S. Orthopaedic Specialists v. State Farm Fire & Cas. Co.

SOUTHERN ORTHOPAEDIC SPECIALISTS LLC v. STATE FARM FIRE AND CASUALTY COMPANY F LOUISIANA

Civil Action No. 21-0861-WBV-DMD

United States District Court, E.D. Louisiana

May 4, 2022

SECTION D (3)

ORDER AND REASONS

WENDY B. VITTER, UNITED STATES DISTRICT JUDGE

Before the Court is Defendant State Farm Fire and Casualty Company's Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim.^[1] Plaintiff Southern Orthopaedic Specialists, LLC opposes the Motion.^[2] Defendant has filed a Reply.^[3]Plaintiff has filed a Supplemental Opposition.^[4] Defendant has filed a response to Plaintiff's Supplemental Opposition.^[5] After careful consideration of the parties' memoranda and the applicable law, the Motion is GRANTED.

I. FACTUAL AND PROCEDURAL BACKGROUND^[6]

On January 25, 2022, this Court issued an Order denying without prejudice Defendant's Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim.^[7] Plaintiff was granted leave to amend its Complaint to address the deficiencies identified in the Court's Order and timely filed an Amended Complaint on February 4, 2022.^[8] In its Amended Complaint, Plaintiff makes new allegations to support its assertion that the presence of COVID-19 in the covered properties caused direct physical loss.^[9] Specifically, Plaintiff cites several additional studies, including studies published in TIME magazine, the National Institute of Health, and by the Centers for Disease Control (“CDC”), as well as one conducted by its own expert, describing how COVID-19 is transmitted and concluding that COVID-19 can remain active on surfaces for up to several weeks.^[10] Plaintiff claims that the interaction of COVID-19 with the covered property's surfaces caused damage to its property, which in turn resulted in damage to the property's structure, thus constituting direct physical loss.^[11] Plaintiff also alleges that the interaction of COVID-19 with a surface causes damage to the property requiring frequent cleaning.^[12] Plaintiff further alleges that it suffered direct physical loss due to government shutdown orders, which are not barred by any Policy.^[13] Finally, Plaintiff asserts that its direct physical loss was due to the “loss and functionality of its insured physical property for its intended purposed as a direct result of governmental actions and civil orders restricting the use of its offices.”^[14] Then, in addition, Plaintiff raises new fraud and negligent misrepresentation claims in its Amended Complaint, alleging that the company that represented State Farm and other member property insurance companies submitted filings to the Louisiana Department of Insurance in 2007 in an attempt to covertly alter the policy exclusion to inappropriately narrow coverage.^[15] Regarding its newly raised claim of negligent misrepresentation, Plaintiff contends that State Farm “supplied its policyholders with false information regarding coverage under their policies” and that State Farm failed to inform its policyholders that the contamination exclusion was expanded to cover pandemics and communicable diseases.^[16]

Thereafter, Defendant filed its second Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).^[17] Plaintiff filed an opposition and Defendant, with leave of Court, file an Amended Reply.^[18] Also with leave of Court, Plaintiff and Defendant then filed Supplemental Memoranda.^[19]

In its Motion to Dismiss, Defendant contends that Plaintiff fails to state a claim, as a matter of law, for the reasons already identified by this Court.^[20]Defendant argues that Plaintiff's claims are barred by the clear language of the Policy and its Endorsement which require, among other things, “accidental direct physical loss” to Covered Property.^[21] Defendant draws the Court's attention to decisions from numerous courts, including the Fifth Circuit Court of Appeals, which have held that the policy term “direct physical loss” requires a physical alteration of the insured property and concludes “Indeed, the overwhelming weight of the caselaw holds that the presence of the virus at a plaintiff's property is legally insufficient to state a claim for accidental direct physical loss to covered property.”^[22] Defendant further argues that the Policy's unambiguous Virus Exclusion bars coverage.^[23] Defendant also contends that Plaintiff's newly raised fraud and negligent misrepresentation claims must be dismissed.^[24] Defendant asserts that Plaintiff is unable to prove that it relied upon a misrepresentation in the Policy when seeking coverage for COVID-19 related losses because the plain language of the Policy's Virus Exclusion does not misrepresent that it applies to a pandemic.^[25]

In its Opposition, Plaintiff argues that it has provided sufficient evidence that it sustained a direct physical loss due to the presence of COVID-19 at its covered properties and that the Policy does not exclude coverage for Southern Orthopaedic's claims.^[26] Plaintiff further contends that it has raised plausible fraud and negligent misrepresentation claims in its Amended Complaint alleging that the company that represented State Farm and other member property insurance companies submitted filings to the Louisiana Department of Insurance in 2007 in an attempt to covertly alter the policy exclusion to inappropriately narrow coverage.^[27]

In Reply, Defendant notes that Plaintiff, instead of curing the deficiencies pointed out by the Court, simply re-urges the arguments advanced in its original Petition and Opposition to Defendant's first motion to dismiss.^[28] Defendant reiterates that coverage for any losses is barred by the Virus Exclusion and that this Court has already determined that the language of that exclusion is unambiguous.^[29] Defendant also counters Plaintiff's argument that the Virus Exclusion did not encompass a global communicable disease of the magnitude of the COVID-19 pandemic by pointing out that this Court previously rejected that argument, noting that the worldwide pandemic disease was because of the COVID-19 virus.^[30] Finally, Defendant asserts that Plaintiff fails to state a claim for “accidental direct physical loss to” the covered property.^[31]

Plaintiff also filed a Supplemental Opposition in which it urges the Court to wait for the Louisiana Fourth Circuit's decision in Cajun Conti, LLC, et al v. Certain Underwriters at Lloyd's London, et al. regarding the definition of “direct physical loss” before ruling on Defendant's pending Motion to Dismiss.^[32] Defendant filed a response to Plaintiff's Supplemental Opposition in which it contrasts the facts of the present case from Cajun Conti, noting that, “even if Cajun Conti's ruling on direct physical loss were to be modified or reversed on appeal, it would not be outcome determinative here.”^[33]

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a defendant can seek dismissal of a complaint, or any part of it, for failure to state a claim upon which relief may be granted.^[34] To survive a Rule 12(b)(6) 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.'”^[35] “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”^[36] “The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.”^[37]

A court must accept all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.^[38] The Court, however, is not bound to accept as true conclusory allegations, unwarranted factual inferences, or legal conclusions.^[39]“Dismissal is appropriate when the complaint on its face shows a bar to relief.”^[40] In deciding a Rule 12(b)(6) motion to dismiss, a court is generally prohibited from considering information outside the pleadings, but may consider documents outside contain a virus exclusion clause, as is present in this matter. Accordingly, the Court declines to hold off issuing its order until a ruling in Cajun Conti. of the complaint when they are: (1) attached to the motion; (2) referenced in the complaint; and (3) central to the plaintiff's claims.^[41] The Court can also take judicial notice of matters that are of public record, including pleadings that have been filed in a federal or state court.^[42]

While the Court is generally prohibited from considering matters outside the pleadings in a 12(b)(6) analysis, the Court considers the insurance policy at issue, including endorsements and attachments, as they were attached to Southern Orthopaedic's Amended Petition, are referenced in the Amended Petition, and are central to Plaintiff's claims.^[43]

III. JURISDICTION

The Court has original jurisdiction of this matter pursuant to 28 U.S.C.§ 1332 as Plaintiff and Defendant are diverse from each other and the amount in controversy exceeds $75, 000.^[44]

IV. ANALYSIS

A. Direct Physical Loss

In its Amended Complaint, Plaintiff cites news articles and medical studies to support its claim that the presence of COVID-19 in the covered properties caused direct physical loss.^[45] Plaintiff cites several studies, including studies published in TIME magazine, the National Institute of Health, and by the CDC, as well as one conducted by its own expert, describing how COVID-19 is transmitted and concluding that COVID-19 can remain active on surfaces for up to several weeks.^[46] Plaintiff claims that the interaction of COVID-19 with the covered property's surfaces caused damage to its property, which in turn resulted in damage to the property's structure, thus constituting direct physical...