St. Tammany Parish Hosp. Serv. Dist. No. 2 v. Zurich Am. Ins. Co.

593 F.Supp.3d 399

ST. TAMMANY PARISH HOSPITAL SERVICE DISTRICT NO. 2, Plaintiff

v.ZURICH AMERICAN INSURANCE COMPANY, et al., Defendants

CIVIL ACTION NO. 21-2204

United States District Court, E.D. Louisiana.

Signed March 23, 2022

Ross Forrest Lagarde, Jeffrey G. Lagarde, Alexander L. Reed, Ross F. Lagarde, APLC, Slidell, LA, for Plaintiff.

Virginia Y. Dodd, Heather S. Duplantis, Kevin W. Welsh, Phelps Dunbar, LLP, Baton Rouge, LA, for Defendants.

ORDER AND REASONS

SECTION: "E"(3)

SUSIE MORGAN, UNITED STATES DISTRICT JUDGE

Before the Court is a motion to dismiss,¹ filed by Defendants Zurich American Insurance Company and XL Insurance America, Inc. ("Defendants"). Plaintiff, St. Tammany Parish Hospital Service District No. 2 d/b/a Slidell Memorial Hospital ("Plaintiff") filed an opposition.² Defendants filed a reply.³

BACKGROUND

Three Zurich Edge Healthcare commercial insurance policies were issued to Plaintiff by the Defendants: (1) Policy No. ZMD0115336-04, issued by Zurich American Insurance Company, with an effective coverage term of April 26, 2019 to April 26, 2020;⁴ (2) Policy No. US00090865PR19A issued by XL Insurance America, Inc., with an effective coverage term of April 26, 2019 to April 26, 2020;⁵ and (3) Policy No. ZMD0115336-05, issued by Zurich American Insurance Company, with an effective coverage term of April 26, 2020 to April 26, 2021.⁶ Plaintiff has made claims against the Defendants under all three policies. The parties agree all the relevant provisions under the policies are identical.⁷ Hereinafter, the Court will refer to the policies collectively as the "Policy."

This matter arises from a dispute regarding coverage under the Policy for losses caused by the COVID-19 pandemic and related governmental orders aimed at mitigating the spread of the Coronavirus. Plaintiff seeks coverage under two sections of the Policy, to wit: under the ‘Time Element’ section of the Policy, for business interruption and extra expenses;⁸ and under several provisions of the ‘Special Coverages’ section of the Policy, namely, civil or military authority coverage, contingent time element coverage, protection and preservation of property coverage, decontamination costs coverage, ingress/egress coverage, and interruption by communicable disease coverage.⁹

Plaintiff alleges it provides a comprehensive healthcare delivery system in Slidell, Louisiana.¹⁰ The healthcare system includes a 223-bed acute care hospital and emergency room, a Level III neonatal intensive care unit, a heart center, a regional cancer center, and a physicians’ network which includes outpatient rehabilitation therapists.¹¹ Plaintiff alleges it treats over 100,000 patients each year and employs more than 1,200 persons, including 32 physicians.¹²

Plaintiff alleges, as a result of COVID-19 and governmental measures taken at both the federal and state levels, it has suffered substantial financial losses.¹³ Plaintiff alleges it suffered direct physical loss of property and damage to its property in at least four ways:

1) through the certain or virtually certain presence of COVID-19 and/or the Coronavirus throughout its network of hospitals, primary and specialty physician practices and other complementary services, in the air or on surfaces (whether droplets, aerosols, or otherwise);

2) through state, local and agency governmental orders that drastically limited [Plaintiff's] use of its property (including, but not limited to, the prohibition of non-emergent and elective medical care procedures), and at various points shut down or drastically limited the operations of its facilities, causing [Plaintiff] to lose the total or partial normal use and function of its property;

3) through the need to modify physical behaviors through the use of social distancing, avoiding confined indoor spaces, and avoiding congregating in the same physical area as others, in order to reduce or minimize the potential for viral transmission; and

4) through the need to mitigate the threat or actual physical presence of the Coronavirus on door handles, bedsheets, hospital gowns, bed railings, medical equipment, miscellaneous surfaces, in heating and air conditioning systems, and in or on any of the multitude of other places the Coronavirus has been or could be found.¹⁴

Plaintiff alleges the presence of the virus in the air and on surfaces made its facilities unsafe and unfit for their intended uses.¹⁵ Plaintiff alleges it incurred considerable expenses implementing reasonable and necessary safety and mitigation measures to protect its facilities, employees, patients, and their families from the spread of COVID-19, and to mitigate its losses as a result of COVID-19.¹⁶

Plaintiff alleges "[a]s a result of the substantial losses connected to the physical loss of and/or damage to its facilities, expenses incurred in the decontamination of its facilities, enhanced measures, and [other actions taken]," it filed claims with Defendants as its "commercial property and business interruption insurer."¹⁷ Plaintiff alleges Defendants summarily dismissed its claims under the Policy, citing an exclusion, without proper investigation.¹⁸ Plaintiff alleges Defendants wrongfully refused to provide coverage for its losses, which allegedly exceed $18,000,000.00.¹⁹

Plaintiff filed suit against Defendants on or about October 1, 2021, in the 22nd Judicial District Court, Parish of St. Tammany, State of Louisiana.²⁰ In the state court petition, Plaintiff summarizes the nature of this lawsuit as follows:

This is an insurance coverage action for declaratory judgment and breach of contract arising from the refusal of [Defendants] to provide coverage to [Plaintiff] under a comprehensive loss policy issued by the Defendants called "The Zurich Edge Healthcare Policy": a unique policy targeting healthcare facilities with the marketing promise of "higher limits, broader coverage and greater flexibility" and which expressly provides coverage for the losses [Plaintiff] sustained as a result of COVID-19.²¹

Plaintiff contends the Policy provides coverage for the alleged losses caused by COVID-19 and related governmental orders. Plaintiff seeks damages for breach of contract and seeks a judgment declaring the scope of Defendants’ obligations to pay Plaintiff's losses under the Policy.²² Plaintiff also seeks to recover damages, statutory penalties, and attorneys’ fees under Louisiana Revised statutes §§ 22:1892 and 22:1973.²³

On December 1, 2021, Defendants filed a Notice of Removal, invoking this Court's diversity jurisdiction under 28 U.S.C. § 1332.²⁴ On December 16, 2021, Plaintiff filed a motion to remand to state court.²⁵ On March 14, 2022, the Court denied Plaintiff's motion to remand, finding that subject matter jurisdiction exists under 28 U.S.C. § 1332.²⁶

On December 8, 2021, Defendants filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing Plaintiff's state court petition fails to state a claim upon which relief can be granted.²⁷ On February 7, 2022, Plaintiff filed an opposition to Defendants’ motion to dismiss.²⁸ On February 17, 2022, Defendants filed a reply memorandum in support of the motion to dismiss.²⁹

LEGAL STANDARD

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a district court may dismiss a complaint, or any part of it, for failure to state a claim upon which relief may be granted if the plaintiff has not set forth factual allegations in support of her claim that would entitle her to relief.³⁰ "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.’ "³¹ "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."³² The court, however, does not accept as true legal conclusions or mere conclusory statements, and "conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss."³³ "[T]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements" or "naked assertion[s] devoid of further factual enhancement" are not sufficient.³⁴

In summary, "[f]actual allegations must be enough to raise a right to relief above the speculative level."³⁵ "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not shown—that the pleader is entitled to relief."³⁶ "Dismissal is appropriate when the complaint ‘on its face show[s] a bar to relief.’ "³⁷

LAW AND ANALYSIS

In their motion to dismiss, Defendants argue the Policy does not cover the losses and expenses incurred by Plaintiff as a result of COVID-19 and related governmental orders aimed at curbing the spread of the Coronavirus.³⁸ Defendants argue the Policy, in general, insures against "direct physical loss of or damage caused by a Covered Cause of Loss to Property," and that the Policy defines a Covered Cause of Loss to Property as "all risks of direct physical loss of or damage from any cause unless excluded."³⁹ Defendants argue the coverage provisions of the policies "respond to physical loss of or damage to property ."⁴⁰ Defendants further argue that "neither the Coronavirus nor pandemic-related orders cause ‘direct physical loss of or damage to’ property under a commercial property insurance policy."⁴¹ Defendants argue the phrase "direct physical loss of or damage to" is unambiguous and plainly requires physical alteration of insured property.⁴² Defendants further argue Plaintiff's claims fail because Plaintiff has not "plausibly alleged any tangible, demonstrable, physical alteration of property caused by the Coronavirus."⁴³ Defendants also argue Plaintiff is not entitled to coverage under the special Interruption by Communicable Disease coverage because orders issued by Louisiana's civil authorities did not...