560 F.Supp.3d 1049
W.D. Ky.2021Background
- Wild Eggs (restaurant chain with locations in KY, OH, IN) held a State Auto Preferred Business Policy covering April 20, 2019–April 20, 2020.
- In March 2020 government orders restricted dine‑in service due to COVID‑19; Wild Eggs limited operations to curbside/delivery and alleged substantial income loss and extra expense.
- Wild Eggs filed a claim on March 18, 2020; State Auto denied the claim and Wild Eggs sued for declaratory relief and state‑law claims (breach, bad faith, unfair practices, deceptive advertising).
- State Auto moved to dismiss under Fed. R. Civ. P. 12(b)(6); Court first evaluated whether to exercise declaratory‑judgment jurisdiction and applied the Sixth Circuit’s Grand Trunk factors.
- On the merits, Wild Eggs sought coverage under (1) a Restaurant Extension Endorsement, (2) Business Income & Extra Expense (including Civil Authority). The court found Wild Eggs failed to plausibly allege the required causal or physical‑loss elements and granted dismissal with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Court's jurisdiction under Declaratory Judgment Act | DJ action will settle coverage dispute; prompt federal resolution preferable | N/A (court sua sponte considered federalism and alternative remedies) | Court exercised jurisdiction after balancing Grand Trunk factors |
| Restaurant Extension Endorsement ("suspension" from orders "resulting from" "actual or alleged exposure of the described premises") | Orders resulted from actual/alleged exposure at Wild Eggs locations; "alleged exposure" requires only assertions that premises were subject to virus | Orders were issued for the global pandemic, not because of exposure at Wild Eggs premises; no causal connection from exposure at described premises | No coverage: allegations do not plausibly show orders "resulted from" an act/instance of exposure at the described premises |
| Business Income / Extra Expense — "direct physical loss of or damage to" | Presence of virus on surfaces and in air and government restrictions caused direct physical loss/damage and rendered premises unusable | "Direct physical loss or damage" requires tangible, physical alteration or harm; COVID‑19 contamination and economic loss insufficient | No coverage: as a matter of law phrase requires tangible harm/damage to property; Wild Eggs failed to plausibly allege such harm |
| Civil Authority coverage (access prohibited; caused by damage to nearby property) | Virus caused dangerous physical conditions and nearby property damage; orders prohibited core dine‑in access even if carryout allowed | Orders did not prohibit access (carryout/delivery permitted) and there is no allegation of physical damage to other property within one mile | No coverage: Wild Eggs failed to allege tangible damage to nearby property and orders did not "prohibit" access to premises |
Key Cases Cited
- Bituminous Casualty Corp. v. J & L Lumber Co., 373 F.3d 807 (6th Cir. 2004) (Grand Trunk factors for DJ jurisdiction)
- Grand Trunk W.R.R. Co. v. Consol. Rail Co., 746 F.2d 323 (6th Cir. 1984) (framework for discretionary DJ jurisdiction)
- United Specialty Ins. Co. v. Cole’s Place, Inc., 936 F.3d 386 (6th Cir. 2019) (analysis of when declaratory relief settles coverage disputes)
- Scottsdale Ins. Co. v. Flowers, 513 F.3d 546 (6th Cir. 2008) (DJ jurisdiction and related factors)
- W. World Ins. Co. v. Hoey, 773 F.3d 755 (6th Cir. 2014) (considerations on efficiency and federalism in DJ cases)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for stating a claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (requirement that allegations be more than conclusory)
- Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir. 2021) (COVID‑19 and government orders do not allege direct physical loss or damage)
- Terry Black’s Barbecue, LLC v. State Auto Mut. Ins. Co., 514 F. Supp. 3d 896 (W.D. Tex. 2021) (similar restaurant endorsement analysis rejecting causal link between orders and exposure at insured premises)