Egg and I, LLC v. U.S. Specialty Insurance Company

• Court: District Court, D. Nevada
• Decided: February 25, 2021
• Docket: 2:20-cv-00747
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 * * *

7 EGG AND I, LLC, a Nevada limited liability Case No. 2:20-cv-00747-KJD-DJA company; EGG WORKS, LLC, a Nevada 8 limited liability company; EGG WORKS 2, ORDER GRANTING DEFENDANTS’ LLC, a Nevada limited liability company; EGG MOTION TO DISMISS 9 WORKS 3, LLC, a Nevada limited liability company; EGG WORKS 4, LLC, a Nevada 10 limited liability company; EGG WORKS 5, LLC, a Nevada limited liability company; EGG 11 WORKS 6, LLC, a Nevada limited liability company; and EW COMMISSARY, LLC, a 12 Nevada limited liability company,

13 Plaintiffs,

14 v.

15 U.S. SPECIALTY INSURANCE COMPANY, a Texas corporation; PROFESSIONAL 16 INDEMNITY AGENCY, INC., d/b/a TOKIO MARINE, HCC-SPECIALTY GROUP, a New 17 Jersey corporation,

18 Defendants.

19 Before the Court is Defendants’ Motion to Dismiss Complaint (ECF #24). Plaintiffs 20 responded in opposition (ECF #33) and Defendants replied (ECF #37). 21 I. Factual and Procedural Background 22 Plaintiffs are a group of locally owned Las Vegas restaurants known mostly for family- 23 oriented dining experiences. (ECF #1, at 2). Plaintiffs employ over 400 people across the Las 24 Vegas valley. Id. This dispute arises from the Nevada governor’s response to the COVID-19 25 pandemic, which prohibited Plaintiffs, and all other restaurants, from offering onsite dining from 26 March 20, 2020 until April 30, 2020. Id. at 3. Plaintiffs suffered financial losses as a result of the 27 governor’s mandate and sought to recover from their Restaurant Recovery Insurance. Id. at 3–4. 28 Defendant U.S. Specialty Insurance Company (“U.S. Specialty”) is an insurance company based 1 in Texas. Id. at 2. Plaintiffs purchased the Restaurant Recovery Insurance Policy from U.S. 2 Specialty for a one-year policy term, beginning September 1, 2019 and ending September 1, 3 2020. Id. After onsite dining was closed, Plaintiffs provided U.S. Specialty with notice of their 4 financial losses and requested payment consistent with the terms of their policy. Id. at 9. Two 5 days later, Plaintiffs filed the instant action, alleging that “to date, Defendants refuse to or have 6 failed to meaningfully respond to [Plaintiffs’] request and refuse to pay [Plaintiffs] consistent 7 with Defendant’s contractual obligations.” Id. Plaintiffs argue that the government-mandated 8 closure of their dining rooms falls under the coverage provided in the policy and that Defendants 9 have breached their contractual duties owed to Plaintiffs. Id. Specifically, Plaintiffs brought 10 claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and 11 declaratory relief. Id. at 12–19. 12 The insurance policy separates the covered items into four categories: “Accidental 13 Contamination,” “Malicious Tampering,” “Product Extortion,” and “Adverse Publicity.” (ECF 14 #1-3, at 3). The section describing the limits to liability is organized with a subsection for each of 15 those covered items. Id. The table of contents defines the “Insured’s Products” as “[a]ll retail 16 restaurant offerings served during the Policy period at any time at any of the Insured’s Locations 17 in the manner prescribed in the Application form signed and dated August 29, 2019 and held on 18 file with the Insurer.” Id. at 4. A different definition is given in the body of the policy. Under the 19 heading “Insured Events,” the policy states that “The Insurer will reimburse the Insured for its 20 Loss in excess of the Deductible . . . caused by or resulting from any of the following Insured 21 Events first discovered during the Policy Period and reported to the Insurer.” Id. at 6. It then lists 22 the insured events as accidental contamination, malicious tampering, product extortion, and 23 adverse publicity and provides each one a definition. Id. Defendants argue that this kind of loss is 24 not covered in the policy and filed this motion to dismiss for failure to state a claim. (ECF #24). 25 II. Legal Standard 26 Under Rule 8, a pleading must contain “a short and plain statement of the claim showing 27 that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). A complaint does not require 28 “detailed factual allegations,” but “requires more than labels and conclusions, and a formulaic 1 recitation of the elements of a cause of action will not do.” Bell Atlantic Co. v. Twombly, 550 2 U.S. 544, 555 (2007). “To survive a motion to dismiss, a complaint must contain sufficient 3 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft 4 v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557). All “[f]actual 5 allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 6 U.S. at 555. While the court “must take all of the factual allegations in the complaint as true, we 7 ‘are not bound to accept as true a legal conclusion couched as a factual allegation.’” Iqbal, 556 8 U.S. at 678 (quoting Twombly, 550 U.S. at 555). “When the claims in a complaint have not 9 crossed the line from conceivable to plausible, the complaint must be dismissed.” Hendon v. 10 Geico Ins. Agency, 377 F.Supp.3d 1194, 1196 (D. Nev. 2019). 11 “Generally, a district court may not consider any material beyond the pleadings in ruling 12 on a Rule 12(b)(6) motion . . . However, material which is properly submitted as part of the 13 complaint may be considered on a motion to dismiss.” Hal Roach Studios, Inc. v. Richard Feiner 14 & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). Documents “‘whose contents are alleged in a 15 complaint and whose authenticity no party questions, but which are not physically attached to the 16 pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss’ without converting 17 the motion to dismiss into a motion for summary judgment.” Patel v. American Nat’l. Property 18 and Cas. Co., 367 F.Supp.3d 1186, 1191 (D. Nev. 2019) (quoting Branch v. Tunnell, 14 F.3d 19 449, 454 (9th Cir. 1994) (overturned on other grounds)). 20 III. Analysis 21 Defendants argue that the insurance policy does not cover a loss of revenue due to 22 government action during a pandemic, and because the injury was not caused by a covered event, 23 Plaintiffs have failed to state a claim for which relief can be granted. Plaintiffs argue that the 24 policy covers “all restaurant offerings,” including food service to onsite customers, so the loss is 25 covered, and Defendants failed to perform under the contract. Because none of the parties 26 questions the authenticity of the contract cited in the briefs, the Court may consider the content 27 of the insurance policy without converting the motion to dismiss into a motion for summary 28 judgment. Patel, 367 F.Supp.3d at 1191. A review of the insurance policy shows that Plaintiffs’ 1 alleged losses are not covered. Because they are not covered, Plaintiffs have failed to state a 2 claim for which relief can be granted and their motion is dismissed. 3 Plaintiffs claim that the policy definition for “insured products” includes their family- 4 oriented food service to onsite customers and that when the governor suspended in-person 5 dining, Plaintiffs suffered a loss covered by the policy. If such a loss were covered by the policy, 6 then Plaintiffs’ complaint would state a claim for which relief could be granted. A review of the 7 policy is necessary and the interpretation and meaning of a contract is a question of law. Yu v. 8 Albany Ins. Co., 281 F.3d 803, 807 n.2 (9th Cir. 2002). “A written contract must be read as a 9 whole and every part interpreted with reference to the whole, with preference given to reasonable 10 interpretations.” Wapato Heritage, LLC v. United States, 637 F.3d 1033, 1039 (9th Cir. 2011) 11 (quoting Klamath Water Users Protective Ass’n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 12 1999)). The terms of a contract “are to be given their ordinary meaning, and when the terms of 13 contract are clear, the intent of the parties must be ascertained from the contract itself.” Id. When 14 read as a whole, the policy does not cover this type of loss. Plaintiffs’ argument that the table of 15 contents definition of Insured Products as “all restaurant offerings” includes the physical action 16 of serving food is unpersuasive. The definition continues, stating “all restaurant offerings served 17 during the Policy period.” (ECF #1-3, at 4) (emphasis added). Applying Plaintiffs’ logic does not 18 make sense because not serving food to customers is inconsistent with the terms “restaurant 19 offerings served.” That construction would be unreasonable. Section 3.11 of the policy contains a 20 more specific definition of Insured Products than the definition in the table of contents that 21 Plaintiffs rely on. It defines Insured Products as “all ingestible products for human consumption, 22 or any of their ingredients or components . . . and that are all ingestible products for human 23 consumption served at any restaurant location.” Id. at 10–11 (emphasis added). Plaintiff’s 24 interpretation is unreasonable as applied to this more specific definition and as a whole, the 25 contract intends the term “Insured Products” to apply to ingestible items. Those products, despite 26 Plaintiffs’ argument, do not include the actual service of food to onsite customers. 27 Additional evidence exists in the terms of the policy that makes it clear that the Insured 28 Products are the food and ingredients. For example, the policy includes access to a 24-hour crisis 1 line in case of emergency. The number provided would connect Plaintiffs with The Acheson 2 Group, “to respond on food borne illness and contamination issues.” (ECF #1-3, at 5). Providing 3 24-hour emergency access to a group that assists in responding to a food borne illness or 4 contamination is evidence that the contract was intended to provide coverage when the food and 5 ingredients, not the act of serving the food, became dangerous. Section 3.14 describes the costs 6 associated with any recall of the Insured Products and includes “potential effect of 7 contamination,” “redistributing any recalled or restored product(s),” and “restoring the Insured 8 Product(s) to merchantable quality or replacing any recalled Insured Product(s) that have been 9 destroyed.” Id. at 11–12. These are but a few of the references to the Insured Products that 10 indicate that Plaintiffs’ service of food to onsite customers is not covered. Such service is not 11 ingestible, susceptible to contamination or recall, or described as merchantable. The language of 12 the policy shows that the parties agreed to coverage in limited circumstances arising from 13 Insured Events and losses to Insured Products. Government closure during a pandemic was not 14 one of those events and Plaintiffs’ ability to serve onsite customers was not an Insured Product. 15 Applying Plaintiff’s interpretation would be unreasonable when applied to the contract as a 16 whole and cannot be adopted. 17 Plaintiffs argue that the policy’s express exclusion of Avian flu from coverage is 18 evidence that the parties intended to cover more than just contaminated food. They argue that if 19 Defendants specifically excluded the Avian flu, which Plaintiffs state cannot spread through 20 food, then Defendants were aware that they were providing coverage for more than issues of 21 food contamination and intended to cover onsite food service. Plaintiffs ask the Court to take 22 judicial notice that the Avian flu does not spread through food. The Court “may take judicial 23 notice of ‘matters of public record’ without converting a motion to dismiss into a motion for 24 summary judgment.” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). However, 25 the Court may not take judicial notice of facts “subject to reasonable dispute.” FED. R. EVID. 26 201(b). Defendants have provided evidence that Avian flu can spread through undercooked 27 poultry products, including eggs with runny yolks, a common breakfast item. Because reasonable 28 dispute exists, the Court may not take judicial notice as Plaintiffs request. Additionally, because 1 | there is evidence that Avian flu can spread through food, like eggs, Plaintiffs’ argument that the 2 | Avian flu exclusion proves that the policy was not solely intended to cover food contamination is 3 | unpersuasive. Defendants had an evidence-based reason to exclude Avian flu contamination from the policy which focuses on coverage for food contamination. This is especially true when 5 | eggs make up 50% of Plaintiffs’ total percentage of product sales. (ECF #37, at 6). 6 Even if the Court were to accept Plaintiffs’ argument that food service to onsite 7 | customers is included as an Insured Product, Plaintiffs’ complaint still does not state a claim for 8 | which relief can be granted. Section 4 of the policy lists exclusions to coverage, and specifically 9 | states that “loss arising out of a change in governmental or health authority regulations with 10 | respect to the safety of an Insured Product(s) or intended ingredients” is excluded. (ECF #1-3, at 11 | 13). When the governor suspended in-person dining, he did so with respect to the safety of onsite 12 | food service. As such, serving food, 1.e. the alleged Insured Product, would have been regulated 13 | due to its safety. Such a government regulation would be excluded from coverage. If Plaintiffs’ 14| arguments were accepted as true, the policy still would not cover Plaintiffs’ loss. 15 The parties entered a contract that does not cover loss due to government shut down during a pandemic. It also does not include onsite food service as one of the Insured Products. 17 | Because this type of injury is not covered in the policy, Plaintiffs have failed to state a claim for 18 | which relief can be granted and all their claims are dismissed. 19 TV. Conclusion 20 Accordingly, IT IS HEREBY ORDERED that Defendants’ Motion to Dismiss (#24) is GRANTED. 22 | Dated this 25th day of February, 2021. 23 Lace 24 Kent. Danson 25 United States District Judge 26 27 28

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