523 F.Supp.3d 147
D. Mass.2021Background
- Legal Sea Foods, LLC owned 32 restaurants covered by a Strathmore commercial property policy effective March 1, 2020; policy provided Business Income & Extra Expense coverage for loss caused by "direct physical loss of or damage to" property and civil authority coverage when an action "prohibits access" due to a Covered Cause of Loss.
- During the COVID-19 pandemic, state and local Orders restricted in‑person dining; Legal alleges some restaurants closed, capacity was limited, protective barriers were installed, and COVID‑19 was present at certain Designated Properties; carry‑out and delivery generally remained permitted.
- Legal filed a claim for business‑interruption losses; Strathmore investigated briefly and denied coverage and reconsideration.
- Legal sued in the District of Massachusetts, amended twice, and pleaded four counts: breach for business income/extra expense, breach for civil authority coverage, Chapter 93A unfair‑practice claim, and declaratory judgment; Strathmore moved to dismiss the second amended complaint.
- The court applied Massachusetts law and contract‑interpretation principles and dismissed all four counts, holding the policy does not provide coverage for the alleged pandemic losses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID‑19 presence or pandemic Orders constitute "direct physical loss of or damage to" property for Business Income & Extra Expense coverage | COVID‑19 was present at insured premises and/or caused suspension of operations, triggering coverage | "Direct physical loss" requires tangible, enduring physical harm to property; a virus does not cause structural or material damage | Dismissed — courts construe "direct physical loss" narrowly; virus presence/transient contamination does not satisfy the requirement |
| Whether civil authority coverage is triggered when Orders restricted dining | Orders prohibited access to premises, so civil authority coverage applies | Orders limited operations but did not prohibit access; take‑out/delivery were allowed | Dismissed — Orders limited, rather than prohibited, access and thus do not trigger civil authority coverage |
| Whether insurer's denial violated Mass. Gen. Laws ch. 93A (unfair or deceptive practices) | Strathmore conducted an inadequate investigation and wrongfully denied coverage | An insurer does not violate Chapter 93A if it makes a good‑faith coverage determination or correctly denies coverage | Dismissed — coverage denial was correct as a matter of law, so no Chapter 93A violation |
| Whether declaratory relief should issue that the Policy covers the loss and no exclusion applies | Policy covers the claimed losses; no virus exclusion exists | Coverage is absent under the Policy’s terms; lack of an express virus exclusion does not create coverage | Dismissed — declaratory claim fails because plaintiff cannot plead entitlement to coverage |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions not entitled to presumption of truth)
- Ruggerio Ambulance Serv. v. Nat’l Grange Mut. Ins. Co., 430 Mass. 794 (Mass. 2000) (insurance policy interpretation is a question of law)
- Easthampton Congregational Church v. Church Mut. Ins. Co., 916 F.3d 86 (1st Cir. 2019) (apply plain and ordinary meaning to policy language)
- High Voltage Eng’g Corp. v. Fed. Ins. Co., 981 F.2d 596 (1st Cir. 1992) (clear policy provisions enforced as written)
- Given v. Commerce Ins. Co., 440 Mass. 207 (Mass. 2003) (absence of an express exclusion does not create coverage)
- Crestview Country Club, Inc. v. St. Paul Guardian Ins. Co., 321 F. Supp. 2d 260 (D. Mass. 2004) (intangible losses do not constitute "direct physical loss")
- Transamerica Ins. Co. v. KMS Patriots, 52 Mass. App. Ct. 189 (Mass. App. Ct.) (when coverage is correctly denied, no Chapter 93A violation)
- Ora Catering, Inc. v. Northland Ins. Co., 57 F. Supp. 3d 102 (D. Mass. 2014) (insurer need only make good‑faith coverage determination to avoid Chapter 93A liability)