodied in the written agreement." Wilson v. Hartford Casualty Co. , 492 F.Supp.3d 417, 426 (E.D. Pa. 2020). An insurance policy must be "read as a whole and...