Opinion
Case No. CIV-20-586-SLP
2022-09-12
KESHAV, LLC d/b/a Home2 Suites, Plaintiff, v. ARCH SPECIALY INSURANCE COMPANY, Defendant.
J. Revell Parrish, Jordan R. Dennis, Michael Burrage, Reggie N. Whitten, Whitten Burrage, Oklahoma City, OK, for Plaintiff. Margo E. Shipley, William W. O'Connor, Hall Estill, Tulsa, OK, John P. Eggum, Michael L. Foran, Foran Glennon Palandech Ponzi & Rudloff, Chicago, IL, for Defendant.
J. Revell Parrish, Jordan R. Dennis, Michael Burrage, Reggie N. Whitten, Whitten Burrage, Oklahoma City, OK, for Plaintiff. Margo E. Shipley, William W. O'Connor, Hall Estill, Tulsa, OK, John P. Eggum, Michael L. Foran, Foran Glennon Palandech Ponzi & Rudloff, Chicago, IL, for Defendant. ORDER SCOTT L. PALK, UNITED STATES DISTRICT JUDGE
Before the Court are Plaintiff's Motion for Summary Judgment [Doc. No. 44] and Defendant's Motion for Summary Judgment [Doc. No. 50]. Each side has responded. See Def.'s Resp. [Doc. No. 52]; Pl.'s Resp. [Doc. No. 51]. And Defendant has replied. See Def.'s Reply [Doc. No. 54]. Also before the Court is Plaintiff's Motion to Stay [Doc. No. 53], which is also fully briefed. See Def.'s Resp. [Doc. No. 55]. For the reasons that follow, Plaintiff's Motion to Stay is DENIED. Additionally, the Court DENIES Plaintiff's Motion for Summary Judgment and GRANTS Defendant's Motion for Summary Judgment.
Citations to the parties' briefing submissions reference the Court's ECF pagination.
I. Introduction
Plaintiff, Keshav, LLC d/b/a Home2 Suites (Plaintiff), owns and operates a hotel in Oklahoma City, Oklahoma. Plaintiff initiated this declaratory judgment action in state court alleging that losses it suffered as a result of the COVID-19 pandemic are covered under a property insurance policy, No. ESP7304080-02 (the Policy), issued to Plaintiff by Defendant, Arch Specialty Insurance Company (Defendant). Defendant then removed the action to federal court.
See Policy [Doc. No. 50-2].
Plaintiff's state-court petition seeks a declaration that coverage exists under the Policy pursuant to the Business Income and Civil Authority provisions. See Pet. [Doc. No. 1-2]. Plaintiff further alleges in the state-court petition that the Policy's virus exclusion is void or invalid for lack of consideration and/or consent and, therefore, cannot serve as a basis to exclude coverage. See id. The parties have filed cross-motions for summary judgment as to the coverage and exclusion issues.
Plaintiff did not plead any facts demonstrating lack of consideration or lack of consent but made only bare legal conclusions. See Pet., ¶ 12. As Defendant demonstrates, "[e]very insurance policy issued to Plaintiff for Plaintiff's hotel since the hotel opened for business in 2015 has included an exclusion for loss or damage caused by 'virus.' " Def.'s Mot., Undisputed Material Fact, ¶ 35; see also id., ¶ 36. Moreover, in its summary judgment motion, Plaintiff appears to have abandoned this argument. Instead, as discussed infra, Plaintiff argues the virus exclusion does not apply because Plaintiff's claim is not based on the presence of the virus at Plaintiff's hotel property.
At issue in this case is the meaning of the term "direct physical loss" as used in the Policy. Plaintiff seeks a stay pending the disposition of companion cases pending before the Oklahoma Supreme Court, Choctaw Nation of Okla. v. Lexington Ins. Co., et al., and Cherokee Nation, et al., v. Lexington Ins. Co., et al., Nos. 119359 and 119413. Plaintiff contends a similar issue has been raised in the pending companion cases and the Oklahoma Supreme Court should make the determination in the first instance. However, subsequent to the parties' briefing submissions, the Tenth Circuit Court of Appeals, in a case governed by Oklahoma law, addressed nearly identical issues to those raised here - including the proper interpretation of "direct physical loss." See Goodwill Indus. of Central Okla., Inc. v. Phila. Indem. Ins. Co., 21 F. 4th 704 (10th Cir. 2021), cert denied, — U.S. —, 142 S.Ct. 2779, 213 L.Ed.2d 1017 (2022). The policy language at issue in Goodwill is virtually identical to the policy language at issue here.
The Tenth Circuit began its analysis noting that the policy at issue, like the Policy here "does not define 'direct physical loss,' and the Oklahoma Supreme Court has not construed this term." Goodwill, 21 F. 4th at 710.
In light of Goodwill, and because the companion cases pending before the Oklahoma Supreme Court "appear[ ] to involve policy language different from that at issue here, there is no persuasive reason" to stay this action. Ballet Okla., Inc. v. Phila. Indem. Ins. Co., No. CIV-21-0886-HE, 2022 WL 127991 at *1 (W.D. Okla. Jan. 10, 2022). As set forth below, the Court finds the Goodwill decision controlling and dispositive. Accordingly, the Motion to Stay is DENIED and the Court proceeds to address the parties' summary judgment submissions.
In the cases pending before the Oklahoma Supreme Court, it appears different form policies were at issue which did not utilize the language of the Insurance Service Office (ISO) form policy at issue in Goodwill and in this case. See Def.'s Resp. to Mot. to Stay [Doc. No. 55] at 3-4; see also Def.'s Resp. to Pl.'s Mot. for Summ. J. [Doc. No. 52] at 12-13.
II. Governing Standard
"Summary judgment is appropriate when 'the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.' " Dullmaier v. Xanterra Parks & Resorts, 883 F.3d 1278, 1283 (10th Cir. 2018) (quoting Fed. R. Civ. P. 56(a)). "A disputed fact is 'material' if it might affect the outcome of the suit under the governing law, and the dispute is 'genuine' if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Est. of Beauford v. Mesa Cnty., Colo., 35 F.4th 1248, 1261 (10th Cir. 2022) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). "Cross-motions for summary judgment are treated as two individual motions for summary judgment and held to the same standard, with each motion viewed in the light most favorable to the non-moving party." Banner Bank v. First Am. Title Ins. Co., 916 F.3d 1323, 1326 (10th Cir. 2019).
III. Undisputed Material Facts
Plaintiff claims "it sustained direct physical loss of or damage to its property because Plaintiff's revenue decreased significantly as a result of governmental orders issued as a result of the COVID-19 pandemic." Def.'s Mot. at 18, Undisputed Material Fact, ¶ 38. Plaintiff does not dispute that at all times during the COVID-19 pandemic, Plaintiff's hotel remained open for business. Id., ¶ 39. Nor does Plaintiff dispute that it was never asked by the government to shut down the hotel. Id., ¶ 42.
Plaintiff claims, nonetheless, that "[a]s a result of governmental advisories and orders issued because of the COVID-19 pandemic, . . . its business volume was reduced." Id., ¶ 40. Plaintiff further claims that during the pandemic, it incurred costs it would not otherwise have incurred "to attempt to prevent or reduce the risk of transmission of the COVID-19 virus[.]" Id., ¶ 41.
The Policy issued by Defendant to Plaintiff was for a term of October 6, 2019 to October 6, 2020. The relevant coverage provisions of the Policy are set forth as follows:
BUILDING AND PERSONAL PROPERTY COVERAGE FORMEx. 2 [Doc. No. 50-2] at 26 (emphasis added).
A. Coverage
We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
BUSINESS INCOME (AND EXTRA EXPENSE) COVERAGE FORM
A. Coverage
1. Business Income
Business income means the:
a. Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and
b. Continuing normal operating expenses incurred, including payroll.
Id. at p. 49 (emphasis added).
* * *
We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit Of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss . . . .
The Civil Authority coverage provided under the Policy states:
5. Additional CoveragesId. at pp. 50-51 (emphasis added).
a. Civil Authority
We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises provided that both of the following apply:
(1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property; and
(2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.
* * *
The Policy also includes an endorsement entitled Exclusion of Loss Due to Virus Or Bacteria:
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. EXCLUSION OF LOSS DUE TO VIRUS OR BACTERIA
This endorsement modifies insurance provided under this policy.
It is agreed that:
EXCLUSION OF LOSS DUE TO VIRUS OR BACTERIA* * * Id. at p. 23 (emphasis added).
1. The exclusion set forth in Paragraph
2. Applies to all coverages under all forms and endorsements that comprise this policy, including but not limited to forms of endorsements that cover property damage to buildings or personal property and forms of endorsements that cover business income, extra expense or action of civil authority.
2. We will not pay for loss or damage caused by or resulting from any virus , bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease . . . .
IV. Discussion
"In this diversity suit, the substantive law of Oklahoma applies." Goodwill, 21 F. 4th at 709. The Court determines, as a matter of law, whether a contract is ambiguous. Id. Where the policy's terms are "unambiguous and clear, the employed language is accorded its ordinary, plain meaning and enforced as to carry out the parties' intentions." Id. (citation omitted). "The insured has the burden of showing that a covered loss occurred, while the insurer has the burden of showing that a loss falls within an exclusionary clause of the policy." Evanston Ins. Co. v. A&S Roofing, LLC, No. CIV-17-870-SLP, 2019 WL 3976852, at *3 (W.D. Okla. Aug. 22, 2019) (citations omitted).
A. Coverage
Under any of the coverage provisions in dispute - Covered Cause of Loss, Business Income, Extra Expense and Civil Authority - coverage depends on Plaintiff establishing "direct physical loss of or damage to" property. Plaintiff argues it has suffered direct physical loss because its property was "rendered unusable for its intended purpose due to the COVID-19 pandemic." Pl.'s Resp. at 12; see also Pl.'s Mot. at 15 ("[T]he Pandemic and Executive Orders deprived Plaintiff of its ability to use the Insured Premises for their intended purpose."). In other words, Plaintiff argues intangible loss is covered by the Policy.
In the case of Civil Authority coverage, it is damage to other property that must be established. Plaintiff does not invoke this provision in moving for summary judgment. And Plaintiff does not claim that damage to other property caused any governmental authority to prohibit access to Plaintiff's property.
As set forth above, the Civil Authority coverage provision of the Policy requires that access to Plaintiff's property be "prohibited." Plaintiff has not shown that access to its hotel was prohibited by any governmental authority. Cf. Dixson Produce, LLC v. Nat'l Fire Ins. Co. of Hartford, 99 P.3d 725, 729 (Okla. Civ. App. 2004) (finding no coverage for lost income because of denial of access to the premises by civil authority where "travel to insured business was not as convenient as it had been before the tornado," but "civil authority in the City of Moore did not prohibit anyone access to insured business"); S. Hosp., Inc. v. Zurich Am. Ins. Co., 393 F.3d 1137, 1141 (10th Cir. 2004) (civil authority provision did not apply where FAA's order grounding flights after September 11, 2001 attacks did not itself prevent, bar, or hinder access to the plaintiff's hotels; "policy was intended to cover losses from an order directly affecting the hotels, not one tangentially affecting them"). In responding to Defendant's Motion, Plaintiff concedes that it "was not required to technically close its doors to the public." Pl.'s Resp. at 29-30. The Court rejects Plaintiff's argument that Civil Authority coverage nonetheless exists because the "government's orders effectively had this impact." See Pl.'s Resp. at 29-30 (emphasis added).
Plaintiff's Motion focuses exclusively on Business Income coverage under the Policy. See Pl.'s Mot. at 12-23.
In Goodwill, the insured made this identical argument in favor of coverage. The Tenth Circuit rejected the argument and concluded that "Goodwill's temporary inability to use its property for its intended purpose was not a 'direct physical loss.' " Id. at 711. The court further noted that "[e]very circuit to address the issue has held that identical or nearly identical business income provisions did not cover losses caused by COVID closure orders." Id. at 711-12. Because Goodwill had not alleged that it suffered a "direct physical loss of or damage to its property," its losses were not covered. Id. at 712. Here, as in Goodwill, Plaintiff does not claim it suffered any direct physical loss of or damage to its property. Accordingly, Goodwill directs that summary judgment be granted in favor of Defendant and against Plaintiff on the issue of coverage.
B. Virus Exclusion
Plaintiff contends the Virus Exclusion does not apply because Plaintiff's claim was for "losses due to the Pandemic and Executive Orders, not a virus, bacterium or other microorganism." Pl.'s Mot. at 24. Plaintiff further contends that there is no evidence that any virus was physically present on the property and, therefore, the exclusion does not apply. Id. at 23. And finally, Plaintiff argues the virus exclusion is ambiguous and, therefore, the doctrine of reasonable expectations applies. Id. at 24-25.
Plaintiff does not dispute that COVID-19 is a virus capable of inducing physical distress, illness or disease.
In Goodwill, however, the Tenth Circuit, addressing an identical virus exclusion, rejected the arguments that Plaintiff now makes. First, the court held that the Virus Exclusion was "unambiguous" and that a "reasonable business person would plainly contemplate that an exclusion for losses 'caused by or resulting from any virus' would extend to losses caused by immediate efforts to mitigate a viral outbreak." Id., 21 F.4th at 713 (citation omitted). The court found the threat of COVID-19 and/or the COVID pandemic "led the Governor to issue the shutdown order" and therefore "COVID-19 'caused' the restrictions that forced Goodwill to suspend its operations." Id. Thus, "[t]he plain language of the Virus Exclusion . . . applied to and barred coverage of Goodwill's losses incurred due to the COVID shutdown orders." Id. Further, the court held that "[u]nder its plain language, the Virus Exclusion was not limited to instances where the virus was physically present at or on Goodwill's property" as "the Exclusion's text in no way suggests that the virus must be present at the insured property for the exclusion to apply." Id. at 714 (internal quotation marks and citation omitted). Based on the rationale set forth in Goodwill, the Court finds the Virus Exclusion applies and precludes coverage.
Alternatively, Plaintiff argues that it was "neither notified nor informed of the virus endorsement that was added to the Policy" and, therefore, the Virus Exclusion is not part of the Policy. Pl.'s Mot. at 25-26. Citing Oklahoma Administrative Code § 365:15-1-3(b)(20), Plaintiff contends the signature of the insured is required as to "[a]ny endorsement which eliminates or restricts coverage[.]"
Defendant responds that Plaintiff has admitted it signed the application for the Policy. See Def.'s Mot., Statement of Undisputed Material Facts, ¶ 30; Pl.'s Resp., ¶ 30. And Defendant argues the provision of the Code relied upon by Plaintiff, by its terms, does not apply. As Defendant points out, the purpose of the Code provision relied upon by Plaintiff is to "specify the procedures for submitting form filings to the Insurance Commissioner[.]" Okla. Admin. Code § 365:15-1-3(a). Additionally, the Code provides:
Any endorsement which eliminates or restricts coverage and which is issued during the policy term shall be identified as accepted by the insured, by the signature of the insured thereon, and a signed copy (original, computer generated or microfilm) of such endorsement shall be retained by the files of the insurer for one year after the expiration of the policy.Id., § 365:15-1-3(b)(20) (emphasis added). According to Defendant, the endorsement containing the Virus Exclusion was not issued during the policy term, but was a part of the policies Defendant issued to Plaintiff at the outset of each policy year. The record supports Defendant's argument and Plaintiff has not disputed these facts. See Def.'s Mot., Statement of Undisputed Material Facts, ¶ 35; Pl.'s Resp., ¶ 35. The Court, therefore, rejects Plaintiff's argument that the Virus Exclusion is not part of the Policy.
Based on the Court's findings that the Virus Exclusion precludes coverage, the Court deems it unnecessary to further address application of any other exclusions argued by the parties including the "Ordinance or Law", "Acts or Decisions" and "Loss of Market or Delay" exclusions. See Def.'s Mot. at 23-24; Pl.'s Mot. at 26-27.
V. Conclusion
For the reasons set forth, Plaintiff is not entitled to coverage under the Policy because Plaintiff did not suffer a direct physical loss of or damage to its property and the Virus Exclusion otherwise precludes coverage.
IT IS THEREFORE ORDERED Plaintiff's Motion for Summary Judgment [Doc. No. 44] is DENIED and Defendant's Motion for Summary Judgment [Doc. No. 50] is GRANTED. A separate judgment will be entered contemporaneously with this Order.
Defendant was granted leave to refile its Motion for Summary Judgment, originally filed as [Doc. No. 45]. See Order [Doc. No. 49]. Accordingly, the original Motion for Summary Judgment [Doc. No. 45] is STRICKEN.
IT IS FURTHER ORDERED that Plaintiff's Motion to Stay [Doc. No. 53] is DENIED.
IT IS SO ORDERED this 12th day of September, 2022.