Opinion
Case No. 2:20-cv-02629-JTF-cgc
2021-09-01
KING'S PALACE, INC. and KPC, Inc. d/b/a King's Palace Café, Inc., Tap Room and Absinthe Room, individually and on behalf of all others similarly situated, Plaintiffs, v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON and Vanguard Claims Administration, Inc., Defendants.
ORDER GRANTING DEFENDANT CERTAIN UNDERWRITERS AT LLOYD'S, LONDON SUBSCRIBING TO POLICY NO. TN134664'S MOTION TO DISMISS PLAINTIFFS’ COMPLAINT, GRANTING DEFENDANT VANGUARD CLAIMS ADMINISTRATION, INC.’S MOTION TO DISMISS THE COMPLAINT, AND DISMISSING PLAINTIFFS’ COMPLAINT WITH PREJUDICE
JOHN T. FOWLKES, JR., United States District Judge
Before the Court is Defendants Certain Underwriters at Lloyd's, London Subscribing to Policy No. TN 134664's Motion to Dismiss Plaintiffs’ Complaint, filed on November 2, 2020. (ECF No. 20.) Additionally, before the Court is Defendant Vanguard Claims Administration, Inc.’s Motion to Dismiss the Complaint, filed on November 2, 2020. (ECF No. 21.) Plaintiffs filed their Omnibus Response in Opposition to the Motions to Dismiss on December 7, 2020. (ECF No. 26.) Defendants Certain Underwriters at Lloyd's, London Subscribing to Policy No. TN 134664 filed a Reply on January 4, 2021. (ECF No. 34.) On February 11, 2021, Plaintiffs filed a Notice of Supplemental Authorities. (ECF No. 36.) On February 25, 2021 and August 10, 2021, Defendants filed their Notices of Supplemental Authority. (ECF No. 37 & 47.) For the reasons provided below, Defendants Certain Underwriters at Lloyd's, London's Motion to Dismiss is GRANTED . Defendant Vanguard's Motion to Dismiss is GRANTED . Plaintiffs’ Complaint is DISMISSED with prejudice.
FACTUAL BACKGROUND
Plaintiffs are Tennessee corporations with bars and restaurants at 162–168 Beale Street in Memphis, Tennessee. (ECF No. 1, 1 ¶ 1.) Plaintiffs’ Complaint alleges that, effective May 17, 2019 through May 17, 2020, they purchased "an all risk general liability policy issued by Lloyd's," policy number TN134664 ("the Policy"). (Id. at ¶ 2.) Defendants Underwriters’ responsibilities, Plaintiffs aver, include paying claims for losses covered under the Policy. (Id. at ¶ 3.)
During the coverage period of the Policy, in March 2020, COVID-19 began to spread in Tennessee and the rest of the United States. On March 12, 2020, Tennessee Governor Bill Lee declared a state of emergency in response to the COVID-19 pandemic. (ECF No. 1, 12 ¶ 41 & ECF No. 20-2.) On March 22, 2020, Governor Lee issued Executive Order No. 17, which the Complaint states "require[d] all restaurants to close except for curbside or take-out orders." (ECF No. 1, 13 ¶ 44 & ECF No. 20-5.) The next day, on March 23, 2020, City of Memphis Mayor Jim Strickland issued a Civil Emergency Proclamation and Executive Order, No. 03-2020, which Plaintiffs state "required businesses within the city of Memphis to comply with the Order of the Governor, requiring closure of all restaurants unless the restaurants prepare food for delivery or carry out." (ECF No. 1, 13 ¶ 45 & ECF No. 20-6.) On March 30, 2020, Governor Lee extended Executive Order No. 17 through April 14, 2020. (ECF No. 1, 13–14 ¶ 46 & ECF No. 20-7.) On the same day, Governor Lee also issued Executive Order No. 22—a stay-at-home order. (ECF No. 1, 13–14 ¶ 46 & ECF No. 20-8.) This order allowed restaurants to remain open only for off-premises consumption. (ECF No. 20-8.) On April 13, 2020, Governor Lee extended the stay-at-home order through April 30, 2020. (ECF No. 1, 14 ¶ 47 & ECF No. 20-9.) On April 24, 2020, Governor Lee issued Executive Order No. 29, which lifted in-person dining restrictions, except as to limited service restaurants. (ECF No. 1, 14 ¶ 47 & ECF No. 20-10.) However, Executive Order No. 29 also empowered certain county health departments, such as the Shelby County Health Department, to "maintain any existing order or issue further restrictions regarding the operation of restaurants[.]" (ECF No. 20-10.) On June 1, 2020, the Shelby County Health Department issued Health Directive No. 5, allowing restaurants to reopen but requiring social distancing and dining groups of six people or fewer. (ECF No. 1, 14 ¶ 48 & ECF No. 20-11.)
Restaurants and food establishments were permitted to offer only drive-through, pickup, carry-out, or delivery services. (See ECF No. 20-5.)
Plaintiffs allege that starting in March 2020, they "were forced to suspend business operations at the restaurant due to risk of infection of COVID-19 and/or actions of civil authorities prohibiting full access to and occupancy of the restaurant due to dangerous physical conditions." (ECF No. 1, 3 ¶ 9.) As a result, Plaintiffs "suffer[ed] significant losses and incur[red] significant expenses." (Id. ) On or about March 19, 2020, Plaintiffs made a claim for coverage under the Policy. (Id. at ¶ 10.) Plaintiffs allege that, "without conducting any meaningful investigation," Defendants denied coverage through a letter dated July 23, 2020. (Id. at ¶¶ 10, 68.)
The Complaint alleges that "[t]he Policy is an all risk insurance policy," meaning that it:
covers all risks of loss that may happen (except by fraudulent acts of the insured), no matter their source and however fortuitous the event or circumstance may be, as long as it is beyond the control of the insured and unless the policy contains a specific provision expressly excluding the loss from coverage.
(Id. at ¶ 22.) Moreover, Plaintiffs aver that they "are not required to prove the precise cause of the loss or damage to demonstrate coverage exists under the Policy or that the loss or damage was occasioned by an external cause, but simply that the loss was due to a fortuitous circumstance or event." (ECF No. 1.) Plaintiffs point to three areas of the Policy as the bases for their claims: (1) business income coverage; (2) extra expense coverage; and (3) civil authority coverage. (Id. at ¶¶ 5–7.)
The Policy's Building and Personal Property Coverage Form states: "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." (ECF No. 1-1, 11.) The Causes of Loss – Special Form provided that "Covered Causes of Loss means direct physical loss unless the loss is excluded or limited in this policy." (Id. at 38.)
A copy of the Policy is attached to Plaintiffs’ Complaint. (ECF No. 1-1.)
The Policy contained a Business Income (and Extra Expense) Coverage Form, which provided that:
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 Policy defines "suspension" as: "a. The slowdown or cessation of your business activities; or b. That a part or all of the described premises is rendered untenantable, if coverage for Business Income including ‘Rental Value’ or ‘Rental Value’ applies." (ECF No. 1-1, 35.) Similarly, " ‘[o]perations’ means: a. Your business activities occurring at the described premises; and b. The tenantability of the described premises, if coverage for Business Income including ‘Rental Value’ or ‘Rental Value’ applies." (Id. )
(Id. at 27.) (emphasis added).
Plaintiffs also note the Policy's Extended Business Income provision, which applies when there is a Business Income loss payable under the Policy. (ECF No. 1, 11.)
Extra Expense coverage was also provided in the Business Income Coverage Form, which provided: "Extra Expense Coverage is provided at the premises described in the Declarations only if the Declarations show that Business Income Coverage applies at that premises." (Id. ) The Extra Expense section further stated, in part: "Extra Expense means necessary expenses you incur during the ‘period of restoration’ that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss." (ECF No. 1-1, 35.) As to the restoration period, the definitional section of the Business Income Form provides:
"Period of restoration" means the period of time that:
a. Begins:
(1) 72 hours after the time of direct physical loss or damage for Business Income Coverage; or
(2) Immediately after the time of direct physical loss or damage for Extra Expense Coverage;
caused by or resulting from any Covered Cause of Loss at the described premises; and
b. Ends on the earlier of:
(1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or
(2) The date when business is resumed at a new permanent location.
(Id. at 35.) (emphasis added).
The Business Income (and Extra Expense) Coverage Form also provides, under the "Additional Coverages" heading, Civil Authority coverage. (Id. at 28.) The Civil Authority coverage provision states, in relevant part:
When a Covered Cause of Loss causes damage to property other than property at the described premises, 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 the 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;
(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.
(ECF No. 1-1, 28.)
Plaintiffs filed their Class Action Complaint on August 20, 2020, which contains seven causes of action: (1) declaratory judgment on behalf of the "Business Income Coverage Class"; (2) breach of contract "on behalf of the Business Income Coverage Class"; (3) declaratory judgment "on behalf of the Extra Expense Coverage Class"; (4) breach of contract on behalf of the "Extra Expense Coverage Class"; (5) declaratory judgment on behalf of the Civil Authority Coverage Class; (6) breach of contract on behalf of the Civil Authority Coverage Class; and (7) breach of the covenant of good faith and fair dealing. (ECF No. 1.)
LEGAL STANDARD
Defendants seek dismissal pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. When evaluating a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the Court must determine whether the complaint contains "sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ); see also Keys v. Humana, Inc. , 684 F.3d 605, 608 (6th Cir. 2012) (The court must "construe the complaint in the light most favorable to the plaintiff and accept all allegations as true."). A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. In other words, although the complaint need not contain detailed facts, its factual assertions must be substantial enough to raise a right to relief above a speculative level. Ass'n of Cleveland Fire Fighters v. City of Cleveland , 502 F.3d 545, 548 (6th Cir. 2007) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). However, " ‘naked assertions devoid of further factual enhancement’ contribute nothing to the sufficiency of the complaint." 16630 Southfield Ltd. P'ship v. Flagstar Bank, F.S.B. , 727 F.3d 502, 506 (6th Cir. 2013) (quoting Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ). Determining whether a complaint states a plausible claim is "context-specific," requiring the Court to draw upon its experience and common sense. Iqbal , 556 U.S. at 679, 129 S.Ct. 1937. Defendants bear the burden of "proving that no claim exists." Total Benefits Planning Agency, Inc. v. Anthem Blue Cross and Blue Shield , 552 F.3d 430, 433 (6th Cir. 2008).
While the Court's decision to grant or deny a motion to dismiss "rests primarily upon the allegations of the complaint, ‘matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint [ ] also may be taken into account.’ " Barany-Snyder v. Weiner , 539 F.3d 327, 332 (6th Cir. 2008) (quoting Amini v. Oberlin Coll. , 259 F.3d 493, 502 (6th Cir. 2001) ). The Court may also consider "exhibits attached to the defendant's motion to dismiss so long as they are referred to in the complaint and are central to the claims contained therein." Rondigo, L.L.C. v. Twp. of Richmond , 641 F.3d 673, 680–81 (6th Cir. 2011) (citation omitted).
ANALYSIS
Defendants Underwriters argue for dismissal because (1) Plaintiffs have not alleged direct physical loss of or damage to property, which is required to come within the Policy's coverage; (2) the microorganism exclusion precludes coverage; (3) various exclusions bar coverage for Plaintiffs’ loss of use of their property; (4) there can be no breach of contract claim based upon Defendants’ refusal to pay on the claims; and (5) the breach of the covenant of good faith and fair dealing claim is not plausible without a breach of contract claim. (ECF No. 20, 8–21, 25, 27–28.) Defendant Vanguard argues for dismissal on the grounds that Vanguard was not a party to the Policy or, alternatively, joins Underwriters’ arguments for dismissal. (ECF No. 21, 4, 7.) Plaintiffs respond that (1) Plaintiffs have alleged direct physical loss as well as damage within the meaning of the Policy, (2) the restoration period language does not result in coverage preclusion, and (3) Civil Authority Coverage is triggered because Plaintiffs have properly alleged a Covered Cause of Loss. (ECF No. 26, 20–21, 28–30.)
I. Applicable Law
As a preliminary matter, the Parties agree that Tennessee substantive law governs the Policy. In Tennessee, "[t]he question of the extent of insurance coverage is a question of law involving the interpretation of contractual language[.]" Clark v. Sputniks , 368 S.W.3d 431, 441 (Tenn. 2012) (citations omitted). Accordingly, the Policy's terms "should be given their plain and ordinary meaning, for the primary rule of contract interpretation is to ascertain and give effect to the intent of the parties." See U.S. Bank, N.A. v. Tenn. Farmers Mut. Ins. Co. , 277 S.W.3d 381, 386–87 (Tenn. 2009) (citation omitted). "The ‘ordinary meaning’ envisioned is ‘the meaning which the average policy holder and insurer would attach to the policy language.’ " S. Tr. Ins. Co. v. Phillips , 474 S.W.3d 660, 667 (Tenn. Ct. App. 2015) (quoting Artist Bldg. Partners v. Auto-Owners Mut. Ins. Co. , 435 S.W.3d 202, 216 (Tenn. Ct. App. 2013) ).
In this diversity action, the Court applies the choice-of-law rules of the forum state. See e.g., Pedicini v. Life Ins. Co. , 682 F.3d 522, 526 (6th Cir. 2012) (citation omitted). "In Tennessee, absent a valid choice of law provision, the rights and obligations under an insurance policy are governed by the law of the state where the insurance policy was ‘made and delivered.’ " Charles Hampton's A-1 Signs, Inc. v. Am. St. Ins. Co. , 225 S.W.3d 482, 485 n.1 (Tenn. Ct. App. 2006) (quoting Ohio Cas. Ins. Co. v. Travelers Indem. Co. , 493 S.W.2d 465, 467 (Tenn. 1973) ). The Policy was apparently made and delivered in Tennessee. (See ECF No. 1-1, 8.)
"The policy should be construed ‘as a whole in a reasonable and logical manner,’ and the language in dispute should be examined in the context of the entire agreement." Garrison v. Bickford , 377 S.W.3d 659, 664 (Tenn. 2012) (citations omitted). If an insurance policy provision is ambiguous, "the meaning favorable to the insured controls." Id. (citations omitted). However, "[a] contract is ambiguous only when it is of uncertain meaning and may fairly be understood in more ways than one." Planters Gin Co. v. Fed. Compress & Warehouse Co., Inc. , 78 S.W.3d 885, 890 (Tenn. 2002) (quoting Empress Health & Beauty Spa, Inc. v. Turner , 503 S.W.2d 188, 190–91 (Tenn. 1973) ). "Where an all-risk insurance policy is involved, the insurer must show that an exclusion applies in order to avoid liability, and exclusionary clauses are to be strictly construed against the insurer." 1210 McGavock St. Hospitality, LLC v. Admiral Indem. Co. , 509 F.Supp.3d 1032, 1038 (M.D. Tenn. 2020) (quoting Davidson Hotel Co. v. St. Paul Fire & Marine Ins. Co. , 136 F.Supp.2d 901, 905 (W.D. Tenn. 2001) ).
Plaintiffs argue that "[w]hen courts are faced with interpreting novel language in an insurance policy, in the face of conflicting opinions in other jurisdictions the Court must interpret the policy in favor of the insured." (ECF No. 26, 28) (citing Certain Underwriters at Lloyd's, London v. Sunbelt Rentals, Inc. , 790 F. App'x 723, 728 (6th Cir. 2019) (per curiam)). However, as explained below, the Court finds no ambiguity in the Policy. Moreover, the vast majority of jurisdictions have rejected the arguments advanced by Plaintiffs in this case.
II. Defendant Vanguard's Motion to Dismiss
Defendant Vanguard argues that, since it has no contractual relationship with Plaintiffs, Plaintiffs cannot state a claim against it. (ECF No. 21.) Alternatively, Vanguard argues that if the Court finds it to be a party to the Policy, Plaintiffs’ claims should be dismissed for the reasons provided in Underwriters’ Motion to Dismiss. (Id. at 2.) Plaintiffs’ Response states that "Plaintiffs do not oppose Defendant Vanguard's Motion to Dismiss based on the contours of the adjuster liability argument, but request the dismissal be without prejudice[.]" (ECF No. 26, 8 n.1.)
Plaintiffs’ Complaint alleges that Vanguard "works closely with Certain Underwriters at Lloyd's London and is jointly and severally responsible for the decision to deny coverage under the Policy and policies of all others similarly situated." (ECF No. 1, 4 ¶ 14.) The Complaint further alleges the Policy was "issued or underwritten" by Defendants Underwriters and Vanguard. (Id. at ¶ 72.) The Policy Declarations, however, list only Defendant Underwriters as the insurer. (Id. at 2.) See Brown v. Brown , 481 F.Supp.3d 682, 683 (M.D. Tenn. 2020) ("[I]f an exhibit ‘plainly contradicts the pleadings,’ the exhibit ‘trumps the allegations.’ " (quoting Jones v. Select Portfolio Servicing, Inc. , 672 F. App'x 526, 531 (6th Cir. 2016) ) (citation omitted).
Plaintiffs’ Complaint is devoid of non-conclusory allegations that Vanguard is a party to the Policy. There are also no facts alleged supporting a finding that Vanguard could be held liable for Underwriters’ denial of Plaintiffs’ claims. Thus, Plaintiffs’ claims against Vanguard should be dismissed with prejudice. Alternatively, as explained below, the claims against Vanguard are appropriately dismissed for the same reasons that dismissal is warranted as to Underwriters. Plaintiffs’ claims against Defendant Vanguard are DISMISSED with prejudice.
III. Business Income
Count One of Plaintiffs’ Complaint seeks a declaratory judgment that the Policy's Business Income Coverage is applicable in this case. (ECF No. 1, 26–28.) Defendants argue that Plaintiffs’ Complaint fails to state a claim for Business Income coverage because Plaintiffs have not alleged direct physical loss of or damage to property. (ECF No. 20, 8.) Plaintiffs respond that they have alleged direct physical loss because structural injury is not required to come within the Policy. (ECF No. 26, 20–21.)
Plaintiffs have stated that, because the Policy is an all-risk insurance policy, all losses are covered "no matter their source and however fortuitous[.]" (ECF No. 26, 8.) The Tennessee Court of Appeals has explained that "[u]nder an all-risks policy the plaintiff need only prove that a fortuitous event caused the loss." HCA, Inc. v. Am. Protection Ins. Co. , 174 S.W.3d 184, 187 (Tenn. Ct. App. 2005). "It is sufficient if the plaintiff shows the property is lost and is covered by the physical loss provision of the contract of insurance. " Id. at 188 (emphasis added). Thus, just because the Policy is an all-risk policy does not allow Plaintiffs to side-step their obligation to show their claims fell within the coverage terms of the Policy. See Se. Mental Health Ctr., Inc. v. Pac. Ins. Co., Ltd. , 439 F.Supp.2d 831, 835 (W.D. Tenn. 2006) ("Under an all-risk policy, the claimant has the initial burden of proving that a loss comes within the terms of the policy, but the burden is upon the insurer to show that an exclusion applies which precludes recovery.") (citations omitted).
Defendants contend that Plaintiffs have failed to sufficiently plead a claim for Business Income coverage because they have not alleged any physical loss or damage. (ECF No. 20, 8–9.) The Court notes that there appears to be no published authority from Tennessee state courts on the interpretation of the policy language present in this case. Notwithstanding, in an unpublished decision, the Tennessee Court of Appeals has addressed a policy covering "direct physical loss of or damage to Covered Property at the premises ... caused by or resulting from any Covered Cause of Loss." Great River Ins. Co. v. Edison Automation, Inc. , No. M2001-01635-COA-R3-CV, 2004 WL 892528 at *2, 2004 Tenn. App. LEXIS 258 at *5 (Tenn. Ct. App. Apr. 23, 2004). The policy in that case defined "Covered Causes of Loss" as "Risks of Direct Physical Loss." Id. 2004 WL 892528, at *2, 2004 Tenn. App. LEXIS 258, at *5. The claimant in that case labored under the mistaken belief it had secured a contract to build custom products, when in fact no such arrangement was in place. Id. 2004 WL 892528, at *1-2, 2004 Tenn. App. LEXIS 258, at *3–4. Because the products were custom built for a non-existent contract, the products were not marketable, and thus, according to the claimant, "essentially destroyed." Id. 2004 WL 892528, at *2, 2004 Tenn. App. LEXIS 258, at *5–6. The court rejected the claimant's argument and held:
[C]overage is provided for "direct physical loss or damage." Construing this language in its usual and ordinary manner, it is clear to us that there is no coverage under the terms of this contract. The products covered under the terms of the policy suffered no damage, and no physical loss. The products were not destroyed, nor were they damaged. The products were capable of being used in the manner in which the Appellants sought to use them.
Id. 2004 WL 892528, at *3, 2004 Tenn. App. LEXIS 258, at *9. This suggests that Tennessee courts would treat the Policy's language as requiring tangible damage or destruction to covered property. The Court finds this reasoning applicable and helpful in addressing the present case. As explained below, Plaintiffs have alleged no direct physical loss of or damage to their property that prevented them from conducting on-premises dining; nor have they alleged that their property was physically incapable of being used in its intended manner.
Applying the plain meaning of the Policy's terms, as Tennessee law requires, the proper interpretation is clear. Based on the Policy's terms, to receive Business Income Coverage, Plaintiffs must have sustained a loss of Business Income due to a suspension of their operations. (ECF No. 1-1, 27.) This suspension must have been "caused by direct physical loss of or damage to property" at Plaintiffs’ premises. (Id. ) Additionally, "[t]he loss or damage must be caused by or result from a Covered Cause of Loss." (Id. ) The Policy explains that "Covered Causes of Loss means direct physical loss unless the loss is excluded or limited in this policy." (Id. at 38.) Plaintiffs’ Complaint states that:
Since ... it would be circular and non-sensical to construe the Policy in a manner that it only covers direct physical losses caused or resulting from direct physical losses, this language must construed [sic] as covering all forms of damage or loss so long as they are caused by or result from a Covered Cause of Loss.
(ECF No. 1, 7–8 ¶ 27.) The Court disagrees. Even viewing the language as circular, it does not warrant the conclusion that all forms of damage are covered. If anything, the definition of Covered Causes of Loss bolsters the conclusion that some type of physical injury is required for coverage. Overall, Plaintiffs argue that the phrase "direct physical loss of or damage to" is an ambiguity which must be interpreted in their favor. (ECF No. 26, 10, 19.) However, as explained throughout this section of this Order, the Court finds that the Policy does not provide coverage for Plaintiffs’ claims, and further, that the Policy does this unambiguously.
Plaintiffs contend that structural damage is not necessary to trigger the Policy's Business Income coverage. (ECF No. 26, 21.) Specifically, Plaintiffs argue that "a ‘direct physical loss’ of property includes a loss of functionality or intended use." (Id. ) On the other hand, Defendants argue that the language regarding the "period of restoration" must be read in conjunction with the Business Income coverage provisions. (ECF No. 20, 16.) To be clear, this Court finds the phrase "direct physical loss of or damage to" to be unambiguous. However, "we cannot read portions of a contract in isolation—they must be read together to give meaning to the document as a whole." S. Tr. Ins. Co. , 474 S.W.3d at 668 (quoting Maggart v. Almany Realtors, Inc. , 259 S.W.3d 700, 705 (Tenn. 2008) ). The Business Income provision provides coverage for lost Business Income during the period of restoration, where the loss is attributable to a suspension of operations caused by direct physical loss of or damage to property. (ECF No. 1-1, 27.) Thus, Plaintiffs’ lost Business Income must have been lost during the period of restoration. The period of restoration, depending on the circumstances, begins "after the time of direct physical loss or damage" and ends when either: (1) the property is "repaired, rebuilt or replaced"; or (2) "business is resumed at a new permanent location." (Id. at 35.)
Examining the period of restoration language, it is clear that the Business Income provision contemplates some sort of physical injury or damage to the property for coverage to apply. See Hillcrest Optical, Inc. v. Cont'l Cas. Co. , 497 F. Supp. 3d 1203, 1213 (S.D. Ala. 2020) ; see also Newman Myers Kreines Gross, P.C. v. Great N. Ins. Co. , 17 F. Supp. 3d 323, 332 (S.D.N.Y. 2014) ("The words ‘repair’ and ‘replace’ contemplate physical damage to the insured premises as opposed to loss of use of it.") (citations omitted). This is evident by the period of restoration ending upon repair or replacement of the property—an occurrence that arises only after physical, tangible injury—or ending upon business resuming at a new permanent location, which would presumably occur if the previous property had been completely destroyed or so physically altered as to make it impractical to repair. Thus, Business Income coverage unambiguously requires physical injury to the property. This is the conclusion reached by most courts addressing this issue. See e.g., K D Unlimited, Inc. v. Owners Ins. Co. , 522 F.Supp.3d 1287 (N.D. Ga. 2021) (collecting cases).
In addition to context, dictionary definitions of the key terms support this conclusion. "Direct" means "characterized by close logical, causal, or consequential relationship." "Physical" means "having material existence"; "perceptible especially through the senses and subject to the laws of nature"; or "of or relating to material things[.]" "Loss" refers to "destruction, ruin" or "the partial or complete deterioration or absence of a physical capability or function." Finally, "damage" means "loss or harm resulting from injury to person, property, or reputation." Thus, "physical loss" means destruction, ruin, or lack of function that is capable of being touched. "Physical damage" means physical harm.
Direct , Merriam-Webster Dictionary , https://www.merriam-webster.com/dictionary/direct (last visited July 26, 2021).
Physical , Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/physical (last visited July 26, 2021).
Loss , Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/loss (last visited July 26, 2021).
Damage , Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/damage (last visited July 26, 2021).
Notwithstanding, Plaintiffs contend that viewing the key phrase in the context of the entire Policy yields a different conclusion. (ECF No. 26, 22.) Plaintiffs appear to argue that the Extra Expense provision shows the Policy contemplates more than physical or tangible injury to insured property. (Id. at 29–30.) However, that provision's language makes clear that it covers expenses incurred due to direct physical loss or damage. (See ECF No. 1-1, 27.) Similarly, Plaintiffs argue that review of the Policy's exclusions give meaning to the phrase, since "[t]here would be no reason to draft a specific exclusion for a category of losses that are not covered by the Policy in the first instance." (ECF No. 26, 24.) The Policy's Microorganism Exclusion states that it:
applies regardless whether there is (i) any physical loss or damage to insured property; (ii) any insured peril or cause, whether or not contributing concurrently or in any sequence; (iii) any loss of use, occupancy, or functionality; or (iv) any action required, including but not limited to repair, replacement, removal, cleanup, abatement, disposal, relocation, or steps taken to address medical or legal concerns.
(ECF No. 1-1, 64.) The fact that this provision or any other exclusion excludes loss of use, occupancy, or functionality does not broaden the plain terms of the Policy's coverage. See Franklin Am. Mortg. Co. v. Univ. Nat'l Bank of Lawrence , 910 F.3d 270, 281 (6th Cir. 2018) ("[T]here is no general prohibition against redundant contract language." (citing TMW Enters., Inc. v. Fed. Ins. Co. , 619 F.3d 574, 577–78 (6th Cir. 2010) )). This exclusion cannot change the plain meaning of "direct physical loss of or damage." Moreover, interpreting "direct physical loss or damage" as inclusive of "loss of use" would be unworkable and inconsistent with the plain and ordinary meaning of the period of restoration provision.
The same reasoning applies to other exclusions. To the extent the Governmental Action Exclusion and War and Civil War Exclusion contemplate coverage of dispossession or loss of use by excluding governmental seizure, nationalization, or confiscation of property, they contemplate permanent dispossession or loss of use, which has not occurred here. (ECF No. 1-1, 39, 54.) Finally, the terms of the Radioactive Contamination Exclusion and Utility Services Exclusion are not inconsistent with the expectation that only tangible injury is within coverage. (Id. at 39, 55.)
Plaintiffs argue they have alleged tangible loss and damage. Plaintiffs’ Complaint alleges that Plaintiffs "were required to structurally alter the interior of their premises, at added costs, such as by removing tables to allow for appropriate social distancing and associated storage costs. The fewer tables there are, the fewer customers that can be served." (ECF No. 1, 17 ¶ 58.) Moreover, Plaintiffs stated that they were allowed to reopen only "if they made internal structural changes to the premises, which they did at a significant cost by, inter alia , the loss of use of space, installing plexi-glass barriers, making changes in business and employee hours to comply with the ordered sanitation requirements, and decreased business traffic[.]" (Id. at ¶ 55.) Plaintiffs add that:
Plaintiffs incurred expenses and losses such as the costs of reopening plans and increased costs associated therewith; remediation costs, either incurred as a result of having to engage in increased cleaning costs or shutting down entirely to avoid further spread and temporarily incapacitating the facility from operating; being considered untenantable for a period of time in terms of being at least temporarily unfit for occupancy and use, resulting in a loss of its essential functionality or use of the premises; tangible property loss in terms of spoiled food that had to be discarded as a result of various Civil Authority Actions; and other increased costs or losses, either resulting from or that are attributable to a Covered Cause of Loss.
(ECF No. 1 at ¶ 58.) Aside from the spoiled food and Plaintiffs’ alterations to the premises, these averments allege loss of use, and fail to plausibly allege physical loss or damage. Defendants argue that even if the changes and installations made to Plaintiffs’ properties could be considered damage, the suspension of Plaintiffs’ operations was not caused by such. (ECF No. 20, 14.) Defendants also state: "Plaintiffs provide no details as to how any such [alterations] were the result of physical loss or damage." (ECF No. 34, 7.) In this Court's view, Plaintiffs’ structural alterations of the interior of their premises do not fall within the phrase "direct physical loss of or damage to property." Alterations such as these are only changes to the property—not actual physical loss or damage as those words are commonly understood. Moreover, Plaintiffs do not plausibly allege the alterations made to their property caused the suspension of operations. Instead, Plaintiffs’ allegations establish that they undertook these physical alterations in response to the suspension of operations.
This reasoning similarly applies to the allegations of spoiled food. Plaintiffs do not allege the spoiled food caused a suspension of operations; rather, they allege the loss of use of the premises caused the food to spoil.
Plaintiffs also may not rely on the presence of COVID-19 to plausibly allege "physical loss of or damage to property." First, Plaintiffs’ allegations in this regard are entirely speculative, as Plaintiffs have alleged only that "[i]t is likely customers, employees and/or other visitors to the insured property over the last several months were infected with COVID-19 and thereby infected the insured property with COVID-19. Plaintiffs’ premises likely have been infected with COVID-19 and suffered direct physical loss to the premises and property." (ECF No. 1, 14–15 ¶ 51.) Plaintiffs add that the "presence of employees and customers likely infected with or carrying COVID-19 renders" their premises and surrounding property "unsafe," which results in "direct physical loss to the premises and property." (ECF No. 1 at ¶¶ 52–53.) In support of their position, Plaintiffs cite Cajun Conti LLC v. Certain Underwriters at Lloyd's London , No. 2020-02558, 2020 WL 8484870 (La. Dist. Ct. Nov. 4, 2020), wherein the Louisiana state court—with little analysis—denied Lloyd's summary judgment motion because it found a genuine issue of material fact as to whether COVID-19 constitutes physical loss or damage so as to trigger insurance coverage. (ECF No. 27-1.) The Court notes that Plaintiffs have not actually alleged that COVID-19 was present on their premises, and there are no factual averments to support such. Instead, Plaintiffs have presented the possibility of COVID-19 being on or near the premises. However, even if Plaintiffs had alleged the presence of COVID-19, the coverage outcome would not change, given that Plaintiffs have not alleged any structural injury to the premises. See e.g., Uncork & Create LLC v. Cincinnati Ins. Co. , 498 F. Supp. 3d 878, 883 (S.D. W. Va. 2020) ("[E]ven actual presence of the virus would not be sufficient to trigger coverage for physical damage or physical loss to the property.").
Plaintiffs also request, pursuant to Fed. R. Evid. 201(b)(2), that this Court take judicial notice of this Louisiana decision, as well as a Pennsylvania decision. (ECF Nos. 26, 17 & 27-2.) However, after review, it appears that these state court decisions do little to advance Plaintiffs’ arguments.
Overall, Plaintiffs maintain that physical loss or damage can exist without tangible injury. Defendants contend that Plaintiffs’ allegations of loss of use or functionality of the premises fail to state a claim. (ECF No. 20, 15.) Plaintiffs aver:
Plaintiffs have sustained an actual loss of Business Income due to the necessary suspension of their operations during
the period of restoration .... For a period of time of at least four consecutive weeks, since at least March 16, 2020, Plaintiffs’ business was partially or totally suspended as a result of a Covered Cause of Loss. Plaintiffs were prohibited from allowing customers access to their premises as a result of these Civil Authority Actions between at least March 24, 2020 and May 31, 2020, and after that date were only permitted to be open for dine in operations at 50% capacity.
(ECF No. 1, 15–16 ¶ 55.) The Complaint alleges that there was direct physical loss or damage to the premises by virtue of "loss of use of tangible physical property within the premises even if that property was not itself physically injured." (Id. at ¶ 59.) Plaintiffs’ Complaint further states that:
Loss of use of property that has not been physically altered constitutes "direct physical loss of or damage to property at premises" for purposes of insurance coverage under the Policy. As the drafter of the Policy, if Defendants had wished to exclude from coverage ... the loss of use of property that has not been physically altered or deformed, they could have used explicit language stating such a definition, but did not do so.
(Id. at ¶ 54.) This statement is unpersuasive. The fact that Defendants did not explicitly define "physical loss of or damage to property" does not empower Plaintiffs to twist the plain meaning of words. See S. Tr. Ins. Co. , 474 S.W.3d at 665 ("[A] ‘strained construction may not be placed on the language used to find ambiguity where none exists.’ " (quoting Garrison v. Bickford , 377 S.W.3d 659, 663–64 (Tenn. 2012) )). Defendants clearly excluded all occurrences not involving some sort of negative physical impact upon the property. This is clear due to the insertion of the words "direct" and "physical" at the beginning of the phrase.
Plaintiffs cite Southeast Mental Health Center, Inc. v. Pacific Insurance Company, Ltd. , 439 F. Supp. 2d 831, 838 (W.D. Tenn. 2006) to support its position that "direct physical loss" is not limited to structural damage to covered property. (ECF No. 26, 23.) In that case, a storm hit the insured's clinic location. Nearby utility poles sustained damage, and as a result, the insured's clinic had no electricity or phone service for approximately two weeks. Id. The plaintiff also alleged the clinic's computer lost data due to the power outage. Id. The lack of electricity and phone service allegedly resulted in lost business income for the plaintiff. Id. at 834. However, plaintiff's real property "did not suffer any physical damage as a result of the storm." Id. The all-risks insurance policy's business income coverage form had language identical to the Policy in the case-at-bar. Id. at 836. The court held that the business income lost due to the power outage was not within the meaning of "direct physical loss of or damage to" the plaintiff's property because "the electrical and telephone outages were caused by damage to power and utility lines that were not located on Plaintiff's property." Id. at 837. The court, however, reached a different conclusion regarding business income lost due to the damage to the clinic's computer. Id. at 837–38. The court found that "corruption of the pharmacy computer" resulting from the power outage "constitute[d] ‘direct physical loss of or damage to property’ under the business interruption policy." Id. at 837. In this regard, the court held that " ‘physical damage’ is not restricted to the physical destruction or harm of computer circuitry but includes loss of access, loss of use, and loss of functionality." Id. at 838 (quoting Am. Guar. & Liab. Ins. Co. v. Ingram Micro, Inc. , 2000 WL 726789, at *2 (D. Ariz. 2000) ). Notwithstanding, Southeast Mental Health does not support Plaintiff's argument. The court still required tangible injury as to the plaintiff's real property, and found no coverage given the lack of such. Another court in this Circuit has distinguished Southeast Mental Health on a similar basis, stating that "loss of functionality was considered to be physical damage only insofar as it related to a physical object located on the covered premises." 1210 McGavock St. Hospitality , 509 F.Supp.3d at 1043.
Similarly, Plaintiffs cite various other cases in support of the proposition that "direct physical loss" is not limited to physical injury to the property. (ECF No. 26, 23.) See Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co. , 311 F.3d 226, 236 (3d Cir. 2002) ; Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of Am. , No. 2:12-CV-04418 WHW, 2014 WL 6675934, 2014 U.S. Dist. LEXIS 165232 (D.N.J. Nov. 24, 2014) ; TRAVCO Ins. Co. v. Ward , 715 F. Supp. 2d 699, 708 (E.D. Va. 2010) ; Three Palms Pointe, Inc. v. State Farm Fire & Cas. Co. , 250 F. Supp. 2d 1357, 1364 (M.D. Fla. 2003). These cases are distinguishable, as they all involve or contemplate situations in which premises are unfit for habitation. See Port Auth. , 311 F.3d at 236 (holding that "large quantities of asbestos in the air ... such as to make the structure uninhabitable and unusable" can constitute physical loss); Gregory Packaging , 2014 WL 6675934, at *6, 2014 U.S. Dist. LEXIS 165232, at *16–17 (finding physical loss where "heightened ammonia levels rendered the facility unfit for occupancy"); TRAVCO Ins. Co. , 715 F. Supp. 2d at 708 ("[P]hysical damage to the property is not necessary, at least where the building in question has been rendered unusable by physical forces."); Three Palms Pointe, Inc. , 250 F. Supp. 2d at 1363–64 (noting that coverage for repair expenses included relocation expenses for condominium tenants because repair process would make units uninhabitable). Here, Plaintiffs’ buildings remain physically suitable for operations. Although customers were prevented from dining inside restaurants, they were allowed to pick up and carry out food. This necessarily meant that employees were not prohibited from entering the restaurants and preparing menu items.
With respect to the specific issues present in this case, courts addressing similar policy language have overwhelmingly rejected similar arguments and claims, finding that government orders with respect to COVID-19, and loss of use are not within the meaning of "direct physical loss of or damage to" property. See Hillcrest Optical , 497 F. Supp. 3d at 1212 (finding a government order does not constitute "direct physical loss"); 10E, LLC v. Travelers Indem. Co. , 483 F. Supp. 3d 828, 835–36 (C.D. Cal. 2020) (holding loss of use is not "direct physical loss of or damage to property"); Pappy's Barber Shops, Inc. v. Farmers Grp., Inc. , 487 F. Supp. 3d 937, 943–44 (S.D. Cal. 2020) (holding government orders are not physical loss or damage); Infinity Exhibits, Inc. v. Certain Underwriters at Lloyd's London , 489 F. Supp. 3d 1303, 1307 (M.D. Fla. 2020) ("Courts across the country have held that such coverage does not exist where, as here, policyholders fail to plead facts showing physical property damage."); Henry's La. Grill v. Allied Ins. Co. of Am. , 495 F. Supp. 3d 1289, 1294–95 (N.D. Ga. 2020) (holding a government order was not physical loss); Sandy Point Dental, P.C. v. Cincinnati Ins. Co. , 488 F. Supp. 3d 690, 693 (N.D. Ill. 2020) (holding that "some form of actual, physical damage to the insured premises" is required); 1210 McGavock St. Hospitality , 509 F.Supp.3d at 1044.
See also Defendant Certain Underwriters at Lloyd's London supplemental authority citing additional case authority. (ECF No. 47.)
Plaintiffs’ argument that Defendants have ignored the "or" in "direct physical loss of or damage to property" is unavailing. (See ECF No. 26, 9–10, 23–24.) Plaintiffs state that "[t]he use of the disjunctive indicates that ‘direct physical loss’ and ‘damage’ cannot be afforded the same meaning." (Id. at 23–24.) Plaintiffs reason that "[b]ecause ‘damage to’ property would certainly include structural damage to property, the ‘direct physical loss of’ property must mean something else." (Id. at 24.) Use of both the words "loss" and "damage" does not contemplate non-physical injury. Rather, the Court is of the opinion that "loss" unambiguously refers to complete physical destruction of the premises, while "damage" refers to physical injury short of complete destruction. As another district court has explained:
These definitions can support two different meanings – that loss is the "disappearance of value" or "the act of losing possession" by complete destruction, while damage is any other injury requiring repair. As an illustrative example, a tornado that destroys the entirety of the restaurant results in a "loss of" the restaurant, while a tree falling on part of the kitchen would represent "damage to" the restaurant.
Henry's La. Grill , 495 F. Supp. 3d at 1295 ; see also Bluegrass Oral Health Ctr. v. Cincinnati Ins. Co. , No. 1:20-CV-00120-GNS, 2021 WL 1069038, 2021 U.S. Dist. LEXIS 50639 (W.D. Ky. Mar. 18, 2021). To reach a different conclusion would be to ignore the modifying term "physical". Relatedly, to the extent Plaintiffs argue that the Civil Authority Actions constitute direct physical loss or damage, the Court rejects that argument. The Civil Authority Actions were governmental orders – not physical injury upon Plaintiffs’ premises.
Finally, Plaintiffs cite to Studio 417 v. Cincinnati Insurance Company , 478 F. Supp. 3d 794 (W.D. Mo. 2020) in support of their position. There, the business income coverage provision contained language substantially similar to the one here. Studio 417 , 478 F. Supp. 3d at 797. The plaintiffs alleged "it is likely that customers, employees, and/or other visitors to the insured properties were infected with COVID-19 and thereby infected the insured properties with the virus." Id. at 798. Further, the plaintiffs alleged that closure orders and loss of use of their property constituted direct physical loss or direct physical damage. Id. The district court found the plaintiffs had sufficiently alleged a direct physical loss. Id. at 800. Consulting dictionary definitions, the court found the plaintiffs’ deprivation of property as a sufficient allegation of loss. Id. The court also reasoned that it should give all policy terms meaning; accordingly, "physical loss" and "physical damage" could not both be interpreted to mean a "physical alteration." Id. at 800–01.
Plaintiffs’ supplemental authority filing cites Henderson Road Restaurant Systems, Inc. v. Zurich American Insurance Co. , 513 F.Supp.3d 808 (N.D. Ohio 2021). Respectfully, this Court disagrees with the finding of ambiguous policy language in that case. See Henderson Rd. , 513 F.Supp.3d at 819. Further, Henderson Road has been distinguished and found unpersuasive by other courts. See e.g., Sys. Optics v. Twin City Fire Ins. Co. , No. 5:20-cv-1072, 2021 WL 2075501, 2021 U.S. Dist. LEXIS 97491 (N.D. Ohio May 24, 2021) (collecting cases).
This Court declines to follow Studio 417 ’s reasoning. First, the plain meaning of "direct physical loss of or damage to property" requires a physical act. To give terms their plain meaning is the dictate of the Tennessee courts. See U.S. Bank, N.A. , 277 S.W.3d at 386–87 (citing Christenberry , 160 S.W.3d at 494 ). As Studio 417 , and other courts, have acknowledged, "loss" can be understood as "the act of losing possession." Studio 417 , 478 F. Supp. 3d at 800. However, the preceding "physical" modifies and narrows "loss" to only the tangible form of loss. Presumably, the term "physical" was inserted there for this exact reason. Second, even if "physical loss" could refer to loss of possession, Plaintiffs have not actually alleged dispossession of their property. Rather, they have alleged a temporary loss of full use, which is distinct. Third, Studio 417 has been distinguished by numerous courts as a minority position. See Chelsea Ventures, LLC v. Cincinnati Ins. Co. , No. 20-13002, 2021 WL 2529821, 2021 U.S. Dist. LEXIS 114907 (E.D. Mich. June 21, 2021) (describing Studio 417 as "an outlier"); Sys. Optics v. Twin City Fire Ins. Co. , 5:20-cv-1072, 2021 WL 2075501, at *10, 2021 U.S. Dist. LEXIS 97491, at *22–23 (N.D. Ohio May 24, 2021) ; Bluegrass Oral Health Ctr. , 2021 WL 1069038, at *4, 2021 U.S. Dist. LEXIS 50639, at *9–11. The weight of authority disfavors Plaintiffs’ position.
Ultimately, by providing no facts showing physical loss of or damage to property, Plaintiffs have failed to plausibly allege their claim is within the Policy's Business Income coverage. Accordingly, Count One of Plaintiffs’ Complaint is DISMISSED with prejudice.
Count Two of Plaintiffs’ Complaint asserts breach of contract based on Defendants’ denial of Business Income Coverage. (ECF No. 1, 28–29.) Under Tennessee law, a breach of contract claim requires Plaintiffs to "prove the existence of a valid and enforceable contract, a deficiency in the performance amounting to a breach, and damages caused by the breach." Fed. Ins. Co. v. Winters , 354 S.W.3d 287, 291 (Tenn. 2011) (citing ARC LifeMed, Inc. v. AMC-Tenn., Inc. , 183 S.W.3d 1, 26 (Tenn. Ct. App. 2005) ). Plaintiffs have not alleged facts that bring their claim within the Policy's coverage terms. As a result, Plaintiffs cannot plausibly allege that Defendants breached the insurance contract by denying Business Income coverage. See Iqbal , 556 U.S. at 678–79, 129 S.Ct. 1937. Count Two of Plaintiffs’ Complaint is DISMISSED with prejudice.
IV. Extra Expense
Count Three of Plaintiffs’ Complaint seeks a declaratory judgment that the Policy's Extra Expense provision provides coverage. (ECF No. 1, 30–31.) Defendants seek dismissal of Plaintiffs’ Extra Expense claim. (ECF No. 20, 8.) The Extra Expense provision, like the Business Income provision, is predicated upon the existence of "direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss." (ECF No. 1-1, 27.) Accordingly, for the same reasons that Plaintiffs have not pled a claim for Business Income coverage, the Court finds that Plaintiffs have not pled a claim for Extra Expense coverage. Thus, Count Three of Plaintiffs’ Complaint is DISMISSED with prejudice. Further, because Count Four of Plaintiffs’ Complaint asserts breach of contract based on Defendants’ denial of Extra Expense coverage (ECF No. 1, 31–33), it is similarly DISMISSED with prejudice.
V. Civil Authority
Count Five of Plaintiffs’ Complaint seeks a declaratory judgment that the Policy's Civil Authority provision provides coverage. (ECF No. 1, 33–34.) Defendants argue this count must be dismissed because the governmental action did not prohibit access to Plaintiffs’ premises and because such action must be based upon physical damage to fall within Civil Authority coverage. (ECF No. 20, 17–21.)
Plaintiffs allege that the orders and ordinances set forth by Governor Lee, the City of Memphis, and Shelby County Health Department are "Civil Authority Actions" which "prohibited full customer access to and use of Plaintiffs’ and the other Class members’ property, and the area immediately surrounding damaged property, in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss." (ECF No. 1, 14 ¶ 50.) Further, Plaintiffs argue that "[t]he presence of employees and customers likely infected with or carrying COVID-19 renders property within a mile of their premises unsafe and unusable, resulting in direct physical loss to the premises and property." (Id. at ¶ 52.) Plaintiffs add that they were "prohibited from allowing customers access to their premises" due to the governmental actions and that "premises other than Plaintiffs’ premises that are within a mile [of] Plaintiffs’ premises were also prohibited" as a result of such action, which "result[ed] in loss or damage to those properties as well." (ECF No. 1, 15 ¶ 55.) The Complaint alleges that the "Civil Authority provision is an independent basis for business interruption coverage. That is, it can be triggered even when the standard business interruption coverage is not." (Id. at ¶ 35.) Referring to the number of COVID-19 cases in Shelby County and the state of Tennessee, Plaintiffs allege "[t]hese pervasive dangerous physical conditions prompted actions by civil authorities throughout the United States requiring the suspension of business at a wide range of establishments, including but not limited to civil authorities with jurisdiction over the Plaintiffs’ restaurant: the City of Memphis, County of Shelby, and the state of Tennessee." (Id. at ¶ 43.)
The Court finds that dismissal of Plaintiffs’ Civil Authority claims is appropriate for several reasons. First, the Court has already determined that Plaintiffs have failed to allege a Covered Cause of Loss, a direct physical loss of or damage to property. Also, Plaintiffs have failed to allege a Covered Cause of Loss causing damage to property other than Plaintiffs’ premises, a prerequisite for Civil Authority Coverage. (See ECF No. 1-1, 28.) The Civil Authority provision clearly refers to physical damage because it requires that a Covered Cause of Loss cause damage. As explained above, the presence of COVID-19 – even if plausibly alleged – is not property damage.
Second, there has been no prohibition of access to Plaintiffs’ premises. As noted above, although customers were prevented from dining on-site at Plaintiffs’ premises, they were not prohibited from picking up or carrying out food. Moreover, employees were able to prepare food for those customers. (See ECF No. 20-5.) Moreover, while Plaintiffs allege they suspended their operations due to governmental action, they do not allege that they were prohibited from accessing their premises. (See ECF No. 1, 3 ¶ 9.) In view of this fact, Plaintiffs have not alleged a prohibition of access. See 1210 McGavock St. Hospitality, LLC , 509 F.Supp.3d 1032, 1044 ("The most natural reading of ‘access,’ in this context, is physical access, not simply being closed to the public. The plaintiff does not allege that it was ever physically unable to access the restaurant."); see also Davidson Hotel Co. v. St. Paul Fire & Marine Ins. Co. , 136 F. Supp. 2d 901, 912 n.6 (W.D. Tenn. 2001) (finding inapplicability of civil authority coverage where the plaintiff was not denied access to its premises but rather only denied use of the premises).
Most courts have concluded that alleging prevention of on-premises dining and services is not enough to plausibly allege prohibition of access. See e.g., Chelsea Ventures , 2021 WL 2529821, at *9, 2021 U.S. Dist. LEXIS 114907, at *23 ("Most courts have determined, even outside the COVID-19 context, that ‘reduction to partial access does not suffice to trigger business income coverage under the Civil Authority provisions.’ " (quoting 1 S.A.N.T., Inc. v. Berkshire Hathaway, Inc. , 513 F.Supp.3d 623, 632 (W.D. Pa. 2021) )).
Plaintiffs’ other cited cases are distinguishable and inapplicable here. In Assurance Co. of America v. BBB Service Co. , 265 Ga.App. 35, 593 S.E.2d 7 (2003), the civil authority provision did not contain a requirement that the damage to property other than the premises be within one mile of the premises. 593 S.E.2d at 7. Further, there was actual physical damage at other properties – albeit not within close proximity to the insured's premises. Id. at 8. Here, COVID-19 does not qualify as physical damage, and Plaintiffs have identified no physical damage at other property. Additionally, in Sloan v. Phoenix of Hartford Insurance Co. , 46 Mich.App. 46, 207 N.W.2d 434, 435–36 (1973), the policy contained materially different language.
Ultimately, Plaintiffs have not alleged facts showing a Covered Cause of Loss or damage to nearby property. Plaintiffs’ Complaint lacks allegations that their access to the premises was prohibited. Thus, the Policy's Civil Authority provision does not provide coverage, and as a result, Count Five of Plaintiffs’ Complaint is DISMISSED with prejudice.
Having determined that Plaintiffs’ claims are not within any of the Policy's coverage provisions, the Court need not determine whether any of the Policy's exclusions apply. See Great River Ins. Co. , 2004 WL 892528, at *2, 2004 Tenn. App. LEXIS 258, at *6. Count Six of Plaintiffs’ Complaint asserts breach of contract based on Defendants’ denial of Civil Authority coverage. (ECF No. 1, 35–36.) Accordingly, because there is no Civil Authority coverage, the related breach of contract claim fails. Count Six of Plaintiffs’ Complaint is DISMISSED with prejudice.
The Parties have focused on the Policy's Microorganism Exclusion. On December 7, 2020, Plaintiffs filed their Objection to Defendants’ Request to Take Judicial Notice, regarding whether COVID-19 is a microorganism. (ECF No. 28.) Defendants Underwriters filed their Response to Plaintiffs’ Objection to Take Judicial Notice on January 4, 2021. (ECF No. 35.) Because the Court does not reach the issue of the Microorganism Exclusion, the Court does not address these arguments.
VI. Covenant of Good Faith and Fair Dealing
Count Seven of Plaintiffs’ Complaint asserts that Defendants breached the covenant of good faith and fair dealing by failing to perform in accordance with the Policy and failing to investigate Plaintiffs’ claims. (ECF No. 1, 36–37.) Defendants argue for dismissal of this claim because they have not breached the Policy. (ECF No. 20, 28.)
In Tennessee, parties to any contract have a duty of good faith and fair dealing in the contract's performance. German v. Ford , 300 S.W.3d 692, 706 (Tenn. Ct. App. 2009). A claim for breach of the duty of good faith and fair dealing "is not a stand-alone claim; rather, it is part of an overall breach of contract claim." Jones v. LeMoyne-Owen Coll. , 308 S.W.3d 894, 908 (Tenn. Ct. App. 2009) (citation omitted). Because their breach of contract claims are dismissed, Plaintiffs’ claim for breach of the covenant of good faith and fair dealing must also be dismissed. See e.g., Ike v. Quantum Serv. Corp. , No. 11-02914, 2012 WL 3727132, at *5, 2012 U.S. Dist. LEXIS 121422 at *14 (W.D. Tenn. Aug. 27, 2012) ("[A]bsent a valid claim for breach of contract, there is no cause of action for breach of implied covenant of good faith and fair dealing." (quoting Envoy Corp. v. Quintiles Transnat'l Corp. , No. 3:03cv0539, 2007 WL 2173365, at *8, 2007 U.S. Dist. LEXIS 54429 at *8 (M.D. Tenn. July 26, 2007) )). Accordingly, Count Seven of the Complaint is DISMISSED with prejudice. As a result, all counts of the Complaint have been dismissed with prejudice.
Plaintiffs’ Response to the Motions to Dismiss briefly requests that the Court grant leave for Plaintiffs to amend their Complaint pursuant to Fed. R. Civ. P. 15(a)(2). (ECF No. 26, 37.) Plaintiffs filed no motion seeking leave to amend and have not provided a proposed amended complaint. Further, given the terms of the Policy, amendment would be futile. The Court denies Plaintiffs’ request for leave to amend.
CONCLUSION
For the reasons provided above, Defendant Certain Underwriters at Lloyd's, London Subscribing to Policy No. TN134664’s Motion to Dismiss Plaintiffs’ Complaint is GRANTED . Defendant Vanguard Claims Administration, Inc.’s Motion to Dismiss the Complaint is GRANTED . Accordingly, Plaintiffs’ Complaint is DISMISSED with prejudice.
IT IS SO ORDERED this 1st day of September, 2021.