Rye Ridge Corp. v. Cincinnati Ins. Co.

535 F.Supp.3d 250

RYE RIDGE CORP., et al., Plaintiffs,

v.The CINCINNATI INSURANCE COMPANY, Defendant.

20 Civ. 7132 (LGS)

United States District Court, S.D. New York.

Signed April 23, 2021

Gabriel A. Panek, David S. Stellings, Lieff Cabraser Heimann & Bernstein, LLP, New York, NY, Robert J. Nelson, Leiff, Cabraser, Heimann & Bernstein LLP, San Francisco, CA, for Plaintiffs.

Edward M. Fogarty, Jr., Litchfield Cavo LLP, New York, NY, for Defendant.

OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge:

Plaintiffs Rye Ridge Corp. and Haromar, Inc., bring this putative class action to seek insurance payments for business losses allegedly resulting from COVID-19 and government restrictions during the COVID-19 pandemic. Plaintiffs assert claims for breach of contract, breach of the covenant of good faith and fair dealing, deceptive business practices under N.Y. Gen. Bus. Law § 349, et seq. , unfair trade practices under Conn. Gen. Stat. § 42-110a, et seq. , and declaratory relief. Defendant, the Cincinnati Insurance Company, moves to dismiss the Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). For the reasons stated below, the motion is granted.

I. BACKGROUND

The following facts are taken from the Complaint and are assumed to be true for purposes of this motion. See R.M. Bacon, LLC v. Saint-Gobain Performance Plastics Corp. , 959 F.3d 509, 512 (2d Cir. 2020).

Plaintiff Rye Ridge Corp. owns and conducts business as a restaurant called Rye Ridge Deli, in Rye Brook, New York. Plaintiff Haromar, Inc., owns and conducts business as another restaurant called Rye Ridge Deli, in Stamford, Connecticut. The Rye Ridge Delis purchased insurance policies (the "Policies") from Defendant. The Policies provide coverage from December 2, 2019, to December 2, 2022, and are identical in material terms.

The Policies provide "Business Income" coverage for certain income losses sustained due to direct "accidental physical loss or accidental physical damage," subject to various exclusions and limitations not relevant here. The Policies also provide "Extra Expense" coverage for expenses sustained following physical loss or physical damage and until the premises are restored. They provide "Civil Authority" coverage when property other than Plaintiffs’ property suffers damage that leads to an action of civil authority prohibiting access to Plaintiffs’ property. And, they provide "Ingress and Egress" coverage if Plaintiffs are unable to access ingress or egress at their property due to physical damage or physical loss at a neighboring property and there is no prohibition of access by civil authority.

From March 2020 onwards, Plaintiffs suspended business operations following orders issued by the States of New York and Connecticut (the "Civil Orders"), which initially required restaurants to close their dine-in facilities and permitted operation only for take-out and delivery orders. The Civil Orders were later modified to permit limited outdoor dining and then limited indoor dining. Plaintiffs suffered business losses as a result.

Plaintiffs each made claims for coverage from Defendant for the losses resulting from, and additional expenses related to, the COVID-19 pandemic. Defendant denied coverage on both claims.

II. STANDARD

On a motion to dismiss, a court accepts as true all well-pleaded factual allegations and draws all reasonable inferences in favor of the non-moving party, Montero v. City of Yonkers , 890 F.3d 386, 391 (2d Cir. 2018), but gives "no effect to legal conclusions couched as factual allegations," Stadnick v. Vivint Solar, Inc. , 861 F.3d 31, 35 (2d Cir. 2017). To withstand a motion to dismiss, a pleading "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) ). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. It is not enough for a plaintiff to allege facts that are consistent with liability; the complaint must "nudge[ ]" claims "across the line from conceivable to plausible." Twombly , 550 U.S. at 570, 127 S.Ct. 1955. "To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient ‘to raise a right to relief above the speculative level.’ " ATSI Commc'ns, Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).

III. DISCUSSION

A. Breach of Contract, New York Law

Under principles of New York contract interpretation,¹ "the court's initial task is to attempt to ascertain the parties’ intent from the language of the insurance contract itself ... constru[ing] the policy as a whole; all pertinent provisions of the policy should be given meaning, with due regard to the subject matter that is being insured and the purpose of the entire contract." Westchester Fire Ins. Co. v. Schorsch , 186 A.D.3d 132, 129 N.Y.S.3d 67, 74 (1st Dep't 2020) (internal citation omitted). Courts must take care not to "make or vary the contract of insurance to accomplish its notions of abstract justice or moral obligation." Keyspan Gas East Corp. v. Munich Reinsurance Am., Inc. , 31 N.Y.3d 51, 73 N.Y.S.3d 113, 96 N.E.3d 209, 216 (2018). "[A]n unambiguous policy provision must be accorded its plain and ordinary meaning, and the court may not disregard the plain meaning of the policy's language in order to find an ambiguity where none exists." Chiarello ex rel. Chiarello v. Rio , 152 A.D.3d 740, 59 N.Y.S.3d 129, 131 (2d Dep't 2017) (alteration in original). "[T]he issue of whether a provision is ambiguous is a question of law," and "focuses on the reasonable expectations of the average insured upon reading the policy." Hansard v. Fed. Ins. Co. , 147 A.D.3d 734, 46 N.Y.S.3d 163, 166 (2d Dep't 2017) (internal quotation marks and citations omitted).

B. Analysis

The Complaint fails to allege that there was a breach of contract because it does not make any factual allegations that Plaintiffs’ property or any other property suffered physical loss or damage. The Policies provide coverage for expenses and loss of income sustained during the suspension of business due to accidental physical loss or accidental physical damage to property. The key word in the Policies is "physical," which in this context is unambiguous. The Complaint makes conclusory allegations that Plaintiffs’ properties experienced physical loss and/or physical damage from the presence of COVID-19. But the Complaint alleges no facts to suggest that Plaintiffs’ properties suffered any physical loss or damage. Without physical loss or damage, the Policies do not provide coverage, and denial of coverage is not a breach of contract. The various types of coverage provided by the Policies are discussed below.

a. Business Income Coverage

Plaintiffs seek coverage under the "Business Income" provisions of the Policies, which provide coverage for loss of certain income:

We will pay for the actual loss of "Business Income" ... 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.

The Policies define "Covered Causes of Loss" as "direct ‘loss,’ " subject to various exclusions and limitations not relevant here. The Policies define "Loss" as "accidental physical loss or accidental physical damage."

The Complaint alleges that COVID-19 caused a "direct physical loss" of Plaintiffs’ business premises, thus triggering the Policies’ Business Income coverage. The Complaint fails to state a claim because, despite this conclusory allegation, the Complaint pleads no facts to suggest that there was a "physical loss or accidental physical damage" to the insured property as the Policies require. See RSVT Holdings, LLC v. Main St. Am. Assur. Co. , 136 A.D.3d 1196, 25 N.Y.S.3d 712, 714 (3d Dep't 2016) (noting that policy covering "direct physical loss of or damage to" provided coverage only for "direct damage to plaintiffs’ property"); Roundabout Theatre Co. v. Cont'l Cas. Co., 302 A.D.2d 1, 751 N.Y.S.2d 4, 8 (1st Dep't 2002) (same); see also Transcript of Show Cause Hearing at 15, Soc. Life Magazine, Inc. v. Sentinel Ins. Co. Ltd. , No. 20 Civ. 3311 (S.D.N.Y. May 14, 2020) (in declining to provide business interruption coverage for shutdowns resulting from the Civil Orders, noting "New York law is clear that this kind of business interruption needs some damage to the property to prohibit [a person] from going [there]"); Phila. Parking Auth. v. Fed. Ins. Co. , 385 F. Supp. 2d 280, 288 (S.D.N.Y. 2005) (construing New York law and the phrase "direct physical loss or damage" to require that "the interruption in business must be caused by some physical problem with the covered property"). The requirement of physical damage is not satisfied by the mere loss of use. See Newman Myers Kreines Gross Harris, P.C. v. Great N. Ins. Co. , 17 F. Supp. 3d 323, 331 (S.D.N.Y. 2014) ("The words ‘direct’ and ‘physical,’ which modify the phrase ‘loss or damage,’ ordinarily connote actual, demonstrable harm of some form to the premises itself, rather than forced closure of the premises for reasons exogenous to the premises themselves, or the adverse business consequences that flow from such closure."); Roundabout Theatre , 751 N.Y.S.2d at 8.

Plaintiffs claim that the Policies are ambiguous because they cover both "loss" and "damage." Plaintiffs argue that "loss" and "damage" cannot mean the same thing, as New York law requires contracts to be interpreted to give each term effect. While that principle is true, it is beside the point. The Policies in this case require that any qualifying "los...