Verveine Corp. v. Strathmore Ins. Co.

184 N.E.3d 1266

VERVEINE CORP.¹ & others²

v.STRATHMORE INSURANCE COMPANY & another.³

SJC-13172

Supreme Judicial Court of Massachusetts, Suffolk.

Argued January 7, 2022.

Decided April 21, 2022.

The following submitted briefs for amici curiae:

Benjamin R. Zimmermann, Boston, for the plaintiffs.

Stephen E. Goldman, for Strathmore Insurance Company.

Andrew R. Ferguson, Boston, for Commercial Insurance Agency, Inc.

John G. O'Neill & Jessica H. Park, Boston, for Massachusetts Insurance and Reinsurance Bar Association.

Kristin A. Heres & Katharina Kraatz-Dunkel, for American Property Casualty Insurance Association & others.

Robert J. Gilbert, Timothy J. McLaughlin, & Nathan A. Sandals, Boston, for Amphenol Corporation & another.

Rhonda D. Orin, of New York, & Marshall Gilinsky, for United Policyholders.

Jonathan T. Merrigan, for American Food Systems, Inc.

Present: Budd, C.J., Gaziano, Lowy, Cypher, Kafker, & Wendlandt, JJ.

KAFKER, J.

This appeal requires us to determine whether various losses stemming from the COVID-19 pandemic constitute "direct physical loss of or damage to" properties owned by the plaintiffs and insured by the defendants. The plaintiffs own three restaurants, which, like many brick-and-mortar businesses, suffered severe reductions in revenues during the pandemic and the resulting government restrictions on public gatherings. And like many other businesses, they looked to their property insurers to offset these losses, and had their claims denied. The plaintiffs sued their insurer for breach of contract and their insurance broker for negligently failing to procure policies that would have covered damages resulting from the COVID-19 virus. Holding that the insurance policies in question unambiguously did not cover the plaintiffs' losses, a Superior Court judge granted the motion to dismiss filed by the defendant Strathmore Insurance Company (Strathmore) and the motion for judgment on the pleadings filed by the defendant Commercial Insurance Agency, Inc. (Commercial).

We agree that the plaintiffs' losses were not "direct physical loss of or damage to" their property within the meaning of the insurance policies, and we therefore affirm.⁴

1. Background. The following facts are drawn from the plaintiffs' complaint and from sources of which this court can take judicial notice. See Jarosz v. Palmer, 436 Mass. 526, 530, 766 N.E.2d 482 (2002) (motions under Mass. R. Civ. P. 12 [c], 365 Mass. 754 [1974]); Jackson v. Longcope, 394 Mass. 577, 580 n.2, 476 N.E.2d 617 (1985) (motions under Mass. R. Civ. P. 12 [b] [6], 365 Mass. 754 [1974]).⁵

The plaintiffs are three Massachusetts companies that operate restaurants in Boston and Cambridge (restaurants). They are Verveine Corporation, which operates Coppa in Boston (Coppa); 1704 Washington LLC, which operates Toro in Boston (Toro); and JKFOODGROUP LLC, which operates Little Donkey in Cambridge (Little Donkey). All three have common ownership and management.

The restaurants engaged Commercial to advise them on their insurance needs and to procure the necessary insurance policies for their businesses. For many years, Commercial arranged for the plaintiffs to purchase coverage from Strathmore, a wholly owned subsidiary of Greater New York Mutual Insurance Company.

When the pandemic began, the restaurants were covered by two Strathmore property and liability policies -- one covering both Toro and Coppa and the other covering Little Donkey. Commercial represented to the plaintiffs that the coverage under the policies was the same, but Little Donkey's policy contained an exclusion for "loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease," which was not contained in the policy covering Coppa and Toro.⁶ The addition of the virus exclusion to the Little Donkey policy did not result in a premium reduction.

In spring 2020, the novel coronavirus that causes the COVID-19 respiratory illness (virus or COVID-19 virus) spread around the globe, eventually arriving in Massachusetts.⁷ In order to slow the spread of the virus, State and local authorities began issuing "stay-at-home" orders and other restrictions on businesses and public activities. On March 15, 2020, four days after the World Health Organization announced that the COVID-19 outbreak had become a "pandemic," Governor Charles D. Baker issued an emergency order prohibiting in-person dining at all restaurants and bars. However, as "COVID-19 Essential Services," restaurants were exempt from the order shutting down all nonessential businesses, and were allowed, and even encouraged, to remain open to offer takeout and delivery services, provided they complied with social distancing requirements. Toro and Coppa complied with the order, resulting in a steep decline in their revenues from the loss of in-person dining services. Because of its location, Little Donkey's management determined that it was not feasible to remain open only for takeout and delivery, and therefore the restaurant suspended operations completely, although its kitchen was used to prepare meals for frontline workers. In June 2020, the stay-at-home orders were amended to allow limited in-person dining at reduced capacities. The restaurants were able to resume these operations, but continued to lose revenue from the restrictions.

Given these losses and expected continued losses, the restaurants filed a claim for lost business income with Strathmore. Strathmore denied the claims under both policies, citing the lack of any "physical loss of or damage to" the properties and the virus exclusion to Little Donkey's policy.

In June 2020, the restaurants brought a declaratory judgment action to determine the scope of their policies, asserting claims for breach of contract and under G. L. c. 93A and G. L. c. 176D for unfair and deceptive practices against Strathmore.⁸ Little Donkey also brought a commercial negligence claim against Commercial for failing to procure a policy without a virus exclusion. Commercial answered the complaint and filed a motion for judgment on the pleadings under Mass. R. Civ. P. 12 (c). Strathmore filed a motion to dismiss for failure to state a claim under Mass. R. Civ. P. 12 (b) (6). Finding that there was no "direct physical loss or damage" resulting from the COVID-19 virus, a judge in the Superior Court granted Strathmore's motion. Because coverage would be denied with or without the virus exclusion, she also granted Commercial's motion dismissing the negligence claim related to Little Donkey's policy. The restaurants appealed, and this court transferred the case from the Appeals Court sua sponte.

2. Discussion. a. Standard of review. "We review the allowance of a motion to dismiss de novo." Meehan v. Medical Info. Tech., Inc., 488 Mass. 730, 732, 177 N.E.3d 917 (2021), quoting Magliacane v. Gardner, 483 Mass. 842, 848, 138 N.E.3d 347 (2020). A motion to dismiss will be granted unless the factual allegations in the complaint are "enough to raise a right to relief above the speculative level based on the assumption that all the allegations in the complaint are true (even if doubtful in fact)" (alterations omitted). Sudbury v. Massachusetts Bay Trans. Auth., 485 Mass. 774, 779, 152 N.E.3d 1101 (2020), quoting Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, 888 N.E.2d 879 (2008). However, "[w]e do not regard as ‘true’ legal conclusions cast in the form of factual allegations." Sudbury, supra at 778-779, 152 N.E.3d 1101, quoting Leavitt v. Brockton Hosp., Inc., 454 Mass. 37, 39 n.6, 907 N.E.2d 213 (2009). "A [defendant's] motion for judgment on the pleadings under Mass. R. Civ. P. 12 (c) is actually a motion to dismiss that argues that the complaint fails to state a claim upon which relief can be granted" (quotation and alterations omitted). Mullins v. Corcoran, 488 Mass. 275, 281, 172 N.E.3d 759 (2021), quoting Jarosz, 436 Mass. at 529, 766 N.E.2d 482. Therefore, we review Commercial's motion under the same standard as Strathmore's.

b. The restaurants' insurance policies. The question whether the Strathmore policies covered the restaurants' claimed losses is a question of contractual interpretation. "Interpretation of language in an insurance contract is no different from the interpretation of any other contract" (quotation and alteration omitted). Metropolitan Life Ins. Co. v. Cotter, 464 Mass. 623, 634-635, 984 N.E.2d 835 (2013), quoting Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 460 Mass. 352, 362, 951 N.E.2d 662 (2011). This requires the court to determine "the fair meaning of the language used, as applied to the subject matter." Gordon v. Safety Ins. Co., 417 Mass. 687, 689, 632 N.E.2d 1187 (1994), quoting Manning v. Fireman's Fund Am. Ins. Cos., 397 Mass. 38, 40, 489 N.E.2d 700 (1986). The court must also "assume that every word in an insurance contract serves a purpose, and must be given meaning and effect whenever practicable" (citation and quotation omitted). Dorchester Mut. Ins. Co. v. Krussell, 485 Mass. 431, 437, 150 N.E.3d 731 (2020).

When a policy term is unambiguous, we "construe the words of the policy in their usual and ordinary sense." Citation Ins. Co. v. Gomez, 426 Mass. 379, 381, 688 N.E.2d 951 (1998), quoting Hakim v. Massachusetts Insurers' Insolvency Fund, 424 Mass. 275, 280, 675 N.E.2d 1161 (1997). See Given v. Commerce Ins. Co., 440 Mass. 207, 209, 796 N.E.2d 1275 (2003) (insurance contracts to be interpreted "in light of their plain meaning, giving full effect to the document as a whole" [citation omitted]). If at all unclear or in doubt, we inquire into "what an objectively reasonable insured, reading the relevant policy language, would expect to be covered." Dorchester Mut. Ins. Co., 485 Mass. at 437, 150 N.E.3d 731, quoting Metropolitan Prop. & Cas. Ins. Co., 460 Mass. at 362, 951 N.E.2d 662. "Any ambiguities in the language of an insurance contract ... are interpreted against the insurer who used them...