Case Information
*1 NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY ____________________________________
:
DEZINE SIX, LLC D/B/A, :
COSMO BLEU :
:
Plаintiff, : v. : Case No. 3:20-cv-07964-BRM-DEA :
:
FITCHBURG MUTUAL INSURANCE :
COMPANY; AND :
THE NORFOLK & DEDHAM GROUP :
: OPINION Defendants. :
____________________________________:
M ARTINOTTI , D ISTRICT J UDGE
Before this Court is a Motion to Dismiss filed by Defendants Fitchburg Mutual Insurance Company (“Fitchburg Mutual”) and The Norfolk & Dedham Group (“N&D”) (together with Fitchburg Mutual, “Defendants”) seeking to dismiss Plaintiff Dezine Six, LLC’s (“Dezine”) Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (ECF No. 5.) Dezine opposed the Motion to Dismiss. (ECF No. 8.) Defendants filed a Reply. (ECF No. 10.) Dezine filed a Sur- Reply in opposition to the Motion to Dismiss. (ECF No. 14.) Defendants responded to Dezine’s Sur-Reрly. (ECF No. 15.) Dezine submitted a Notice of Supplemental Authorities. (ECF No. 21.) Fitchburg Mutual submitted a Supplemental Brief in further support of its Motion to Dismiss. (ECF No. 22.) Having reviewed the submissions filed in connection with the motion and having declined to hold oral argument pursuant to Federal Rule of Civil Procedure 78(b), for the reasons set forth below and for good cause appearing, Defendants’ Motion to Dismiss is GRANTED. *2 I. B ACKGROUND
This is one of a series of decisions involving an insurance company declining coverage for an insured’s claim that stems from the government shutdown orders issued in response to the COVID-19 pandemic. The insured claims business losses as a result of the shutdown orders, and the insurance carrier invokes certain exclusion provisions in the insurance policy to decline coverage for such losses.
For the purposes of this Motion to Dismiss, the Court acсepts the factual allegations in the
Complaint as true and draws all inferences in the light most favorable to the plaintiff.
See Phillips
v. Cty. of Allegheny
,
Dezine owns and operates a hair and beauty salon in Princeton, New Jersey. (ECF No. 1 at ¶ 1.) Defendants issued an insurance policy (the “Policy”) to Dezine, during the policy period of December 10, 2019, through December 10, 2020. ( Id . at ¶ 20.) The Policy prоvides coverage for all nonexcluded business losses that Dezine sustained at its salon at 170 Nassau Street, Princeton, New Jersey (the “Covered Property”). ( Id . at ¶¶ 3, 19.) The Policy covers “physical loss of or damage to Covered Property . . . caused by or resulting from any Covered Cause of Loss.” (ECF No. 1-1 at 16, § I.A.) Covered Causes of Loss means “direct physical loss unless the loss is excluded or limited” by the Policy. ( . at 17, § I.A.3.) In addition, the Pоlicy contains: (1) a “Business Income” provision, which covers the actual loss of Dezine’s Business Income sustained due to the necessary suspension of its operations during the “period of restoration” caused by “direct physical loss or damage” to the Covered Property, and such “loss or damage must be caused *3 by or result from a Covered Cause of Loss” ( id . at 21–22, § I.A.5.f(1)); (2) an “Extra Expense” provision, which covers Dezine’s expenses to avoid/minimize thе suspension of business, continue operations, and repair/replace property, where such expenses would not have been incurred but for the “direct physical loss or damage to” the Covered Property “caused by or result from a Covered Cause of Loss” ( id . at 23, § I.A.5.g); and (3) a “Civil Authority” provision, which covers “the actual loss of Business Income” and “necessary Extra Expense caused by action of civil authority that prohibits access to” the Covered Property:
When a Covered Cause of Loss causes damage to property other than property at 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.
( id . at 24, § I.A.5.i). Also, thе Policy contains a coverage exclusion for viruses (the “Virus Exclusion”) which provides:
We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or аffects a substantial area.
. . .
j. Virus Or Bacteria
(1) Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.
( . at 32, 35, § I.B.1.)
On or about March 19, 2020, Dezine was forced to suspend or reduce business operations in response to orders by state and local authorities mandating the closure of all non-life sustaining *4 businesses in the State of New Jersey in an effort to protect the public from thе COVID-19 pandemic. (ECF No. 1 at ¶ 6.) Dezine made a claim for business interruption, civil authority and/or extra expense coverage to recoup substantial, ongoing financial losses directly attributed to a series of COVID-19 closure orders. ( . at ¶ 7.) By letter dated March 25, 2020, N&D denied Dezine’s claim. (ECF No. 1-2.)
On June 30, 2020, Dezine filed a Complaint seeking a declaratory judgment that it is entitled to coverage under the Business Income, the Extra Expense, and the Civil Authority prоvisions, and requesting payments from Defendants under these provisions. (ECF No. 1.) On July 28, 2020, Defendants filed a Motion to Dismiss Dezine’s Complaint pursuant to Rule 12(b)(6). (ECF No. 5.) On August 19, 2020, Dezine opposed Defendants’ Motion to Dismiss. (ECF No. 8.) On September 1, 2020, Defendants filed a Reply. (ECF No. 10.) On September 8, 2020, Dezine filed a Sur-Reply in opposition to Defendants’ Motion to Dismiss. (ECF No. 14.) On September 10, 2020, Defendants responded to Dezine’s Sur-Reply. (ECF No. 15.) On December 15, 2020, Dezine submitted a Nоtice of Supplemental Authorities (ECF No. 21), and Fitchburg Mutual submitted a Supplemental Brief in further support of its Motion to Dismiss (ECF No. 22). II. L EGAL S TANDARD
In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a
district court is “required to accept as true all factual allegations in the complaint and draw all
inferences in the facts alleged in the light most favorable to the [plaintiff].”
Phillips v. Cty. of
Allegheny
,
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim for relief that is plausible on its face.’”
Ashcroft v. Iqbal
, 556
U.S. 662, 678 (2009) (citing
Twombly
,
“Determining whether a complaint states a plausible claim for relief [is] . . . a context-
specific task that requires the reviewing court to draw on its judicial experience and common
sense.”
Iqbal
,
While, as a general rule, the court may not consider anything beyond the four corners of
the сomplaint on a motion to dismiss pursuant to Rule 12(b)(6), the Third Circuit has held that “a
court may consider certain narrowly defined types of material without converting the motion to
dismiss [to one for summary judgment pursuant to Rule 56].”
In re Rockefeller Ctr. Props. Sec.
Litig.
,
III. D ECISION
A. The Business Income Coverage Is Not Illusory
Dezine argues the coverage under the Business Income provision for “continuing normal operating expenses” sustained “due to the necessаry suspension” is nonsensical, because (1) the continuing expenses, such as monthly rent, will be owed despite a suspension of operations, and (2) the coverage for operating expenses would be illusory if enforced as written. (ECF No. 8 at 18.) The Court disagrees.
“The Court must ‘decline to construe the Policy in a manner that makes promises in the
coverage section illusory.’”
Childrens Place, Inc. v. Great Am. Ins. Co.
, No. 18-11963, 2019 U.S.
Dist. LEXIS 70109, at *14 (D.N.J. April 25, 2019) (citing
Customized Distrib. Servs. v. Zurich Ins.
Co.
,
“[T]he contractual language is unambiguous” when it is “subject to only one reasonable
interpretation.”
Mylan Inc. v. SmithKline Beecham Corp.
,
Here, the Business Income provision is subject to only one reasonable interpretation in determining the actual business income loss. “[T]he appropriate formula for ‘actual loss of business income’ under the cоntract is: net income that should have been earned or incurred plus continuing normal operating expenses (including payroll) minus gross profits actually earned.” Polymer Plastics Corp. v. Hartford Cas. Ins. Co. , No. 3:05-CV-00143 ECR (VPC), 2006 U.S. Dist. LEXIS 103077, at *16–17 (D. Nev. Sept. 26, 2006) (finding a same business income coverage provision unambiguous). Otherwise, if “one were to calculate ‘actual loss of business income’ by subtracting net income actually earned or incurred from projected net incоme and continuing normal operating expenses, the insurer would, in effect, be required to pay twice for continuing operating expenses.” Id . at *15. “Double compensation for continued operating expenses would reimburse the insured for more than its ‘actual loss.’” . at *16. In conclusion, the Business *8 Income provision is unambiguous and enforceable.
B. The Virus Exclusion Denies Dezine Recovery Under the Policy 1. The Virus Exclusion Denies Dezien Recovery under the Business Incоme, the Civil Authority, and the Extra Expense Provisions Defendants contend the Virus Exclusion, with the anti-concurrent causation language in its preamble, expressly excludes coverage of an otherwise covered loss that is related directly or indirectly to a virus. (ECF No. 5 at 38.) As a result, Defendants claim to have properly denied Dezine’s insurance claim. ( Id .) Dezine points out the Business Income, the Civil Authority, and the Extra Expense provisions specifically refer to recovery under the Policy for “expenses” as distinct from loss of income (ECF No. 8 at 18), and the Virus Exclusion only excludes coverage for “loss or damage” but not “expense” ( id . at 21). Dezine argues, throughout the Policy, “loss,” “damage,” and “expense” are treated as separate items. ( Id . at 19). As a result, Dezine maintains the Virus Exclusion does not apply to the expеnses incurred and covered under the Policy due to the suspension of its business. ( . at 21). The Court disagrees.
The Virus Exclusion can exclude coverage for “expenses.” First, because the Policy uses
the term “loss” without defining it, the Court “must apply the plain and ordinary meaning of that
term.”
Estate of Keppel v. Angela’s Angels Home Healthcare
, No. A-3868-17T1, 2019 N.J. Super.
Unpub. LEXIS 1068, at *4–5 (N.J. Super. Ct. App. Div. May 9, 2019). “This common-sense
approach often begins with an examination of dictionary definitions.”
Cypress Point Condo. Ass’n,
Inc.
,
The Virus Exclusion excludes from coverage any loss or damage “caused directly or
indirectly by . . . any virus . . . that induces or is capable of inducing physical distress, illness or
*10
disease.” (ECF No. 1-1 at 35, § I.B.1.j(1).) An anti-concurrent/anti-sequential clause provides such
an exclusion applies “regardless of any other cause or event that contributes concurrently or in any
sequence to the loss.” ( . at 32, § I.B.1.) Since COVID-19 is an “undisputed cause[] of loss” of
Dezine’s loss and damage of the Covered Property, and is “the subject of an exclusion,” the Virus
Exclusion with its anti-concurrent/anti-sequential clause denies Dezine any recovery under the
Policy.
Lam Inv. Research, LLC v. Public Serv. Mut. Ins. Co.
, No. 12-5576, 2016 U.S. Dist. LEXIS
45116, at *13 (D.N.J. April 1, 2016) (citing
Ashrit Realty LLC v. Tower Nat’l Ins. Co.
, No. A-
1647-13T4,
Courts in New Jersey have denied, at the motion to dismiss stage, an insured’s claim for
coverage under the same business income, civil authority, and extra expense coverage provisions,
because of a same virus exclusion provision.
See Mac Prop.
, 2020 N.J. Super. Unpub. LEXIS
2244, at *20 (“It therefore does not matter whether . . . civil authority coverage can be triggered,
since the reason for the exercise of that civil authority was the virus.”);
N&S Rest.
, 2020 U.S. Dist.
LEXIS 206972, at *14 (“Because the Virus Exclusion bars coverage, Plaintiff is not entitled to
coverage under the Business Income, Extra Expense, or Civil Authority provisions.”).
Accordingly, the Court finds the Virus Exclusion unambiguously precludes Dezine’s recovery
under the Business Income, the Civil Authority, and the Extra Expense provisions. Whether or not
Dezine sustained direct physical loss or damage is irrelevant.
See Mac Prop.
, 2020 N.J. Super.
*11
Unpub. LEXIS 2244, at *20 (“It therefore does not matter whether the closure of plaintiff’s
business as a result of governmental orders to prevent the spread of the coronavirus constitutes
direct physical damage to covered property . . . since the reason for the exercise of that civil
authority was the virus.”);
N&S Rest.
,
2. The Doctrine of Regulatory Estoppel Does Not Invalidate the Virus Exclusion
Dezine alleges Fitchburg made material misrepresentations to both New Jersey insurance regulators and its insureds, which estops Defendants from enforcing the Virus Exclusion. (ECF No. 8 at 22.) Dezine claims the insurance industry groups, alerted by an earlier virus borne epidemic, drafted clauses to exclude coverage for losses caused directly or indirectly by a virus. ( Id . at 27.) Dezine contends the industry inaccurately and misleadingly represented the virus exclusion as a mere clarification оf the policy, stating there was no such coverage under the existing policies. ( .) Defendants counter the alleged representation is not misleading but insightful: the insurance carriers foresaw attempts by the insureds to make claims involving disease-causing agents for loss of business income, despite not having undergone “direct physical *12 loss of or damage to” property; and such claims are not supportеd under New Jersey law. (ECF No. 10 at 19–20.) Defendants also argue, because the language of the Virus Exclusion is not ambiguous, Dezine cannot rely on extrinsic evidence, such as Defendants’ alleged misrepresentation, to interpret the Virus Exclusion. (ECF No. 15 at 2–3.) The Court finds the doctrine of regulatory estoppel does not apply here.
The estoppel doctrine that “an insurer who misrepresents the coveragе of, or the exclusions
from, an insurance contract to the insured’s detriment may be estopped from denying coverage on
a risk not covered by the policy” applies in a regulatory context.
Morton Int’l v. General Accident
Ins. Co.
,
Here, Dezine has not alleged a misrepresentation by Defendants with regard to the Virus
Exclusion. Defendants’ alleged representation—that the Virus Exclusion would not change the
scope of insurance coverage and was only a clarification of the coverage—was made in 2006.
(ECF No. 1 at ¶¶ 82–83.) The Court does not discern, and Dezine does not present, any Nеw Jersey
legal authority by 2006 stating the inability to use property for its intended use caused by a disease-
causing agent constituted “physical loss or damage to such property.” Notably, the “consideration
of whether a state government order, which required partial closure of businesses, constitutes ‘loss
or damage caused directly or indirectly’ by a virus” “presents novel and important issues of state
insurancе law” in New Jersey.
Marc Daniel Hospitality, LLC v. AmGuard Ins. Co.
, No. 20-6772,
IV. C ONCLUSION
For the reasons set forth above, Defendants’ Motion to Dismiss is GRANTED on all counts. An appropriate order will follow.
Date: March 25, 2021 /s/ Brian R. Martinotti___________ HON. BRIAN R. MARTINOTTI
U NITED S TATES D ISTRICT J UDGE