Case Information
TIN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ADRIAN MOODY and ROBIN JONES : CIVIL ACTION d/b/a/ MOODY JONES GALLERY :
Plaintiff, :
: v. : No. 20-2856 :
THE HARTFORD FINANCIAL :
GROUP, INC. and TWIN CITY FIRE :
INSURANCE CO. :
Defendants. :
MEMORANDUM
Adrian Moody and Robin Jones, doing business as Moody Jones Gallery (“Moody Jones”), shut the doors of their art gallery to customers on March 16, 2020, because of the COVID-19 pandemic and associated government orders addressing the pandemic. Moody Jones sought indemnity from its insurance carrier, Twin City Fire Insurance Company (“Twin City”) under its all-risk commercial property policy (“Policy”). [1] Twin City denied the claim, and Moody Jones filed the instant lawsuit seeking a declaratory judgment that its losses are covered.
I. BACKGROUND [2] Moody Jones is an art gallery in Montgomery County, Pennsylvania. See 20-2856, ECF
No. 10 (“Compl.) ¶ 9. Twin City, an insurance carrier headquartered in Indianapolis, Indiana, issued an insurance policy to Moody Jones for the period of December 10, 2019, to December 10, 2020. Id. ¶¶ 9-10. The Policy provided property, business personal property, business income and extra expense coverages, and civil authority coverage, amongst other provisions. [3] Id. ¶ 14. Moody Jones seeks to recover for losses it incurred when it closed the art gallery “[i]n light of the Coronavirus global pandemic and state and local orders mandating that all non- essential in store businesses must shut down.” Id. ¶ 2.
According to the Complaint, COVID-19 is omnipresent, impacting the environment and leading to the government orders to protect businesses and people from COVID-19. ¶ 44. The virus that causes COVID-19 remains stable and transmittable in the air for up to three hours, and on various surfaces for hours to multiple days. Id. ¶ 48-53. The virus is thought to spread mainly from person-to-person, though the CDC has noted it may be possible to become infected by touching contaminated surfaces. Id. ¶ 55. Contamination of Moody Jones’s property by the virus would require remediation to clean the surfaces of the offices and retail store. Id. ¶ 47. In businesses such as Moody Jones, there is a heightened risk of its property being contaminated. Id. ¶ 73. Moody Jones also alleges that its property is contaminated by COVID-19. Id. ¶ 81.
On March 6, 2020, Pennsylvania Governor Wolf issued a Proclamation of Disaster
Emergency. ¶ 62. The City of Philadelphia first issued restrictions on the operations of non-
essential businesses to mitigate the spread of COVID-19 on March 16, 2020.
Id.
¶ 62. The City
are generally not included here except as necessary for context.
See Connelly v. Lane Const.
Corp.
,
[3] Twin City attached the Policy in full as an exhibit to its motion papers. See ECF No. 11-2, Ex. A. Citations to the Policy are to the Policy attached to Twin City’s Motion to Dismiss (see id. ). of Philadelphia and Governor Wolf issued subsequent orders (collectively “government orders”) requiring all non-essential businesses – like Moody Jones – to close. Id. ¶ 63-65. Pennsylvania also issued stay-at-home orders to residents. Id. ¶ 65-66. On June 5, 2020, Philadelphia permitted businesses like Moody Jones to gradually reopen provided they follow certain protocols. ¶ 67. Compliance with the CDC recommendations and the government orders “effectively made it impossible for Plaintiff to operate its business in the usual and customary manner,” which caused its business losses and added expenses. Id. ¶ 58.
Moody Jones filed this action seeking a declaration that its business losses were covered. Id. Twin City filed a Motion to Dismiss. ECF No. 11. Moody Jones responded, ECF No. 12, and Twin City replied, ECF No. 13. Twin City’s motion is now ripe for the Court’s review. [4]
II. STANDARD OF REVIEW
A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of a complaint. To
survive a 12(b)(6) motion, “a complaint must contain sufficient factual matter, accepted as true,
to state a claim to relief that is plausible on its face.”
Zuber v. Boscov’s
,
The Court must conduct a three-step analysis when presented with a 12(b)(6) motion.
First, it must “tak[e] note of the elements [the] plaintiff must plead to state a claim.”
Connelly v.
Lane Const. Corp.
,
III. DISCUSSION
a. Legal Framework
The issue before the Court is one of contract interpretation. Under Pennsylvania law,
which the parties agree applies to this case, “[c]ontract interpretation is a question of law that
requires the court to ascertain and give effect to the intent of the contracting parties as embodied
in the written agreement.”
In re Old Summit Mfg., LLC
,
The Court’s analysis begins with whether a provision in the insurance policy is
ambiguous. When insurance policy language is “clear and unambiguous,” a court applying
Pennsylvania law must “give effect to that language.”
401 Fourth Street v. Inv’rs Ins. Co.
, 879
A.2d 166, 170 (Pa. 2005). “Alternatively, when a provision in the policy is ambiguous, the
policy is to be construed in favor of the insured to further the contract’s prime purpose of
indemnification and against the insurer, as the insurer drafts the policy, and controls coverage.”
Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co.
,
Under Pennsylvania law, “ambiguity (or the lack thereof) is to be determined by
reference to a particular set of facts.” at 607. The “proper focus regarding issues of coverage
under insurance contracts is the reasonable expectation of the insured.”
Bubis v. Prudential
Prop. & Cas. Ins. Co.
,
The insured party bears the burden to “make a prima facie showing that a claim falls
within the policy’s grant of coverage.”
State Farm Cas. Co. v. Estate of Mehlman
,
b. Policy
Moody Jones asserts its losses are covered under the Policy. Its all-risk policy protects against “direct physical loss of or physical damage to Covered Property at the premises described . . . caused by or resulting from a covered Cause of Loss.” Policy, ECF No. 11, Ex. A, at 31. “Covered Cause of Loss” is defined as “risks of direct physical loss unless the loss is Excluded . . . or Limited. . .” Id. at 32.
The Business Income coverage provision covers certain losses of business income caused by direct physical loss of or damage to the covered property. It provides in part that Twin City:
will pay for the actual loss of Business Income [the insured] sustain[s] due to the necessary suspension of [its] “operations” during the “period of restoration”. The suspension must be caused by direct physical loss of or physical damage to property at the "scheduled premises", including personal property in the open (or in a vehicle) within 1,000 feet of the “scheduled premises”, caused by or resulting from a Covered Cause of Loss.
Id. at 40. The Policy defines “suspension” as “[t]he partial slowdown or complete cessation of your business activities” or that part or all of the “scheduled premises” is “rendered untenantable as a result of a Covered Cause of Loss.” Id. “Operations” means the business activities “occurring at the ‘scheduled premises’ and tenantability of the ‘scheduled premises.’” Id. at 54. The “period of restoration” is defined as the time that (a) “begins with the date of direct physical loss or physical damage caused by or resulting from a Covered Cause of Loss at the ‘scheduled premises’ and “[e]nds on the date when:” (1) “[t]he property at the ‘scheduled premises’ should be repaired, rebuilt, or replaced with reasonable speed and similar quality; (2) [t]he “date when [the insured’s] business is resumed at a new permanent location.”
Under the Policy’s Extra Expense coverage, Twin City agreed to pay for “reasonable and necessary Extra Expense [the insured] incur[s] during the ‘period of restoration’ that [it] would not have incurred if there had been no direct physical loss or physical damage to property at the ‘scheduled premises’ . . . caused by or resulting from a Covered Cause of Loss.” Id. “Extra Expense” means expenses incurred to:
(a) avoid or minimize the suspension of business and to continue ‘operations’; . . . (b) [t]o minimize the suspension of business if [the insured] cannot continue ‘operations’; [or] (c)(i) [t]o repair or replace any property; or (ii) [t]o research, replace or restore the lost information on damaged . . . papers and records. at 40-41.
Separately, the Policy includes additional Civil Authority Coverage, which extends coverage to “actual loss of Business Income [the insured] sustain[s] when access to [its] ‘scheduled premises’ is specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate area of [its] ‘scheduled premises.’” Id. at 41. This coverage begins 72 hours after the order of a civil authority and ends at the earlier of “[w]hen access is permitted” or “30 consecutive days after the order of the civil authority.” Id.
Finally, the Policy includes a “fungi, wet rot, dry rot, bacteria and virus” exclusion that Twin City argues precludes coverage even if Moody Jones could establish prima facie coverage.
c. Prima Facie Coverage
Under Pennsylvania law, the Court first determines whether Moody Jones has met its
burden of establishing coverage under the Policy’s affirmative coverage grant.
See State Farm
,
In its motion to dismiss, Twin City argues that Moody Jones has not and cannot show its claim falls within the Policy’s grant of coverage. Moody Jones responds that it has sufficiently alleged facts that trigger coverage or at minimum allow it to proceed past the motion to dismiss stage to discovery.
1. Business Income and Extra Expense Coverage
For Moody Jones to state a prima facie claim of coverage under the Business Income or Extra Expense provisions, it must show it has suffered “direct physical loss of or physical damage to” its property. The parties dispute the meaning of that phrase. Moody Jones contends that “direct physical loss of . . . property” is not limited to physical alteration of the property but includes lost operations or inability to use its business. See Pl. Br. in Opp. at 28-35. Because Twin City failed to define “direct physical loss of or physical damage to” in its Policy, Moody Jones argues that its reasonable interpretation must govern. Twin City argues that Moody Jones has alleged no direct physical loss or damage to its property and that government orders are not a covered cause of loss. See Mot. to Dismiss at 18-21, 12-15.
Third Circuit precedent is on point and instructive here. In
Port Authority of New York
and New Jersey
, the Circuit addressed whether the presence of asbestos in a building constituted
“direct physical loss or damage” under New Jersey law.
Port Auth. of N.Y. & N.J. v. Affiliated
MF Ins. Co.
,
only if an actual release of asbestos fibers from asbestos containing materials has resulted in contamination of the property such that its function is nearly eliminated or destroyed, or the structure is made useless or uninhabitable, or if there exists an imminent threat of the release of a quantity of asbestos fibers that would cause such loss of utility . at 236 (emphasis added). The criteria for ‘physical loss’ caused by a source “unnoticeable to the naked eye” is thus “whether the functionality of the . . . property was nearly eliminated or destroyed, or whether the[] property was made useless or uninhabitable” by that source. Id. The “mere presence of asbestos, or the general threat of future damage from that presence, lacks the distinct and demonstrable character necessary for first-party insurance coverage.” Id. This test is consistent with Pennsylvania law. See Motorists Mut. Ins. Co. v. Hardinger , 131 F. App’x 823, 826 (3d Cir. 2005) (finding an issue of material fact existed under Pennsylvania law as to whether a house’s functionality was nearly eliminated or destroyed, or made useless or uninhabitable, by the presence of e coli in a well).
Thus, “under Pennsylvania law, for Plaintiffs to assert an economic loss resulting from
their inability to operate their premises as intended within the coverage of the Policy’s ‘physical
loss’ provision, the loss and the bar to operation from which it results must bear a causal
relationship to some
physical condition
of the premises.”
4431, Inc. et al v. Cincinnati Ins. Cos
.,
No. 5:20-cv-04396,
And so, the Court looks to Moody Jones’s complaint to determine whether well-pleaded
facts show alleged losses that “bear some causal connection to the physical condition of the
premises” and whether those conditions “operate[d] to completely or near completely preclude
operation of the premises as intended.”
4431, Inc.
,
To the extent that Moody Jones alleges that its “direct physical loss of or damage to” its property is the inability to use the property as intended because of the government closure orders, those losses do not bear a causal connection to the physical condition of its premises. Rather, Moody Jones is alleging that mere loss of use untethered to the physical condition of its property suffices. This reading contradicts Port Authority ’s holding and is unreasonable because it would render two other Policy provisions superfluous or nonsensical.
First, it would create discord between the business income and extra expense provisions on one hand and the Civil Authority coverage endorsement on the other. If mere inability to use a property or inability to use it for its intended purpose is a “direct physical loss,” then a government order barring access to a property would itself trigger business income or extra expense coverage because that lack of access would mean that the business could not use the property and was therefore suffering direct physical loss or damage. In that case, there would be no need for a separate Civil Authority provision granting coverage when civil authority orders bar access to premises under more limited circumstances. [7]
Second, Moody Jones’s reading does not make sense in relation to the “period of
restoration” language. Business Income and Extra Expense coverage is only provided during the
period of restoration, defined in part as the time that begins “with the date of direct physical loss
or physical damage caused by or resulting from a Covered Cause of Loss” and ends on the date
when “[t]he property . . . should be repaired, rebuilt, or replaced with reasonable speed and
similar quality” or the “date when . . . business is resumed at a new permanent location.” Built
into coverage for business income, extra expense, or extended business income losses under the
Policy, then, is the idea that there is something to repair, rebuild, or replace – none of which
exists for mere loss of use untethered to a physical condition of the property.
See Newman
Myers Kreines Gross Harris, P.C. v. Great N. Ins. Co.
,
Moody Jones separately alleges that the virus
is
on its property and has been damaged by
it. Compl. ¶ 81. Setting aside the fact that this allegation contradicts its argument that its losses
were caused only by the government orders, it also fails to plausibly allege direct physical loss or
damage. Neither the presence of the virus nor an imminent threat thereof – also separately
alleged by Moody Jones – has “nearly eliminated or destroyed” the property’s functionality or
rendered it “useless or uninhabitable.”
Hardinger
,
Thus, none of Moody Jones’s theories for the physical loss of or damage to its property it allegedly suffered suffice to plausibly plead covered losses. Moody Jones requests discovery on “whether there exists physical loss or damage, the mechanism by which the coronavirus and COVID-19 cause property damage and illness, the infectiousness and health risks of COVID-19, [and] the expense that is necessary for remediation.” Pl. Br. in Opp. at 17. In particular, it claims that expert testimony is necessary to demonstrate the property damage “[b]ecause of the nature of the coronavirus.” Id. But any facts learned through that process would not rescue Moody Jones’s claim from its legal deficiencies based on the plain language of its Policy and applicable Third Circuit law.
To the extent Moody Jones argues that the Court should hold that its losses are covered regardless of the language of the Policy because they “reasonably expected” them to be covered, those arguments are unavailing. Moody Jones alleges that it “purchased the Policy with an expectation that it was purchasing a policy that would provide coverage in the event of business interruption,” and that Twin City at no time notified Moody Jones that it had purchased a Policy that had “exclusions and provisions that purportedly undermined the very purpose of the coverage, of providing benefits in the occurrence of business interruption and incurring extended expenses.” Compl. ¶¶ 35-36. It further alleges that Moody Jones “specifically sought coverage for business interruption losses and extra expenses and paid premiums for such coverage . . . with no disclosures to the contrary being made to Plaintiff by Defendant or its agents.” ¶ 86.
But Moody Jones has not pleaded facts that lead the Court to conclude that Twin City or
its agent “create[d] in the insured a reasonable expectation of coverage that is not supported by
the terms of the policy.”
Bensalem Twp.
,
To be sure, Moody Jones alleges that it sought coverage for business interruption losses
and that Twin City did not disclose that its policy excluded those losses. But Moody Jones fails
to assert any
change
in the policy they actually applied and paid for that they were unaware of
which would justify setting aside the plain language.
See Bensalem Twp.
,
2. Civil Authority Coverage
For the Policy’s Civil Authority Coverage to apply, there must be a (1) “specific[] prohibit[ion] of access to” Moody Jones’s premises, (2) a Covered Cause of Loss to property in the immediate area” of Moody Jones’s premises, and (3) the order specifically prohibiting access to Moody Jones’s premises must be a direct result of that covered cause of loss. Twin City argues that Moody Jones failed to allege that it could not access its premises, failed to allege any harm to any other property, and failed to plausibly allege the causation element. Moody Jones responds that the Orders bar the public from the premises, that COVID-19 losses and the risk of injury is a covered cause of loss, and that it did allege the causation element. The Court agrees with Twin City that Moody Jones has failed to plausibly allege prima facie coverage under the Civil Authority provision.
Moody Jones must plausibly plead that there was a “Covered Cause of Loss” to nearby property that directly resulted in the government order specifically prohibiting access to Moody Jones’s premises. ECF No. 11, Ex. A at 41. The parties agree that this provision requires the Orders to be issued in response to loss or damage to nearby property. See ECF No. 11, Mot. to Dismiss at 22-23; see also Pl. Br. in Opp., ECF No. 12 at 21. Moody Jones argues that it meets this requirement because it “indisputably alleges that at the time of the entry of the Orders, the spread of COVID-19 was already underway and constituted losses to the area in and around” its premises. at 21. In this way, Moody Jones attempts to counter Twin City’s argument that courts routinely reject civil authority claims aimed at future harm.
The Court agrees that the orders were issued to respond to COVID-19. But as Moody
Jones itself also alleges, these orders were issued “to mitigate health risks to the public by
attempting to prevent COVID-19 contamination.” Compl. ¶ 85.
See also, e.g.
, “Proclamation of
Disaster Emergency, Governor Wolf, Commonwealth of Pennsylvania (March 6, 2020) (stating
that it is critical “to implement measures to mitigate the spread of COVID-19”);
Friends of
Danny Devito v. Wolf
,
3. No Prima Facie Coverage
The Court recognizes that courts in other jurisdictions have either found coverage under similar policies or allowed cases to survive motions to dismiss. But upon review of those non- binding cases, Moody Jones’s Policy, and relevant caselaw from the Third Circuit, the Court finds that Moody Jones has not met its burden to plausibly allege coverage under its policy and cannot do so given the nature of its losses.
d. Virus Exclusion
Even if Moody Jones had plausibly alleged its losses qualified for Business Income, Extra Expense, or Civil Authority Coverage, the Virus Exclusion precludes coverage. The Virus Exclusion provides that Twin City “will not pay for loss or damage caused directly or indirectly by . . . Presence, growth, proliferation, spread or any activity of ‘fungi’, wet rot, dry rot, bacteria or virus.” ECF No. 11, Ex. A at 126. But if “‘fungi’, wet rot, dry rot, bacteria or virus results in a ‘specified cause of loss’ to Covered Property,” Twin City “will pay for the loss or damage caused by that ‘specified cause of loss.’” Id. The exclusion applies “regardless of any other cause or event that contributes concurrently or in any sequence to the loss” and “whether or not the loss event results in widespread damage or affects a substantial area.” Id. Twin City argues this exclusion unambiguously precludes coverage for Moody Jones’s losses, which were ultimately caused by the existence of the coronavirus. Moody Jones responds that the Virus Exclusion does not apply and is ambiguous, that the doctrine of regulatory estoppel precludes Twin City from asserting the virus exclusion, and that, at a minimum, its regulatory estoppel argument and applicability of the virus exclusion warrant discovery.
1. Applicability of the Virus Exclusion
Moody Jones claims that the Virus Exclusion does not apply because the government closure orders, not the virus, was the cause of its losses. Disregarding the fact that Moody Jones separately alleged that the virus was on its property and damaged it, Compl. ¶ 81, its losses stemming from the government orders still do not escape the applicability of the Virus Exclusion. By the terms of the Policy, the virus need only be one cause of loss, not the sole or proximate cause of loss, for the exclusion to bar coverage. See ECF No. 11 Ex. A at 126. Moody Jones acknowledges that the coronavirus is a virus. ¶ 48. Whether or not Moody Jones alleged that the virus was at its property is immaterial because nothing in the exclusion limits its applicability to situations where a virus is on the covered property. Instead, the virus exclusion applies because Moody Jones alleged that its losses stem from the Closure Orders, and those closure orders were designed to prevent exposure to COVID-19 and the spread of the virus. Those orders would not have been issued but for the “[p]resence, growth, proliferation, [or] spread” of the coronavirus. Even if the virus was not the direct cause of its losses, it was at least an indirect cause, which is sufficient to bar coverage under the Virus Exclusion clause.
Moody Jones also argues that the Virus Exclusion does not bar coverage because it is
ambiguous and discovery is needed to ascertain the intent of the exclusion. A sister court
recently held a virus exclusion identical to this Policy’s to be unambiguous in the context of
losses caused by the coronavirus.
See Wilson v. Hartford Cas. Co.
, No. 20-cv-3384, 2020 WL
5820800, at *7 (E.D. Pa. Sept. 30, 2020) (“[Insurer] will not pay for loss or damage caused
directly or indirectly by . . . [p]resence, growth, proliferation, spread or any activity of ‘fungi’,
wet rot, dry rot, bacteria or virus.”). Exclusions are “effective against an insured if they are
clearly worded and conspicuously displayed, irrespective of whether the insured read the
limitations or understood their import.”
Frederick Mut. Ins. Co. v. Ahatov
,
Moody Jones argues that the provision is ambiguous because it has pleaded that the
government orders causes its losses rather than a virus. This allegation, contradicted by other
allegations in its complaint, does not render the exclusion ambiguous because the anti-
concurrent-clause language unambiguously dictates that the virus exclusion applies even if a
virus is not the sole or proximate cause of loss.
See Heller’s Gas, Inc. v. Int’l Ins. Co. of
Hannover Ltd.
, No. 15-1350,
Moody Jones also argues that the Virus Exclusion does not preclude coverage because it
does not mention a pandemic situation or damages incurred as a result of a pandemic. The
coronavirus outbreak is undoubtedly a pandemic. Compl. ¶ 50. But the Virus Exclusion
specifically notes that it applies “whether or not the loss event results in widespread damage or
affects a substantial area.” ECF No. 11 Ex. A at 126. A virus spreading around the world, which
was then classified as a pandemic, fits squarely within the plain language of the exclusion.
Moody Jones attempts to bolster its argument by citing exclusions in other policies that preclude
coverage for “actual or suspected presence or threat of any virus . . . capable of inducing disease .
. . including but not limited to any epidemic, [or] pandemic . . .”
See
Pl. Br. in Opp. at 12 (citing
Myer Nat. Foods, LLC v. Liberty Mut. Fire Ins. Co.
,
Moody Jones presents various arguments for why it should be allowed discovery on the
virus exclusion. It argues that “[m]aterial and complex factual issues” exist, including the
“validity, purpose, and scope of the Virus Exclusion,” whether the inclusion of that exclusion in
the Policy resulted in a decrease in premiums or alternatively unjustly enriched Twin City, and
how it was drafted and should be interpreted. Pl. Br. in Opp. at 11, 13. But when insurance
policy language is “clear and unambiguous,” a court applying Pennsylvania law must “give
effect to that language.”
401 Fourth Street
,
2. Regulatory Estoppel
Moody Jones separately argues that Twin City should be estopped from relying on the Virus Exclusion to deny coverage because the Virus Exclusion was fraudulently adopted. Without relying on any alleged facts, Moody Jones asserts that a potential regulatory estoppel argument merits discovery and renders dismissal at this stage inappropriate. The Court disagrees.
The Court’s responsibility at this stage is to determine whether Moody Jones’s complaint
can survive Twin City’s motion to dismiss by alleging sufficient factual matter, accepted as true,
to state a plausible claim to relief.
Zuber
,
Moody Jones alleges that, on information and belief, the Virus Exclusion was first permitted by state insurance departments “due to misleading and fraudulent statements by the ISO that property insurance policies do not and were not intended to cover losses caused by viruses, and so the Virus Exclusion offers mere clarification of existing law.” Compl. ¶ 27. It alleges that this position was fraudulent and misleading because, “before the ISO made such baseless assertions, courts considered contamination by a virus to be physical damage.” And it further alleges that the Virus Exclusion was improperly added to policies by insurance carriers to expand the exclusions of coverage in their policies without disclosing to regulators that the provision was reducing coverage. Id. ¶ 28.
These allegations do not plausibly plead the first element. Moody Jones argues that its
allegations that the ISO made fraudulent statements to state regulators suffices. But the
Complaint does not allege that Twin City itself made any specific statements or that the ISO
presented on Twin City’s behalf.
Compare Handel
,
Even if the ISO’s alleged statements could be imputed to Twin City, and even if Twin
City had used the ISO exclusion form, Moody Jones has not alleged that Twin City is now
contradicting the statements that the ISO made to state regulatory bodies. The ISO allegedly told
regulators that “property insurance policies do not and were not intended to cover losses caused
by viruses, and so the Virus Exclusion offers mere clarification of existing law.” Compl. ¶ 27.
Twin City takes the same stance here by arguing that the Policy’s virus exclusion precludes
coverage for any damage or loss caused “directly or indirectly by . . . activity of . . . [a] virus,”
ECF No. 11, Ex. A at 126, and that the property insurance policy does not cover economic losses
from viruses that do not cause direct physical loss of or damage to property under its affirmative
grant of coverage. Twin City’s position in this litigation does not contradict a position that the
ISO took, so the regulatory estoppel doctrine is inapplicable for this reason, as well.
See Hussey
,
Because Moody Jones has failed to plausibly allege either element of regulatory estoppel, its argument fails and the Virus Exclusion applies. Moody Jones argues that disposition at this stage is premature, and that it needs discovery of both Twin City and the ISO with respect to the potential regulatory estoppel defense. But because Moody Jones did not allege that Twin City made any arguments to the regulators or that the ISO presented on Twin City’s behalf, that discovery would be irrelevant; no matter what was said before the regulators, it would not be imputed to Twin City. And even if that discovery were allowed and Moody Jones could somehow meet the elements for regulatory estoppel precluding the application of the virus exclusion, its claim would fail because Moody Jones has not and cannot demonstrate losses that fit within the Policy’s affirmative grant of coverage as a matter of law.
e. Leave to Amend
Courts must grant plaintiffs leave to amend their complaint where justice so requires.
Fed. R. Civ. P. 15(a)(2). But where leave to amend would be futile, denial of leave to amend is
appropriate.
See Kanter v. Barella
,
IV. CONCLUSION
Because Moody Jones’s losses are not covered by the Policy, the Court will grant Twin City’s Motion to Dismiss and dismiss with prejudice Moody Jones’s complaint seeking a declaration that its losses are covered.
Notes
[1] Moody Jones’s original Complaint included The Hartford Financial Services Group as a defendant, but that entity was voluntarily dismissed pursuant to Fed. R. Civ. P. 41(a)(1). The Amended Complaint includes only Twin City as a defendant.
[2] The Court “accept[s] as true all allegations in plaintiff’s complaint as well as all reasonable
inferences that can be drawn from them, and construe[] them in a light most favorable to the non-
movant.”
Tatis v. Allied Interstate, LLC
,
[4] This Court has jurisdiction pursuant to 28 U.S.C. § 1332, because Moody Jones and Twin City are diverse and the amount in controversy is over $75,000.
[5] Because the policy at issue was drafted by one party and only signed by the other, it is also an
adhesion contract. Under the doctrine of
contra proferentem
, “any ambiguous language in a
contract is construed against the drafter and in favor of the other party if the latter’s interpretation
is reasonable.”
Colorcon, Inc. v. Lewis
,
[6] Moody Jones cites a plethora of cases from across the country finding covered loss, almost exclusively when something physical affects the physical condition of the property. To the extent that those cases align with the Third Circuit’s reasoning in Port Authority and Hardinger , the Court considers them.
[7] Said another way, a civil authority order cannot itself be a “Covered Cause of “Loss” that causes loss of or damage to Moody Jones’s property if the same order is required to be “the direct result of a Covered Cause of Loss” for purposes of Civil Authority coverage. ECF No. 11, Ex. A at 41.
[8] In its brief, Moody Jones states that “Defendant/the ISO” made statements to the regulatory agency. Because its complaint does not state that Twin City made any statements to the regulators and because its brief also states that Twin City was the intended beneficiary of the ISO’s statements, the Court understands Moody Jones’s “Defendant/ISO” denomination to mean that the ISO made statements and Twin City was the intended beneficiary of them.
[9] Although the parties did not include a copy of the ISO’s version of the Virus Exclusion for the
Court to be able to verify, it appears that Twin City’s policy uses its own form, created by
Hartford, rather than the one created by the ISO.
See
ECF No. 11, Ex. A at 126 (reflecting a
Hartford copyright and a 2005 edition date). If so, this would be another reason that the
regulatory estoppel argument is inapplicable.
See Hussey
,