Papi LLC v. The Cincinnati Ins. Co.

PAPI, LLC, an Oregon limited liability company, dba Papi Chulo's Restaurant, individually and on behalf of all others similarly situated, Plaintiffs, v. THE CINCINNATI INSURANCE COMPANY, an Ohio corporation, Defendant.

No. 3:21-cv-00405-JR

United States District Court, D. Oregon

November 10, 2021

FINDINGS & RECOMMENDATION

RUSSO MAGISTRATE JUDGE:

Plaintiff Papi, LLC, individually and behalf of all others similarly situated, brings this action against defendant Cincinnati Insurance Company, alleging claims for declaratory relief and breach of contract related to losses or damages incurred following certain COVID-related orders and directives issued by Oregon Governor Kate Brown and local civil authorities beginning in March 2020. Defendant filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) (doc. 9). The motion should be granted.

INTRODUCTION

Plaintiff is an Oregon limited liability company which owns and operates Papi Chulo's Restaurant located in Portland Oregon. Compl. at ¶ 2 (doc. 1). Defendant Cincinnati Insurance Company (“CIC”) is an Ohio corporation having its principal place of business in Fairfield, Ohio. Id. at ¶ 3. Plaintiff purchased an insurance policy (the “Policy”) from CIC with a policy period of August 6, 2019 to August 6, 2020. Id. at ¶ 7; Bernstein Decl., Ex. B at 1 (doc 10). The Policy obliges CIC to pay plaintiff for direct physical loss or damage to covered property. Compl. at ¶ 10 (doc. 1).

In March 2020, Oregon Governor Kate Brown issued three executive orders in response to the COVID-19 pandemic. See Bernstein Decl., Ex.s C, D at 2, E at 4 (doc. 10). Plaintiff alleges such orders and other directives of local civil authorities (the “COVID-related orders”) restricted access to and operation of plaintiff's business, limited groups of people, curtailed travel, and generally limited commercial activity, causing plaintiff to suffer loss or damage. Compl. at ¶ 12 (doc. 1). Plaintiff maintains the COVID-related orders also compelled plaintiff to undertake costly alterations to its business premises and operations. Id. at ¶ 13.

Plaintiff submitted a claim to CIC for loss or damage sustained as a result of the COVID-related orders. Id. at ¶¶ 15, 18. CIC denied the claim. Id. at ¶ 23. Plaintiff challenges that coverage denial in this action. Id. at ¶¶ 44-47, 49-51. Plaintiff alleges the COVID-related orders caused it to sustain direct physical loss or damage within the meaning of the Policy. Id. at ¶¶ 10, 12-17, 44- 47.

Plaintiff alleges coverage for its loss or damage is available under the Policy's Business Income, Extra Expense, and Civil Authority coverages. Id. at ¶¶ 10, 17 45-47. These coverage provisions are in the “Building and Personal Property Coverage Form” and the “Business Income (and Extra Expense) Coverage Form” sections of the Policy. Bernstein Decl., Ex. B at 23-62, 95- 103 (doc. 10). Using similar language, both sections oblige CIC to compensate the policyholder only if the requisite elements for coverage are satisfied. Id. at 40-41, 95-96.

The Business Income coverage provisions state in pertinent part:

We will pay for the actual loss of “Business Income” and “Rental Value” you sustain due to the necessary “suspension” of your “operations” during the “period of restoration”. The “suspension” must be caused by direct “loss” to property at a “premises” caused by or resulting from any Covered Cause of Loss.

Id. at 40; accord Id. at 95.

The Extra Expense coverage provisions state in pertinent part:

We will pay Extra Expense you sustain during the “period of restoration”. Extra Expense means necessary expenses you sustain … during the “period of restoration” that you would not have sustained if there had been no direct “loss” to property caused by or resulting from a Covered Cause of Loss.

Id. at 41; accord Id. at 95.

The Civil Authority coverage provisions state in pertinent part:

When a Covered Cause of Loss causes damage to property other than Covered Property at a “premises, ” we will pay for the actual loss of “Business Income” and necessary Extra Expense you sustain caused by action of civil authority that prohibits access to the “premises”, provided that both of the following apply: (a) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage; and (b) 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 damaged property.

Id. at 41; accord Id. at 96.

Plaintiff asserts two causes of action: (1) declaratory relief; and (2) breach of contract. Id. at ¶¶ 42-52. First, plaintiff asks this Court to declare whether plaintiff is entitled to coverage under the Policy for loss or damage caused by the COVID-related orders. Id. at ¶ 43. Second, plaintiff alleges defendant breached the Policy by denying coverage. Id. at ¶¶ 49, 51. Plaintiff also seeks certification of a statewide class of similarly situated companies. Id. at ¶¶ 27-41. Defendant moves to dismiss plaintiff's claims pursuant to Fed.R.Civ.P. 12(b)(6) and reserves the right to dispute the class action allegations and class certification. Def. Mot. at 1, 4 n. 2 (doc. 9).

LEGAL STANDARD

A motion to dismiss under Fed.R.Civ.P. 12(b)(6) tests the sufficiency of the claims. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). When evaluating the sufficiency of a complaint's factual allegations, the court must accept all material facts alleged in the complaint as true and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012). The court will grant a motion to dismiss under Rule 12(b)(6) if a plaintiff alleges the “grounds” of her “entitlement to relief” with nothing “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action[.]” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “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)[.]” Id. (citations and footnote omitted).

To survive a motion to dismiss, 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 (2009) (internal quotation marks omitted). A plaintiff must “plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. In other words, a complaint must state a plausible claim for relief and contain “well-pleaded facts” that “permit the court to infer more than the mere possibility of misconduct[.]” Id. at 679. “Taken together, Iqbal and Twombly require well-pleaded facts, not legal conclusions, that plausibly give rise to an entitlement to relief. Whitaker v. Tesla Motors, Inc., 985 F.3d 1173, 1176 (9th Cir. 2021) (citations and internal quotations omitted).

DISCUSSION

Defendant moves to dismiss plaintiff's complaint arguing that plaintiff misinterprets what qualifies as a covered loss or damage under the Policy. Plaintiff alleges it suffered a “direct physical loss or damage” to covered property as defined by the Policy. Compl. at ¶ 44 (doc 1). Plaintiff acknowledges that each of the applicable coverage provisions of the Policy “is predicated on the policyholder sustaining direct ‘physical loss' or ‘physical damage' to its covered property.” Pl. Resp. at 4 (doc. 21). Plaintiff also clarified its position that it alleges it suffered a “physical loss” as the term is used in the Policy. Id. at 1. Thus, the threshold issue is whether plaintiff's alleged loss or damage constitutes a covered “physical loss” under the Policy.

A. Applicable Law

A federal court sitting in diversity applies the forum state's substantive law and federal procedural law. Hyan v. Hummer, 825 F.3d 1043, 1046 (9th Cir. 2016). Generally, when parties to a contract clearly express in the contract the law that applies, “the contractual rights and duties of the parties are governed by the law or laws that the parties have chosen.” Or. Rev. Stat. § 15.350(1)-(2). The Policy at hand insures an Oregon company and contains various modifications catered to Oregon law. Bernstein Decl., Ex. B at 13-17 (doc. 10). Further, while the Policy contains no separate choice of law provision, both parties assume Oregon law applies here. Def. Mot. at 8- 14 (doc. 9); Pl. Resp. at 6-20 (doc. 21). Therefore, this Court applies Oregon contract law in interpreting the Policy.

The framework for interpreting insurance policies is well-established under Oregon case law; the Court's primary task is to answer questions of law and to ascertain the parties' intentions. Hoffman Construction Co. v. Fred S. James & Co., 313 Or. 464, 469 (1992). “We determine the intention of the parties based on the terms and conditions of the insurance policy, ” id., as interpreted from the perspective of the “ordinary purchaser of insurance.” Totten v. New York Life Ins. Co., 298 Or. 765, 771 (1985); see also Hunters Ridge Condo. Ass'n v. Sherwood Crossing, LLC, 285 Or.App. 416, 422 (2017). To understand the intentions and reasonable expectations of an ordinary insurance policyholder, Oregon courts conduct the following analysis.

If an insurance policy explicitly defines the phrase in question, we apply that definition. If the policy does not define the phrase in question, we resort to various aids of interpretation to discern the parties' intended meaning. Under that interpretive framework, we first consider

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