St. George Hotel Assocs., LLC v. Affiliated FM Ins. Co.

577 F.Supp.3d 135

ST. GEORGE HOTEL ASSOCIATES, LLC and Henry Clark Associates, LLC, Plaintiffs,

v.AFFILIATED FM INSURANCE COMPANY, Defendant.

20-CV-05097 (DG) (RLM)

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

Signed December 20, 2021

Joshua L. Mallin, Weg and Myers, P.C., Rye Brook, NY, for Plaintiffs.

Robert F. Cossolini, Edward Terrence Hagan, Finazzo Cossolini O'Leary Meola & Hager, LLC, Morristown, NJ, for Defendant.

MEMORANDUM & ORDER

DIANE GUJARATI, United States District Judge:

On October 22, 2020, Plaintiffs St. George Hotel Associates, LLC and Henry Clark Associates, LLC (collectively, "Plaintiffs") commenced this action against Defendant Affiliated FM Insurance Company ("Defendant"), alleging breach of contract. See generally Complaint, ECF No. 1. Plaintiffs thereafter amended their complaint twice. See First Amended Complaint, ECF No. 9; Second Amended Complaint ("SAC"), ECF No. 10. The operative SAC contains one cause of action, breach of contract. See SAC ¶¶ 62-66. Defendant filed an Answer to the SAC, ECF No. 11, and subsequently filed an Amended Answer to the SAC, ECF No. 17.

Pending before the Court is Defendant's Motion for Judgment on the Pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure (" Rule 12(c)"), which Plaintiffs oppose. See Defendant's Motion for Judgment on the Pleadings, ECF No. 24; Defendant's Memorandum of Law in Support of Motion for Judgment on the Pleadings ("Def.’s Br."), ECF No. 24-1; Plaintiffs’ Memorandum of Law in Opposition to Defendant's Motion for Judgment on the Pleadings ("Pls.’ Br."), ECF No. 25; Defendant's Reply Memorandum of Law in Support of Motion for Judgment on the Pleadings ("Def.’s Reply"), ECF No. 26; see also Defendant's Notice of Supplemental Authority, ECF No. 27; Defendant's Second Notice of Supplemental Authority, ECF No. 29; Defendant's Third Notice of Supplemental Authority, ECF No. 31; Defendant's Fourth Notice of Supplemental Authority, ECF No. 33; Defendant's Fifth Notice of Supplemental Authority, ECF No. 35; Defendant's Sixth Notice of Supplemental Authority, ECF No. 38; Defendant's Seventh Notice of Supplemental Authority, ECF No. 41; Plaintiffs’ Response to Defendant's Notice of Supplemental Authority, ECF No. 28; Plaintiffs’ Response to Defendant's Second Notice of Supplemental Authority, ECF No. 30; Plaintiffs’ Response to Defendant's Third Notice of Supplemental Authority, ECF No. 32; Plaintiffs’ First Notice of Supplemental Authority, ECF No. 36.

Through its Motion for Judgment on the Pleadings (the "Motion"), Defendant seeks dismissal of Plaintiffs’ Second Amended Complaint in its entirety, with prejudice. See Def.’s Br. at 1-3.

For the reasons set forth below, Defendant's Motion is granted and Plaintiffs’ Second Amended Complaint is dismissed.

BACKGROUND

I. Factual Background¹

A. Plaintiffs’ Business

Plaintiffs are owners of the St. George Hotel (the "Hotel"), located in the Brooklyn Heights Historical District of New York City. SAC ¶ 1. The Hotel is used, in part, to provide student housing for surrounding colleges. Id. ¶ 2. At relevant times, the Hotel housed over 1,000 student residents through its leases with EHS Clark Residence, LLC and EHS-1, Inc. (collectively, "EHS"). Id. ¶ 3; see also id. ¶ 38. EHS had contracts to provide dormitory facilities at the Hotel to various colleges within New York City that were located within five miles of the Hotel (the "subject colleges"). Id. ¶¶ 39-40. Several of the subject colleges were located within one mile of the Hotel. Id. ¶ 41.

In addition to its leases with EHS, the Hotel maintained several leases with commercial and/or retail tenants. See id. ¶¶ 4, 45.

B. The Covid-19 Pandemic and Civil Authority Orders

As a result of the Covid-19 pandemic, New York State and New York City issued civil authority orders that required retail properties to close their doors to the public and schools to cancel in-person classes. See id. ¶¶ 8, 35; see also id. ¶¶ 36-37. As a result of the orders, there was a decrease in the demand for student housing at the Hotel. See id. ¶¶ 9, 35; see also id. ¶¶ 42-43. More specifically, on or about March 16, 2020, in accordance with State of New York Executive Order 202.4, certain colleges with which EHS had contracts to provide dormitory facilities at the Hotel were forced to shut their doors to in-person learning and, as a result, students left their dormitories at the Hotel. Id. ¶¶ 42-43. On or about April 1, 2020, with the dormitory facilities at the Hotel no longer being utilized by these students, EHS was unable to make its monthly payments to Plaintiffs. Id. ¶ 44. The ability of the Hotel's commercial tenants to pay rent in a timely manner was also affected by the various State and City orders, causing Plaintiffs a loss of income. Id. ¶¶ 9, 46. Given the nature of Plaintiffs’ business, the spread of Covid-19 led to significant economic damages. Id. ¶ 30.

C. The Relevant Policy Provisions

Plaintiffs procured "all risk" property insurance coverage in order to protect their assets against fortuitous losses. Id. ¶ 5. Specifically, Plaintiffs procured an "all risk" insurance policy sold by Defendant. Id. ¶ 6. Plaintiffs procured the Policy on or about January 12, 2020. Id. ¶ 48. The Policy bears effective dates from January 12, 2020 to January 12, 2021. Id. ¶ 50. The Policy was in full force and effect when the Covid-19 pandemic swept through the nation. Id. ¶ 6.

The Policy itself provides that it "covers property, as described in this Policy, against ALL RISKS OF PHYSICAL LOSS OR DAMAGE, except as hereinafter excluded." Policy at 4 (emphasis in original). The Policy further specifies certain exclusions that "apply unless otherwise stated." See id. at 16-19.

1. Business Interruption Coverage and Relevant Extensions

The Policy provides coverage for "Business Interruption loss, as provided in the Business Interruption Coverage, as a direct result of physical loss or damage of the type insured ... [t]o property as described elsewhere in this Policy and not otherwise excluded by this Policy." Policy at 33; see also SAC ¶ 53. The Policy also includes certain "Business Interruption Coverage Extensions." See Policy at 38-45.

Five such extensions are: (1) Attraction Property; (2) Civil or Military Authority; (3) Ingress/Egress; (4) Communicable Disease – Business Interruption ("Communicable Disease"); and (5) Extended Period of Liability. See SAC ¶ 54; see also Policy at 38-41.

Under the Attraction Property extension, the Policy covers the "Business Interruption Coverage loss incurred by the Insured during the Period of Liability directly resulting from physical loss or damage of the type insured to property of the type insured that attracts business to a described location and is within one (1) statute mile of the described location." Policy at 38;² see also SAC ¶ 54.

Under the Civil or Military Authority extension, the Policy covers the "Business Interruption Coverage loss incurred by the Insured during the Period of Liability if an order of civil or military authority prohibits access to a location provided such order is in direct result of physical damage of the type insured at a location or within five (5) statute miles of it." Policy at 38; see also SAC ¶ 54.

Under the Ingress/Egress extension, the Policy covers the "Business Interruption Coverage loss incurred by the Insured due to the necessary interruption of the Insured's business when ingress to or egress from a described location(s) is physically prevented, either partially or totally, as a direct result of physical loss or damage of the type insured to property of the type insured whether or not at a described location." Policy at 41; see also SAC ¶ 54.

Under the Extended Period of Liability extension, the Policy extends the Policy's Gross Earnings and Rental Income coverage to cover the reduction in sales resulting from certain circumstances listed in the Policy. See Policy at 40-41; see also SAC ¶ 54.

Under the Communicable Disease extension, the Policy provides, in relevant part, coverage "[i]f a described location owned, leased or rented by the Insured has the actual not suspected presence of communicable disease and access to such described location is limited, restricted or prohibited by: a) An order of an authorized governmental agency regulating such presence of communicable disease." Policy at 39; see also SAC ¶ 54.

2. Relevant Exclusions

In addition to the foregoing extensions, the Policy features two exclusions relevant to the instant Motion: (1) the Contamination Exclusion; and (2) the Loss of Use Exclusion.

The Contamination Exclusion, in relevant part, excludes "Contamination, and any cost due to contamination including the inability to use or occupy property or any cost of making property safe or suitable for use or occupancy. If contamination due only to the actual not suspected presence of contaminant(s) directly results from other physical damage not excluded by this Policy, then only physical damage caused by such contamination may be insured." Policy at 19. The Policy defines "contamination" as "any condition of property due to the actual or suspected presence of any foreign substance, impurity, pollutant, hazardous material, poison, toxin, pathogen or pathogenic organism, bacteria, virus, disease causing or illness causing agent, fungus, mold or mildew." Id. at 56.

The Loss of Use Exclusion excludes "[l]oss of market or loss of use." Id. at 18.

D. Plaintiffs’ Claim Under the Policy

In connection with their claim under the Policy, on or about July 22, 2020, Plaintiffs submitted a "Sworn Statement in Proof of Loss" to Defendant. See SAC ¶¶ 58, 65. On or about July 29, 2020, Defendant sent an email to Plaintiffs acknowledging receipt of Plaintiffs’ Sworn Statement in Proof of Loss and stating that Defendant would begin the process of reviewing the Proof of Loss and supporting documentation. Id. ¶ 58. As of the date of the filing of the SAC, Defendant had not substantively responded to Plaintiffs’...