LNY 5003, LLC v. Zurich American Insurance Co.

CourtDistrict Court, S.D. Texas
DecidedSeptember 28, 2022
Docket4:20-cv-02992
StatusUnknown

This text of LNY 5003, LLC v. Zurich American Insurance Co. (LNY 5003, LLC v. Zurich American Insurance Co.) is published on Counsel Stack Legal Research, covering District Court, S.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
LNY 5003, LLC v. Zurich American Insurance Co., (S.D. Tex. 2022).

Opinion

September 28, 2022 Nathan Ochsner, Clerk UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

LNY 5003 LLC, et al, § CIVIL ACTION NO. Plaintiffs, § 4:20-cv-2992 § § vs. § JUDGE CHARLES ESKRIDGE § § ZURICH AMERICAN § INSURANCE § COMPANY, § Defendant. § OPINION AND ORDER GRANTING MOTION TO DISMISS The motion by Defendant Zurich American Insurance Company to dismiss this action is granted. Dkt 35. 1. Background Defendant Zurich American Insurance Company issued an “all risks” insurance policy to Plaintiffs Fertitta Entertainment Inc and Fertitta Hospitality LLC, who are referred to together as the Fertitta entities. The policy covered seventeen international restaurants for the period of May 31st of 2019 to the same date in 2020. Dkts 32 at ¶ 6 (amended complaint) & 35-1 (insurance policy). Most are steakhouses owned by the related entity Morton’s of Chicago Inc. Of the covered restaurants, seven are in Canada, three are in China, three are in Hong Kong, and one is in each of Taiwan, Macau, Singapore, and Mexico. Dkt 11-2 at 4. The Fertitta entities claim that all of these restaurants suffered losses due to the COVID-19 pandemic in 2020 as a result of “the public’s fear of the coronavirus, the various government shut-down orders, and the coronavirus itself.” Dkt 32 at ¶ 61. They consequently submitted a notice of loss under the policy in April 2020. Id at ¶ 114. Zurich rejected coverage, asserting that it would “deny all COVID-19 related claims made under those policies.” Ibid. The Fertitta entities putatively assigned the policy to LNY 5003 LLC in July 2020, which brought this action against Zurich in Texas state court. Dkts 1-2 (original complaint) & 11-2 (putative assignment). Zurich removed to federal court the next month. Dkt 1. A motion by LNY to remand was denied upon finding that it wasn’t a proper party to this action. See LNY 5003 LLC v Zurich American Insurance Co, 558 F Supp 3d 416 (SD Tex 2021). LNY then amended its complaint to add the Fertitta entities as plaintiffs. Dkt 32. Zurich now moves to dismiss. Dkt 35. 2. Legal standard Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a plaintiff’s complaint to provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Rule 12(b)(6) allows the Defendant to seek dismissal if the plaintiff fails “to state a claim upon which relief can be granted.” Read together, the Supreme Court holds that Rule 8 “does not require ‘detailed factual allegations,’ but it demands more than an unadorned, the-defendant- unlawfully-harmed-me accusation.” Ashcroft v Iqbal, 556 US 662, 678 (2009), quoting Bell Atlantic Corp v Twombly, 550 US 544, 555 (2007). To survive a Rule 12(b)(6) motion to dismiss, the complaint “must provide the plaintiff’s grounds for entitlement to relief— including factual allegations that when assumed to be true ‘raise a right to relief above the speculative level.’” Cuvillier v Taylor, 503 F3d 397, 401 (5th Cir 2007), quoting Twombly, 550 US at 555. A complaint must therefore contain enough facts to state a claim to relief that is plausible on its face. Twombly, 550 US at 570. A claim has facial plausibility “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 US at 678, citing Twombly, 550 US at 556. This standard on plausibility is “not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Ibid, quoting Twombly, 550 US at 556. Review on motion to dismiss under Rule 12(b)(6) is constrained. The reviewing court must accept all well- pleaded facts as true and view them in the light most favorable to the plaintiff. Walker v Beaumont Independent School District, 938 F3d 724, 735 (5th Cir 2019). But courts “do not accept as true conclusory allegations, unwarranted factual inferences, or legal conclusions.” Gentiello v Rege, 627 F3d 540, 544 (5th Cir 2010). The court must also generally limit itself to the contents of the pleadings and its attachments. Brand Coupon Network LLC v Catalina Marketing Corp, 748 F3d 631, 635 (5th Cir 2014). 3. Analysis Zurich moves to dismiss all claims. As to LNY, it asserts lack of subject-matter jurisdiction. Dkt 35 at 24. As to the Fertitta entities, it asserts failure to state a claim. Id at 11–23. a. Lack of subject-matter jurisdiction LNY remains in this action even after amendment to add the Fertitta entities. See Dkt 32. LNY’s relationship to those entities was detailed by prior order denying the motion to remand. See 558 F Supp 3d at 417–19. As determined there, LNY isn’t a party to the policy at issue, and so it isn’t a proper party to this action. Id at 427; see also Dkt 35 at 24. LNY’s response doesn’t address this point, thus conceding it. See Dkt 36. LNY’s claims will be dismissed without prejudice for lack of subject-matter jurisdiction. b. Failure to state a claim The Fertitta entities cite seven provisions affording policy coverage to justify their claim for relief. These include business-income coverage, extra-expense coverage, civil-authority coverage, ingress/egress coverage, two separate microorganism coverages, and “coverage for losses arising from ‘Specified causes of loss,’ including ‘civil commotion.’” Dkt 32 at ¶¶ 54–60; see also id at ¶¶ 93–105. The first six all require “physical loss or damage” to insured or nearby properties. Those provisions are addressed together, followed by consideration of the final provision regarding coverage where microorganisms result in a civil commotion. i. Coverage requiring physical loss or damage to insured or nearby properties The Fertitta entities assert that they “suffered direct physical loss of and damage to the restaurants as a result of the COVID-19 pandemic.” Dkt 32 at ¶ 62. They specifically allege that the properties became “contaminated with the virus” via “droplets containing COVID-19.” Id at ¶¶ 44, 63–65. Likewise, they allege that properties within two kilometers of the insured properties suffered physical loss and damage due to COVID-19 contamination, resulting in civil orders that forced the insured properties to close temporarily. Id at ¶¶ 56, 68, 78. The policy defines neither physical loss nor physical damage. But it does state that all phrases in the policy “are intended to have their ordinary or common meaning.” Dkt 35-1 at 38. The policy also states that disputes “concerning the meaning of words or phrases will be resolved using the most recently published version of Webster’s Unabridged Dictionary.” Ibid. The Fifth Circuit in Terry Black’s Barbecue v State Automobile Mutual Insurance Company addressed the definition of physical loss in a coverage-related COVID-19 context. 22 F4th 450 (5th Cir 2022). It first found that the adjective physical requires a tangible alteration to the insured property. Id at 455–56. It next found that loss refers to a deprivation of the insured property. Id at 456. And so it concluded that the ordinary and common meaning of physical loss requires “a tangible alteration or deprivation of property.” Id at 458. The panel thus found that the policy at issue didn’t provide coverage because the COVID-19-related “civil authority orders prohibiting dine- in services at restaurants did not tangibly alter” the properties at issue. Ibid. The Fifth Circuit hasn’t defined physical damage, but the same definition of physical pertains. And Webster’s Unabridged Dictionary defines damage as “loss or harm resulting from injury to person, property, or reputation.” The ordinary and common meaning of physical damage thus requires a tangible harm to the insured property. Cf Terry Black’s, 22 F4th at 458; see also Steven Plitt et al, Couch on Insurance § 148:46 (3d ed Westlaw).

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LNY 5003, LLC v. Zurich American Insurance Co., Counsel Stack Legal Research, https://law.counselstack.com/opinion/lny-5003-llc-v-zurich-american-insurance-co-txsd-2022.