Monarch Casino & Resort, Inc. v. Affiliated FM Ins. Co.

85 F.4th 1034

MONARCH CASINO & RESORT, INC., Plaintiff-Appellant, v. AFFILIATED FM INSURANCE COMPANY, Defendant-Appellee United Policyholders; American Property Casualty Insurance Association, Amicus Curiae.

No. 22-1096

United States Court of Appeals, Tenth Circuit

FILED October 31, 2023

Appeal from the United States District Court for the District of Colorado (D.C. No. 1:20-CV-01470-RMR-STV) Nelson A. Waneka (Bradley A. Levin, with him on the briefs) Levin Sitcoff Waneka PC, Denver, Colorado, for Plaintiff-Appellant.

Scott G. Johnson, Robins Kaplan LLP, Minneapolis, Minnesota (Marcus A. Guith, Robins Kaplan LLP, Minneapolis, Minnesota, Russell E. Yates, Yates Law Firm, LLC, Golden, Colorado, with him on brief), for Defendant-Appellee.

James M. Davis, Perkins Coie LLP; Seattle, Washington; L. Norton Cutler, Perkins Coie LLP, Denver, Colorado; Bradley H. Dlatt, Perkins Coie LLP, Chicago, Illinois, filed an amicus curiae brief in support of Appellant, Monarch Casino & Resort, Inc.

Bryant S. Green, Zelle LLP, Washington, DC, filed an amicus curiae brief in support of Appellee, Affiliated FM Insurance Company.

Before McHUGH, EID, and CARSON, Circuit Judges.

EID, Circuit Judge.

This diversity case concerns whether an insurance policy covers alleged physical loss or damage caused by the presence of COVID-19. Monarch Casino & Resort, Inc. appeals the district court's grant of Affiliated FM Insurance Company's ("AFM") motion for partial judgment on the pleadings, which denied Monarch coverage under AFM's all-risk policy provision, business-interruption provision, and eight other additional-coverage provisions. Monarch also moves the Court to certify a question of state law or issue a stay.

Exercising jurisdiction under 28 U.S.C. § 1291, we deny Monarch's motions to certify a question of state law and issue a stay. And we affirm the district court's judgment. First, we hold that AFM's policy has a Contamination Exclusion provision that excludes all-risk coverage and business-interruption coverage from the COVID-19 virus. Second, recognizing this Court's recent decision in Sagome, Inc. v. Cincinnati Ins. Co., 56 F.4th 931 (10th Cir. 2023), Monarch cannot obtain coverage for physical loss or damage caused by COVID-19 under AFM's all-risk provision, business-interruption provision, or eight additional-coverage provisions. That is because the virus cannot cause physical loss or damage and no other policy provisions distinguish this case. Accordingly, Monarch cannot obtain the coverage that the district court denied.

I.

Monarch owns and operates the Monarch Casino in Black Hawk, Colorado and the Atlantis Casino Resort in Reno, Nevada. AFM insures Monarch's real property and business operations. Of relevance, AFM's policy contains what we identify as (1) two primary coverages, (2) exclusions to those two primary coverages, and (3) ten additional coverages.

First, the policy's two primary coverages. To start, the policy contains an all-risk provision that protects Monarch "against ALL RISKS OF PHYSICAL LOSS OR DAMAGE, except as hereinafter excluded." App'x at 188. Next, the policy affords Monarch business-interruption coverage. That coverage protects Monarch for "Business Interruption loss ... as a direct result of physical loss or damage of the type insured." Id. at 206. And like the policy's all-risk provision, the business-interruption provision "is subject to all the terms and conditions of this Policy including, but not limited to ... exclusions." Id. Thus, the policy, while providing coverage, explicitly notes that it has some limits.

That brings us to the second relevant part of the policy—its exclusions. Among others, the policy includes a Contamination Exclusion that prohibits coverage for:

Contamination, and any cost due to contamination including the inability to use or occupy property or any cost of making property safe or suitable for use or occupancy. If contamination due only to the actual not suspected presence of contaminant(s) directly results from other physical damage not excluded by this Policy, then only physical damage caused by such contamination may be insured.

Id. at 192.

The policy then goes on to define "contamination" as:

[A]ny condition of property due to the actual or suspected presence of any foreign substance, impurity, pollutant, hazardous material, poison, toxin, pathogen or pathogenic organism, bacteria, virus, disease causing or illness causing agent, fungus, mold or mildew.

Id. at 229.

The policy states that its exclusions, including the Contamination Exclusion, "apply unless otherwise stated." Id. at 189. And again, the policy specifies that it will provide primary coverages of all risks of physical loss or damage "except as [ ] excluded" and of business-interruption losses "limited to ... exclusions." Id. at 188, 206.

Third, the policy contains ten additional coverages that are relevant to this case. Eight of them only afford coverage if, among other things, there is "physical loss or damage of the type insured." Of the eight, five contain business-interruption coverage extensions named: Attraction Property; Civil or Military Authority; Ingress/Egress; Protection and Preservation of Property; and Soft Costs. The other three provisions—namely, the Emergency Vacating Expense; Expediting Expenses; and Decontamination Costs—also provide miscellaneous coverage.

Beyond the eight provisions that require "physical loss or damage of the type insured," two other additional-coverage provisions remain relevant to this case. To begin, the policy has a Professional Fees provision granting Monarch reasonable and necessary expenses incurred by using specified professionals.

Next, the policy provides additional coverage for a "Communicable Disease" in two different places, one following the all-risk section and another following the business-interruption section. Id. at 194, 212. The policy terms this Communicable Disease coverage as "Additional Coverage[ ]" and a "Coverage Extension," and the coverage has "sub-limits of liability" specified in the policy's declarations. Id. at 175, 192, 212, 312. The provision covers an annual aggregate of up to $100,000 for "the reasonable and necessary costs incurred by the Insured at such described location" as a result of "[p]roperty [d]amage"—damage that includes, among other things, the "[c]leanup, removal and disposal of such presence of communicable disease from [an] insured property." Id. at 175, 194.

We now turn to the facts of this case. Monarch presented AFM with claims incurred through business interruption losses from COVID-19 and government orders directing Monarch to close its casinos. AFM denied certain coverage on the ground that COVID-19 does not cause physical loss of or damage to property. Monarch sued for breach of contract, bad faith breach of insurance contract, and violations of state law. And Monarch requested coverage for property damage stemming from the "presence of a 'communicable disease' at a described location, coupled with access to the location being limited, restricted, or prohibited by an order of a government agency."

Id. at 583. AFM moved for partial judgment on the pleadings, urging that the policy's Contamination Exclusion precludes coverage and that COVID-19's presence at an insured location does not constitute physical loss or damage for many of the coverage provisions. Monarch responded by moving for partial summary judgment and for certification of a question to the Colorado Supreme Court.

The district court denied Monarch's motions and partially granted AFM's motion, holding that Monarch may be entitled to coverage under the Communicable Disease and Professional Fees provisions, but reasoning that the Contamination Exclusion barred coverage otherwise. The district court held that even if Monarch "could establish that COVID-19 constitutes physical damage, that physical damage would still simply be a condition of the property, due to the presence of a virus, and would therefore be excluded from coverage." Id. at 559. The parties settled the remaining claims. The district court entered final judgment.

Monarch appealed the district court's grant of AFM's motion for partial judgment on the pleadings and denial of Monarch's motions. Specifically, Monarch seeks coverage under AFM's all-risk provision, business-interruption provision, and the eight additional-coverage provisions that required a showing of "physical loss or damage of the type insured."

II.

While on appeal, Monarch also submitted a motion to certify a question of state law to the Colorado Supreme Court or, in the alternative, a motion to stay. Certifying a question of law to a state supreme court falls within "the sound discretion of the federal court." Lehman Bros. v. Schein, 416 U.S. 386, 391, 94 S.Ct. 1741, 40 L.Ed.2d 215 (1974); see 10th Cir. R. 27.4(A). And the Colorado Supreme Court has the discretion to answer certified questions of law that "may be determinative of the cause then pending in the certifying [federal] court and as to which it appears to the certifying court that there is no controlling precedent in the decisions of the [state] supreme court." Colo. App. R. 21.1(a).

That said, the process "is not to be routinely invoked whenever a federal court is presented with an unsettled question of state law." Armijo v. Ex Cam, Inc., 843 F.2d 406, 407 (10th Cir. 1988). That is because, under diversity statutes, "federal courts have the duty to decide questions of state law even if difficult or uncertain." Enfield ex rel. Enfield v. A.B. Chance Co., 228 F.3d 1245, 1255 (10th Cir. 2000).

Keeping those general principles in mind, we deny Monarch's motion for certification. Precedent provides us "a reasonably clear and principled course" for interpreting the policy at issue. Pino v. United States, 507 F.3d 1233, 1236 (10th Cir. 2007).

In the alternative, Monarch moves to stay this appeal on the chance that a state case, which "will soon head to trial,"...