TMC Healthcare v. Cont'l Cas. Co.

TMC Healthcare, Plaintiff, v. Continental Casualty Company, Defendant.

No. CV-21-00135-TUC-DCB (EJM)

United States District Court, D. Arizona

February 22, 2022

REPORT AND RECOMMENDATION

ERIC J. MARKOVICH, UNITED STATES MAGISTRATE JUDGE

Pending before the Court is Defendant Continental Casualty Company's Motion to Dismiss. (Doc. 20). Pursuant to the Rules of Practice of this Court, this matter was referred to the undersigned for a Report and Recommendation. (Doc. 10). The motion has been fully briefed, and the Court finds that oral argument would not aid its decision on this matter. See LRCiv 7.2(f). For the reasons stated below, the Magistrate Judge recommends that the District Court enter an ordering granting Defendant's Motion to Dismiss.

I. FACTUAL AND PROCEDURAL BACKGROUND

This insurance contract dispute arises out of Defendant Continental Casualty Company's (“Continental”) denial of coverage for Plaintiff TMC Healthcare's (“TMCH”) alleged losses arising from the SARS-CoV-2 virus (the “Coronavirus”) and the disease that it causes Coronavirus Disease 2019 (“COVID-19”), and the alleged direct physical loss of or damage to property and business interruption they caused under the commercial property insurance policy Continental sold to TMCH (the “Policy”).

(Doc. 17 ¶ 1). The Policy is an “all-risk policy” that provides coverage for all covered causes of loss, including direct physical loss or direct physical damage, unless the loss is specifically excluded or limited in the Policy. Id. ¶¶ 1, 6. TMCH alleges it is entitled to coverage under various policy provisions including the Business Interruption (Gross Earnings) coverage, Extra Expense coverage, Denial of Access by Civil Authority and Ingress-Egress coverage, Contingent Business Interruption coverage, and Disease Contamination coverage. Id. at 46-50.

On May 5, 2020 TMCH gave notice to Continental of its losses from the Coronavirus and COVID-19. Id. ¶ 198. Continental issued letters on June 18, 2020 and August 12, 2020 denying coverage for TMCH's claims under the Policy and asserting that “TMCH has not reported any ‘direct physical loss of or damage to' to the properties for which TMCH has submitted claims.” Id. ¶¶ 201-03.

On February 26, 2021 TMCH filed suit in Pima County Superior Court, and on March 29, 2021 Continental removed the case to this Court. (Doc. 1). TMCH filed its First Amended Complaint (“FAC”) on May 14, 2021 and asserts two claims for relief: 1) a declaratory judgment pursuant to Fed.R.Civ.P. 57 and 28 U.S.C. § 2201 stating that the Policy covers the losses TMCH suffered and that Continental is responsible for fully and timely paying TMCH's claim; and 2) breach of contract for Continental's denial of TMCH's claim, and breach of the duty of good faith and fair dealing for Continental's failure to investigate TMCH's claim. (Doc. 17 at 58-59). TMCH alleges damages exceeding $60 million arising from the direct physical loss of or damage to its property caused by Coronavirus and COVID-19. Id. ¶ 4.

On June 11, 2021 Continental filed its motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). (Doc. 20). Continental alleges that TMCH's FAC fails to state a valid claim for three reasons:

1. Under the Policy and applicable law, Plaintiff can recover only if it shows: direct physical loss of or damage to property at a location insured under the Policy; to property owned or operated by a supplier, customer, or dependent third-party; or to property within five miles of the insured location. Plaintiff does not plausibly allege any such physical loss or damage.

The overwhelming majority of courts have dismissed nearly identical claims, concluding the pandemic and associated governmental orders limiting business activities do not trigger coverage under insurance policies requiring direct physical loss of or damage to property;

2. Plaintiff does not plausibly allege a claim for breach of the duty of good faith and fair dealing because it is premised entirely on the false assumption Plaintiff is entitled to coverage under the Policy. Further, Plaintiff does not allege any facts supporting Plaintiff's conclusory allegations that Continental failed to investigate the claim; and

3. Plaintiff does not plausibly allege a declaratory judgment claim because that claim is duplicative of its breach-of-contract claim. Because Plaintiff's contract claim resolves all the issues identified in the declaratory judgment claim against Defendant, Plaintiff's declaratory judgment claim fails.

Id. at 2-3. Continental further states that because TMCH fails to allege a claim within the Policy's grant of coverage, there is no need to evaluate exclusions; however, the Policy has multiple exclusions that would apply, such as the microbe exclusion. Id. at 24 n.8.^[1]

II. STANDARD OF REVIEW

Pursuant to Fed.R.Civ.P. 12(b)(6), the Court may grant a motion to dismiss when the plaintiff fails to state a claim upon which relief can be granted. A complaint must contain a “short and plain statement of the grounds for the court's jurisdiction, ” a “short and plain statement of the claim showing that the pleader is entitled to relief, ” and “a demand for the relief sought.” Fed.R.Civ.P. 8(a). While Rule 8 does not demand factual allegations, “it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Threadbare recitals of a cause of action, supported by mere conclusory statements, do not suffice.” Id.

A dismissal for failure to state a claim “is proper only where there is no cognizable legal theory or an absence of sufficient facts alleged to support cognizable legal theory.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001) (internal citation omitted); see also Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980) (Rule 12(b)(6) dismissal motion “can be granted only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his or her claim.”). However, “the court [is not] required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

To survive a motion to dismiss under Rule 12(b)(6), a pleading must allege facts sufficient “to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A claim must be plausible, allowing the court to draw the reasonable inference that the defendant is liable for the conduct alleged. Iqbal, 556 U.S. at 678. “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.” Id. (quoting Twombly, 550 U.S. at 557). “Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.” Iqbal, 556 U.S. at 678.

“In adjudicating a Rule 12(b)(6) motion to dismiss, . . . a court does not resolve factual disputes between the parties on an undeveloped record. Instead, the issue is whether the pleading states a sufficient claim to warrant allowing the [plaintiffs] to attempt to prove their case.” Coleman v. City of Mesa, 230 Ariz. 352, 363 (2012); see also Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) (“factual challenges to a plaintiff's complaint have no bearing on the legal sufficiency of the allegations under Rule 12(b)(6)”), overruling on other grounds recognized by Jack Loumena v. Walter P. Hammon, 2015 WL 7180679 (N.D. Cal. Nov. 16, 2015). Thus, Continental's motion does not require the Court to make factual determinations regarding TMCH's losses, or whether Continental breached any duty in denying TMCH's claim. The Court only considers whether TMCH has sufficiently stated its claims to justify allowing those claims to move forward.

The Court must view the complaint in the light most favorable to the nonmoving party, with every doubt resolved on his behalf, and with that party's allegations taken as true. See Abramson v. Brownstein, 897 F.2d 389, 391 (9th Cir. 1990). Generally, the court only considers the face of the complaint when deciding a motion under Rule 12(b)(6). See Akhtar v. Mesa, 698 F.3d 1202, 1212 (9th Cir. 2012); Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002). Consideration of matters outside the pleading converts the Rule 12(b)(6) motion to a Rule 56 motion for summary judgment, unless one of two exceptions are met:

First, a court may consider material which is properly submitted as part of the complaint on a motion to dismiss without converting the motion to dismiss into a motion for summary judgment. If the documents are not physically attached to the complaint, they may be considered if the documents' authenticity ... is not contested and the plaintiff's complaint necessarily relies on them. Second, under Fed.R.Evid. 201, a court may take judicial notice of matters of public record.

Lee, 250 F.3d at 688-89 (internal quotations and citations omitted); see also Harris v. Cnty. of Orange, 682 F.3d 1126, 1132 (9th Cir. 2012) (“documents not attached to a complaint may be considered if no party questions their authenticity and the complaint relies on those documents”). Here, the undersigned finds that the Court may consider the exhibits attached to the FAC, Continental's motion to dismiss, and TMCH's response, as TMCH's FAC necessarily relies on the documents and no party contests the documents' authenticity, and that by so doing the Court does not convert the motion to dismiss into a motion for summary judgment. However, the Court should decline to take judicial notice of the documents and should consider the documents ...