Natty Greene's Brewing Co. v. Travelers Cas. Ins. Co. of Am., 1:20-CV-437

503 F.Supp.3d 359

NATTY GREENE'S BREWING COMPANY, LLC, et al., Plaintiffs,

v.TRAVELERS CASUALTY INSURANCE COMPANY OF AMERICA, et al., Defendants.

1:20-CV-437

United States District Court, M.D. North Carolina.

Signed November 30, 2020

Andrew H. R. Brown, Jeffrey K. Peraldo, Brown, Faucher, Peraldo & Benson, PLLC, Greensboro, NC, Ann E. Groninger, Copeley Johnson & Groninger, PLLC, Charlotte, NC, Catharine E. Edwards, Edwards Kirby, L.L.P., Raleigh, NC, for Plaintiffs.

Gregory P. Varga, Stephani A. Roman, Robinson & Cole LLP, Hartford, CT, Reid Calwell Adams, Jr., James A. Dean, Womble Bond Dickinson (US) LLP, Winston-Salem, NC, for Defendant Traveler's Casualty Insurance Company of America.

Frank Winston, Jr., Sarah D. Gordon, Steptoe & Johnson LLP, Washington, DC, Jason W. Burgess, Lewis Andrew Watson, Butler Weihmuller Katz Craig LLP, Charlotte, NC, for Defendant Sentinel Insurance Company, Limited.

Andrew P. Flynt, Matthew J. Gray, Young Moore & Henderson, P.A., Raleigh, NC, Patrick T. Vander Jeugdt, Pharr Law, PLLC, Winston-Salem, NC, for Defendant Frankenmuth Mutual Insurance Company.

Adam H. Fleischer, David J. Buishas, Elise D. Allen, Bates & Carey LLP, Chicago, IL, Grover Gray Wilson, Nelson Mullins Riley & Scarborough LLP, Winston-Salem, NC, for Defendant State Automobile Mutual Insurance Company.

Joshua M. Hiller, Pankaj K. Shere, Huff Powell & Bailey, PLLC, Raleigh, NC, Kurt B. Fliegauf, Russell F. Conn, Alexis P. Theriault, Conn Kavanaugh Rosenthal Peisch & Ford LLP, Boston, MA, for Defendant Republic-Franklin Insurance Company.

MEMORANDUM OPINION AND ORDER

Catherine C. Eagles, District Judge.

The plaintiffs, various Greensboro-area restaurant owners and operators, brought this suit against their respective insurance companies. They allege that their insurance policies cover business income losses sustained due to the COVID-19 pandemic and Executive Orders issued in response to the pandemic that suspended indoor dining. The defendant-insurers each move for judgment on the pleadings. The Court defers ruling on the motion as to the claims of the plaintiff Natty Greene's Brewing Co., LLC, and it appears no motion has been made as to the plaintiff Natty Greene's Downtown, LLC. The claims of all other plaintiffs are barred by the virus exclusions in their policies, and the Court will grant the defendants’ motions.

I. Background

As is appropriate at this stage, the facts are taken from the second amended complaint, Doc. 27, which the Court assumes for purposes of the motion to be true. SD3, LLC v. Black & Decker (U.S.) Inc. , 801 F.3d 412, 418 (4th Cir. 2015). The Court also considers the insurance policies and Executive Orders referenced in the complaint and as to which there is no dispute over authenticity.¹

The Atlantic Coast Conference and National Collegiate Athletic Association were scheduled to host basketball tournaments at the Greensboro Coliseum between March 9–21, 2020. Doc. 27 at ¶¶ 10–11. Greensboro restaurant and bar owners planned and invested to reap the economic benefits from these tournaments. Id. at ¶ 10. But the COVID-19 pandemic exploded shortly before, and the ACC and the NCAA each cancelled their tournaments around Thursday, March 12. Id. at ¶ 15.

The virus continued to spread, and on March 17, North Carolina Governor Roy Cooper issued Executive Order No. 118. Id. at ¶ 16. The order, which was effective from March 17 through March 31, limited the sale of food and beverages to carry-out, drive-through, and delivery only. Doc. 37-2 at 4. On March 27, Governor Cooper issued Executive Order No. 121, which directed North Carolina residents to stay in their homes except when performing "essential" activities; prohibited gatherings of 10 or more people; and required "non-essential" businesses to cease operations. Doc. 27 at ¶ 17; see Doc. 37-3. Restaurants that prepared food for consumption off-premises were considered essential businesses, but food service for consumption on restaurant premises remained prohibited. Doc. 37-2 at 4; Doc. 37-3 at p. 8 ¶ 19. According to the Executive Order, "limitations on person-to-person contact are reasonably necessary to address the public health risk" and to "mitigate community spread of COVID-19 and to reduce the burden on the state's health care providers and facilities." Doc. 37-3 at 3.

The plaintiffs incurred significant financial losses and damages because of "[p]ublic fear and commotion and, significantly, the governmental actions and closures implemented because of and in response to the threat of the virus." Doc. 27 at ¶ 18. To recover these revenues, the plaintiffs submitted claims under their business owner, property, and casualty insurance policies. Id. ¶ 19. The defendant-insurers have denied those claims. Id. at ¶ 20.

While the operative complaint does not identify which defendant-insurer issued policies for which plaintiff, see id. , it appears undisputed from a review of the insurers’ answers and the briefing that:

• Republic-Franklin Insurance Co. insures Rio Grande Friendly, Inc. Doc. 37-1.

• Frankenmuth Mutual Insurance Co. insures Natty Greene's Creekside, LLC and Natty Greene's Brewing Co., LLC. Docs. 38-1, 38-2;

• Travelers Casualty Insurance Co. insures EJE, Inc. and Rio Grande #14, Inc. Docs. 40-1, 40-2;

• State Auto Insurance Co. insures The Jake's Plaintiffs (DAAB Inc., Jake's of Battleground LLC, Jake's Diner of Wendover Inc., and Jake's Diner of Drawbridge LLC). Docs. 41-1, 47-2, 47-3, 47-4; and

• Sentinel Insurance Co. insures Rios, Inc. Doc. 55-1.

No defendant admits that it issued a policy to Natty Greene's Downtown, LLC.

II. Procedural History

On April 3, 2020, the plaintiffs filed suit against their insurers in state court. Doc. 1 at 2. The defendants removed the case pursuant to 28 U.S.C. § 1332. Doc. 1. After the plaintiffs filed a second amended complaint, Doc. 27, each insurer answered, see Docs. 37, 38, 40, 41, 43, and moved for judgment on the pleadings. See Docs. 46, 48, 50, 52, 54. No defendant admits that it issued a policy to Natty Greene's Downtown, LLC, no motion is directed toward the claims of Natty Greene's Downtown, LLC, and Natty Greene's Downtown, LLC did not respond to any of the pending motions. This order therefore does not apply to any claims by Natty Greene's Downtown, LLC.

On October 18, 2020, Natty Greene's Brewing Co., LLC, filed a Chapter 7 Bankruptcy petition. Doc. 96. While the automatic stay "does not apply where, as here, the debtor is the plaintiff in a lawsuit," MTGLQ Investors, LP v. Guire, 286 F. Supp. 2d 561, 563 (D. Md. 2003) (quoting Mitchell v. Fukuoka Daiei Hawks Baseball Club , 206 B.R. 204, 212 (C.D. Cal. 1997) ), "[a]n action must be prosecuted in the name of the real party in interest." Fed. R. Civ. P. 17(a)(1). "[I]n the context of a Chapter 7 bankruptcy, it is the bankruptcy trustee and not the debtor who is the real party in interest with respect to property of the estate, with the right to bring any legal claims that belong to the estate." Martineau v. Wier , 934 F.3d 385, 391 (4th Cir. 2019) ; see also Evergreen Int'l Airlines, Inc. v. Anchorage Advisors, LLC , No. 3:11-CV-1416-PK, 2014 WL 1413810, at *3–4 (D. Or. Apr. 11, 2014) (granting the plaintiff's motion to substitute the bankruptcy trustee as plaintiff). The parties have not addressed the effect of the bankruptcy, nor has anyone filed a motion to substitute the trustee for plaintiff Natty Greene's Brewing Co., LLC. The Court will defer ruling on the motion for judgment on the pleadings as to the claims of Natty Greene's Brewing Co., LLC, pending consultation with the parties.

III. Material Terms in the Insurance Policies: Virus Exclusion Clauses

The virus exclusion in the Sentinel policy provides that Sentinel:

[W]ill not pay for loss or damage caused directly or indirectly by ... [the] [p]resence, growth, proliferation, spread or any activity of fungi, wet rot, dry rot, bacteria or virus.

Doc. 55-1 at 125.²

The virus exclusion in the State Auto policy provides that State Auto:

[W]ill not pay for loss or damage caused directly or indirectly by ... [a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.

Doc. 41-1 at 35, 38.

The virus exclusion clauses in the Republic-Franklin, Frankenmuth Mutual, and Traveler's policies, which are identical in relevant part, provide that the insurer:

[W]ill not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.

Doc. 37-1 at 98 (Republic-Franklin Ins. policy issued to Rio Grande Friendly); Doc. 38-1 at 102 (Frankenmuth Mutual Ins. policy issued to Natty Greene's Creekside, LLC); Doc. 40-1 at 151 (Travelers Ins. policy issued to EJE, Inc.); Doc. 40-2 at 114 (Travelers Ins. policy issued to Rio Grande #14).

IV. Law

The parties agree that they entered the insurance contracts in North Carolina and that North Carolina law governs in this diversity suit. Doc. 27 at ¶¶ 2–4; Doc. 37 at ¶ 4; Doc. 38 at ¶¶ 2–3; Doc. 40 at ¶¶ 2–3; Doc. 41 at ¶¶ 3–4; Doc. 43 at ¶ 4; see also Fortune Ins. v. Owens , 351 N.C. 424, 428, 526 S.E.2d 463, 466 (2000) ("[North Carolina law] mandates that the substantive law of the state where the last act to make a binding contract occurred, usually delivery of the policy, controls the interpretation of the contract."). In North Carolina, an insurance policy is a contract, and its terms are interpreted in fundamentally the same manner as contract terms: the goal is to arrive at the intent of the parties when the policy was issued. Woods v. Nationwide Mut. Ins. , 295 N.C. 500, 505, 246 S.E.2d 773, 777 (1978).

"Construction and application of insurance policy provisions is a question of law appropriate for summary disposition." Prime TV, LLC v. Travelers Ins. , 223 F. Supp. 2d 744, 749 (M.D.N.C. 2002) ; C.D. Spangler Constr. Co. v. Indus. Crankshaft & Eng'g Co. , 326 N.C. 133, 141, 388 S.E.2d 557, 562 (1990)....