535 F.Supp.3d 250
S.D.N.Y.2021Background
- Plaintiffs Rye Ridge Corp. (NY) and Haromar, Inc. (CT) operate restaurants and purchased identical commercial property insurance policies from Cincinnati Insurance covering the period Dec. 2, 2019–Dec. 2, 2022.
- Policies provide coverage for Business Income, Extra Expense, Civil Authority, and Ingress/Egress, each triggered by a ‘direct accidental physical loss or accidental physical damage.’
- In March 2020 state orders restricted dine‑in service due to COVID‑19; restaurants continued to be permitted to operate for takeout/delivery and later limited outdoor/indoor dining.
- Plaintiffs submitted claims for pandemic-related business losses and extra expenses; Cincinnati denied coverage and moved to dismiss under Fed. R. Civ. P. 12(b)(6).
- The complaint alleged COVID‑19 caused physical loss/damage to the insured premises and that civil orders prohibited access; the court found these allegations conclusory and lacking facts showing physical loss or prohibited access.
- District Court granted defendant’s motion to dismiss all claims (breach of contract, breach of covenant of good faith and fair dealing, N.Y. GBL §349, Conn. unfair trade practices, and declaratory relief) but allowed plaintiffs to request leave to replead by letter with a proposed amended complaint.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Business Income coverage was triggered by COVID‑19 | COVID presence caused a direct physical loss/damage to premises, triggering Business Income | Policy requires actual physical loss/damage to property; mere loss of use or economic loss from orders is insufficient | Dismissed — complaint alleges no facts showing physical loss/damage, so coverage not triggered |
| Whether Extra Expense coverage applies | Extra expenses during suspension are covered because triggered by the same loss | Extra Expense also requires a qualifying physical loss/damage | Dismissed — no pleaded physical loss, so no Extra Expense coverage |
| Whether Civil Authority coverage applies | State civil orders prohibiting access triggered Civil Authority coverage | Civil Authority requires physical loss/damage to other property and a prohibition on access; orders permitted takeout/delivery | Dismissed — complaint fails to allege physical damage to other property or that access was prohibited |
| Whether Ingress/Egress coverage applies | Prevention of ingress/egress due to neighboring property contamination triggered coverage | Ingress/Egress requires physical loss/damage at a contiguous location preventing access | Dismissed — no facts showing physical loss at contiguous property or prevention of access |
| Claims for bad faith and statutory deceptive/unfair practices | Denial of claims and inadequate investigation show bad faith and deceptive/unfair practices | Those claims depend on the existence of coverage; denial was justified because no coverage pleaded | Dismissed — derivative claims fail because underlying coverage not plausibly alleged |
| Leave to amend | Plaintiffs request leave to replead | Defendant did not concedePlaintiffs could cure deficiencies | Court treated amendment as likely futile but permitted plaintiffs to seek leave to replead by letter with a proposed amended complaint (deadline provided) |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (established the plausibility pleading standard for Rule 12(b)(6))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a claim that is plausible, not merely conceivable)
- ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (pleading requirements and raising a right to relief above speculation)
- Roundabout Theatre Co. v. Cont'l Cas. Co., 751 N.Y.S.2d 4 (New York courts construing 'direct physical loss or damage' to require physical damage for business interruption coverage)
- Phila. Parking Auth. v. Fed. Ins. Co., 385 F. Supp. 2d 280 (construing 'direct physical loss or damage' to require a physical problem with covered property)
- Newman Myers Kreines Gross Harris, P.C. v. Great N. Ins. Co., 17 F. Supp. 3d 323 (loss of use insufficient; cases require compromise to physical integrity)
- RSVT Holdings, LLC v. Main St. Am. Assur. Co., 25 N.Y.S.3d 712 (coverage limited to direct damage to plaintiffs' property)
- R.M. Bacon, LLC v. Saint‑Gobain Performance Plastics Corp., 959 F.3d 509 (standards for accepting factual allegations on a motion to dismiss)