Mikmar, Inc. v. Westfield Ins. Co.

520 F.Supp.3d 933

MIKMAR, INC., et al., Plaintiffs,

v.WESTFIELD INSURANCE CO., Defendant.

Case No. 1:20-CV-01313

United States District Court, N.D. Ohio, Eastern Division.

Signed February 17, 2021

Thomas J. Connick, Connick Law, Beachwood, OH, for Plaintiffs.

John J. Haggerty, Fox Rothschild, Warrington, PA, for Defendant.

OPINION AND ORDER

J. Philip Calabrese, United States District Judge

During the Covid-19 pandemic, hotels, restaurants, and other hospitality businesses have been particularly hard hit. Between State and local public health directives and consumer reluctance to travel and to dine out, especially in colder weather, many businesses in the hospitality industry have closed. Tragically, too many of these closures will be permanent. Those that have not closed have sustained deep and painful losses. Various governmental relief efforts have attempted to direct aid to those in the hospitality business, among others. This lawsuit presents another means by which some have, understandably, sought a financial lifeline to weather the difficulties and uncertainties in which the hospitality industry finds itself through no fault of its own or any particular actor in it.

Plaintiffs MIKMAR, Inc. and Michael's Inc., doing business as LaMalfa Centre and Vine Beverage and Caterers, operate an adjoining hotel and banquet facility. When they sustained losses due to the pandemic, Plaintiffs filed claims for lost business income under their insurance policies. Defendant Westfield Insurance Company denied the claims. That denial prompted this suit, which Plaintiffs bring for their own benefit as well as on behalf of a putative class of other hospitality businesses that own and operate hotels, banquet halls, and catering or event facilities.

Defendant moved to dismiss the complaint or strike the class action allegations. (ECF No. 4.) Because the policies at issue do not, as a matter of law, provide coverage for losses sustained due to Covid-19, as more fully explained below, the Court must GRANT Defendant's motion to dismiss. As a result, the Court DENIES AS MOOT Defendant's motion to strike the class allegations.

FACTUAL AND PROCEDURAL BACKGROUND

MIKMAR owns and operates a hotel adjacent to LaMalfa Centre, which operates a high-end banquet and catering business for weddings, fundraisers, and business events. (ECF No. 1-2, ¶¶ 1–2, PageID #15.) Although the businesses are separate, they have common ownership. (Id. , ¶ 2 n.2.) Defendant is a property and casualty insurer, which issued a commercial business insurance policy to Plaintiffs. (Id. , ¶¶ 3, 8 & 9, PageID #15–16.)

Plaintiffs claim they lost business income because of the Covid-19 pandemic and that their insurance policies cover the loss. (Id. , ¶ 14, PageID #17.) Further, Plaintiffs allege that Defendant wrongly denied their insurance claims. (Id. , ¶ 18, PageID #18.) On behalf of themselves and putative class members, Plaintiffs allege three claims: (1) declaratory judgment; (2) breach of contract; and (3) breach of the covenant of good faith and fair dealing (insurance bad faith). (Id. , ¶¶ 57–88, PageID #29–35.)

A. The Insurance Policies

Plaintiffs’ policies, although not identical, are substantially similar in all relevant respects. The policies provide coverage for "direct physical loss of or damage to Covered Property ... caused by or resulting from any Covered Cause of Loss." (ECF No. 4-3, PageID #110; ECF No. 4-4, PageID #235.) "Covered Cause of Loss" is defined as "[d]irect physical loss unless the loss is excluded or limited" under the policy. (ECF No. 4-3, PageID #111; ECF No. 4-4, PageID #224.) The policies provide "Business Income and Extra Expense" coverage and "Civil Authority" coverage.

A.1. Business Income and Extra Expense Coverage

The policies cover the "actual loss of Business Income" sustained "due to the necessary suspension of your ‘operations’ during the ‘period of restoration.’ " (ECF No. 4-3, PageID #115; ECF No. 4-4, PageID #196.) However, the "suspension must be caused by direct physical loss of or damage to the property" and the "loss or damage must be caused by or result from a Covered Cause of Loss," which also requires direct physical loss. (Id. ) Also, the policies cover "Extra Expense you incur during the ‘period of restoration’ that you would not have incurred if there had been no direct physical loss or damage to the property at the described premises." (ECF No. 4-3, PageID #117; ECF No. 4-4, PageID #196.)

Business Income and Extra Expense coverage are both limited by the "period of restoration," which means the time between the "direct physical loss or damage caused by ... any Covered Cause of Loss" and "the date when the property ... should be repaired, rebuilt or replaced[.]" (ECF No. 4-3, PageID #143–44; ECF No. 4-4, PageID #260.) The end date for the period of restoration under MIKMAR's policy is alternatively the "date when business is resumed at a new permanent location." (ECF No. 4-3, PageID #144.)

A.2. Civil Authority Coverage

"When a Covered Cause of Loss causes damage to property other than property at the described premises," the policies also provide coverage. (ECF No. 4-3, PageID #118; ECF No. 4-4, PageID #197.) The loss must be "caused by action of civil authority that prohibits access to the described premises" where two conditions are met:

(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 from 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 unimpeded access to the damages property.

(Id. )

A.3. Exclusions

The policies identify various exclusions from coverage, five of which the parties discuss. First, the "ordinance or law" exclusion precludes coverage resulting from the "enforcement of or compliance with any ordinance or law" that "regulat[es] the construction, use or repair of any property." (ECF No. 4-3, PageID #127; ECF No. 4-4, PageID #224.)

Second, the "governmental action" exclusion precludes coverage resulting from the "[s]eizure or destruction of property by order of governmental authority." (ECF No. 4-3, PageID #127; ECF No. 4-4, PageID #225.)

Third, the "acts or decisions" exclusion precludes coverage resulting from "[a]cts or decisions, including the failure to act or decide, of any person, group, organization or governmental body." (ECF No. 4-3, PageID #132; ECF No. 4-4, PageID #228.)

Fourth, the "loss of use or market" exclusion precludes coverage resulting from "[d]elay, loss of use or loss of market." (ECF No. 4-3, PageID #130; ECF No. 4-4, PageID #226.)

Fifth, the "virus or bacteria" exclusion precludes coverage for "[a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease." (ECF No. 4-3, PageID #129; ECF No. 4-4, PageID #209.) Under MIKMAR's policy, where an exclusion applies, the "loss or damage is excluded regardless of any other cause or event that contributed concurrently or in any sequence to the loss." (ECF No. 4-3, PageID #127.)

B. The Coverage Dispute

Plaintiffs allege they suffered covered insurance losses related to the Covid-19 pandemic and that Defendant wrongly denied their claims and the claims of other policyholders. For purposes of resolving the parties’ coverage dispute, the Court takes the following factual allegations as true and construes them in Plaintiffs’ favor at this stage of the proceedings.

Plaintiffs own and operate an adjoining hotel and banquet facility where they provide high-end catering services. (ECF No. 1-2, ¶¶ 1–2, PageID #15.) Defendant issued separate insurance policies to each Plaintiff, and the policies were in full force and effect at the relevant times. (Id. , ¶¶ 3, 8–9, 11, PageID #15–17.) In March 2020, the President of the United States declared the Covid-19 pandemic a national emergency. (Id. , ¶ 25, PageID #19.) The State of Ohio, and other states, issued mandatory Stay-At-Home Orders that required "businesses, such as Plaintiffs, to shut down and/or significantly suspend business operations, thus causing Plaintiffs a loss of use of its Properties, and resulting in substantial loss of business income." (Id. , ¶ 26, PageID #20.)

Plaintiffs allege that the pandemic and closure orders caused "direct physical loss of Plaintiffs’ and Class Members’ properties." (Id. , ¶ 29.) Specifically, Plaintiffs lost hotel reservations and catering and banquet events. (Id. , ¶¶ 34–35, PageID #22.) They do not allege with certainty that the virus was present on their properties, but that "[b]ased on the prevalence of the virus ... it is probable" that the virus caused "direct physical loss of or damage to its properties due to the presence of the coronavirus." (Id. , ¶ 37.)

Plaintiffs allege Westfield denied claims based on an inapplicable "virus/bacteria exclusion" that does not expressly exclude coverage for a pandemic. (Id. , ¶ 44, PageID #23.) Plaintiffs otherwise allege that the coverage and exclusionary language at issue is ambiguous and must be construed against Defendant. (Id. , ¶ 45.)

Based on these allegations, Plaintiffs assert three causes of action: (1) a declaratory judgment that their policies provide coverage; (2) breach of contract; and (3) insurance bad faith. (Id. , ¶¶ 57–88, PageID #29–35.) Defendant moves to dismiss all three claims. (ECF No. 4.)

GOVERNING LEGAL STANDARD

At the motion to dismiss stage, a complaint must "contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A complaint "states a claim...