Sa Hospitality Grp., LLC v. Hartford Fire Ins. Co.

542 F.Supp.3d 148

SA HOSPITALITY GROUP, LLC et al. on behalf of themselves and all others similarly situated, Plaintiffs,

v.HARTFORD FIRE INS. CO., Defendant.

No. 20-cv-1033 (VLB)

United States District Court, D. Connecticut.

Signed June 3, 2021

Christopher Ayers, Seeger Weiss LLP, Ridgefield Park, NJ, James E. Cecchi, Pro Hac Vice, Lindsey H. Taylor, Pro Hac Vice, Carella Byrne Cecchi Olstein Brody & Agnello, Roseland, NJ, Christopher M. Barrett, Izard, Kindall & Raabe, LLP, West Hartford, CT, for Plaintiffs SA Hospitality Group, LLC, 1000 Madison Avenue LLC, Astoria Cakes LLC, Cafe Focaccia, Inc., SA Midtown LLC, Bailey's Restaurant LLC, SA Special Events, Inc., SASE LLC, Eighty Third And First LLC, Felice Gold Street LLC, SA 61st Management LLC, SA Third Ave Cafe LLC, SABF LLC, Felice Chambers LLC, Felice Water Street LLC, 265 Lafayette Ristorante LLC.

Christopher Ayers, Seeger Weiss LLP, Ridgefield Park, NJ, James E. Cecchi, Pro Hac Vice, Lindsey H. Taylor, Carella Byrne Cecchi Olstein Brody & Agnello, Roseland, NJ, Christopher M. Barrett, Izard, Kindall & Raabe, LLP, West Hartford, CT, for Plaintiff Realtek LLC.

Christopher Ayers, Seeger Weiss LLP, Ridgefield Park, NJ, James E. Cecchi, Pro Hac Vice, Lindsey H. Taylor, Carella Byrne Cecchi Olstein Brody & Agnello, Roseland, NJ, Christopher M. Barrett, Pro Hac Vice, Izard, Kindall & Raabe, LLP, West Hartford, CT, for Plaintiff SA York Ave LLC.

Charles Michael, Pro Hac Vice, Meghan Newcomer, Steptoe & Johnson LLP, New York, NY, Robyn E. Gallagher, Timothy Diemand, Wiggin & Dana, Hartford, CT, for Defendant.

MEMORANDUM OF DECISION GRANTING DEFENDANT'S MOTION TO DISMISS, Dkt. 11

Vanessa L. Bryant, United States District Judge

This is an insurance coverage dispute concerning whether Defendant Hartford Fire Insurance Company ("Harford Fire") is obliged to indemnify Plaintiff SA Hospitality Group, LLC and its subsidiaries (collectively "SA Hospitality") for loss business income and extra expenses incurred as a result of civil authority orders suspending or curtailing non-essential business activity to slow the spread of COVID-19. See generally , [Dkt. 1 (Compl.)]. The complaint was filed as a putative nationwide class action. [Compl. ¶¶ 66-81](class action allegations).

Now before the Court is Hartford Fire's motion to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6). For reasons articulated below, the Court grants Hartford Fire's motion.

Background

For the purpose of deciding Hartford Fire's motion to dismiss, the Court "draw[s] all reasonable inferences in Plaintiff[’s] favor, assume[s] all well-pleaded factual allegations to be true, and determine[s] whether they plausibly give rise to an entitlement to relief." Faber v. Metro. Life Ins. Co. , 648 F.3d 98, 104 (2d. Cir. 2011) (citations omitted). The following facts are drawn from the allegations in the Complaint. The Court may also consider the insurance policy at issue because, although it was not affixed to the complaint as an exhibit or expressly incorporated by reference, it is integral to the coverage dispute and the Plaintiffs quote it extensively in the Complaint. Chambers v. Time Warner, Inc. , 282 F.3d 147, 152 (2d Cir. 2002). Hartford Fire filed a complete copy of insurance policy no. 13 UUN BL 4042, Property Choice Coverage Part, between SA Hospitality Group, LLC and Hartford Fire Insurance Co., for the policy period of June 1, 2019 to June 1, 2020, as an exhibit to its motion to dismiss. [Dkt. 11-1 (Decl. of Charles Michael)]; [Dkt. 11-3, Def. Ex. A][hereinafter the "Policy"].

The Court can also take judicial notice of pleadings filed in other actions as a public record without converting the motion into a motion for summary judgment pursuant to Fed. R. Evid. 201(b) ; see Rothman v. Gregor , 220 F.3d 81, 92 (2d Cir. 2000).

I. Insurance policy provisions at issue

As a general proposition, "the purpose of business interruption insurance is to indemnify the insured against losses arising from an inability to continue normal business operations and functions due to damage sustained as a result of the hazard insured against. In other words, the goal is to preserve the continuity of the insured's earning." United Air Lines, Inc. v. Ins. Co. of State of PA , 439 F.3d 128, 131 (2d Cir. 2006). It is a form of first-party property insurance. Port Auth. of New York & New Jersey v. Affiliated FM Ins. Co. , 311 F.3d 226, 233-34 (3d Cir. 2002) (distinguishing between first-party and third-party insurance contracts when interpreting "physical loss" under a commercial property insurance policy).

The insuring agreement for the Policy's business interruption coverage component is contained in Section A of the Property Choice-Special Business Income Coverage form, Form PC 00 20 0113, HFIC00080, [Dkt. 11-3 at 80]. It states:

We will pay up to the Special Business Income Limit of Insurance stated in the Property Choice-Schedule of Premises and Coverages for the actual loss of Business Income you sustain and the actual, necessary and reasonable Extra Expense you incur due to the necessary interruption of your business operations during the Period of Restoration due to direct physical loss of or direct physical damage to property caused by or resulting from a Covered Cause of Loss at "Scheduled Premises" where a limit of insurance is shown for Special Business Income. If you are a tenant, this Coverage applies to that portion of the building which you rent, lease or occupy, and extends to common service areas and access routes to your area. (emphasis added)

The term "Extra Expense" is defined in Section A(2) of the business interruption section of the Policy to mean, in relevant part:

... the actual, necessary and reasonable expenses you incur during the Period of Restoration that you would not have incurred if there had been no direct physical loss of or direct physical damage to property caused by or resulting from a Covered Cause of Loss at "Scheduled Premises".

Id. (emphasis added)

The insuring agreement for the Policy's civil authority coverage extension is contained in section A (2)(a) of the Property Choice Special Business Income-Additional Coverages section of the Policy, Form PC 26 02 01 13, HFIC00065, [Dkt. 11-1 at 66]. It provides that:

This insurance is extended to apply to the actual loss of Business Income you sustain and the actual, necessary and reasonable Extra Expense you incur when access to your "Scheduled Premises" is specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate area of your "Scheduled Premises". (emphasis added)

The term "Covered Cause of Loss" in the business interruption section of the Policy is defined by cross reference to mean:

... direct physical loss or direct physical damage that occurs during the Policy Period and in the Coverage Territory unless the loss or damage is excluded or limited in this policy.

Section A, Property Choice Covered Causes of Loss and Exclusion Form, Form PC 00 20 0113, HFIC00086 [Dkt. 11-3 at 87](emphasis added).

The phrase "direct physical loss or direct physical damage" is undefined by the Policy.

II. SA Hospitality's claim

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. [Dkt. 1 (Compl.) ¶ 1](citing WHO Director-General's Opening Remarks at the Media Briefing on COVID-19 , World Health Organization (March 11, 2020), https://www.who.int/director-general/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19---11-march-2020 ). Two days later, the President of the United States declared a national state of emergency. [Compl. ¶ 2](citing Presidential Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak , 85 FR 15337 (Mar. 13, 2020) ). As is now commonly known, the virus is spread from close contact with symptomatic, pre-symptomatic, and asymptomatic infected persons. [Compl. ¶¶ 39-42, 44]. The virus can also live on common surfaces, like cardboard, copper, and stainless steel and is detectable in aerosols, thus contact with contaminated surfaces and airborne particles may be additional transmission routes. [Compl. ¶¶ 43-44].

In response to the virus's infectivity and lethality, governmental entities entered civil authority orders suspending or severely curtailing operation of non-essential businesses to slow the spread of the virus. [Compl. ¶¶ 3, 47-48]. These restrictions and prohibitions adversely effected most non-essential businesses, especially restaurants and foodservice businesses. [Compl. ¶ 4].

SA Hospitality owns and operates restaurants and other dining establishments in New York and Florida that were adversely impacted by closure orders restricting restaurants and bars to take-out service and delivery only. [Compl. ¶ 48]. SA Hospitality procured a standard form all-risk commercial property insurance policy from Hartford Fire, which includes business interruption coverage to indemnify policy holders for lost income and profits if their business is shutdown. [Compl. ¶¶ 49-51].

By letter dated April 8, 2020, Hartford Fire denied SA Hospitality's claim for indemnification for business interruption losses under the Policy because their properties had not suffered any direct physical loss and because the losses were excluded by the bacteria and virus exclusion endorsement. [Compl. ¶ 61].¹ Two weeks later, SA Hospitality filed a putative class action against Hartford Fire in the Southern District of New York. SA Hospitality Group, LLC, et al., on behalf of themselves and all others similarly situated v. The Hartford Financial Group, Inc., et al. , No. 20-cv-3258 (GHW); [Dkt. 11-6, Def. Ex. D (Compl. in 20-cv-3258 (GHW))]. SA Hospitality voluntarily dismiss the complaint after Hartford Fire filed a motion to dismiss. [SA Hospitality Group, LLC, et al. , 20-cv-3258, supra. , ECF No. 33 (Mot. to Dismiss)...