BENAMAX ICE, LLC v. MERCHANTS MUTUAL INSURANCE COMPANY

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

BENAMAX ICE, LLC, : Hon. Joseph H. Rodriguez

:

Plaintiff, : Civil Action No. 20-8069

:

v. : OPINION

:

MERCHANT MUTUAL INSURANCE CO., :

JOHN DOES (1-10), ABC COMPANIES (1-10) :

:

Defendants. :

This matter comes before the Court on Motion to Dismiss of Defendant Merchant

Marine Insurance Company (“Merchants”) pursuant to Fed. R. Civ. P. 12 (b)(6). Plaintiff

Benamax Ice, LLC (“Benamax”), which operates a restaurant1 in Westmont, New Jersey,

filed this breach of contract and declaratory judgment action alleging it is entitled to

insurance coverage from Defendant Merchants for business income losses resulting

from the impact of the COVID-19 global pandemic and the governmental response to

contain the spread of the virus. Specifically, Benamax claims that both federal and state

government orders mandating that in-person dining be suspended at restaurants

(“Governmental Orders”) has negatively impacted its business and, as a result, Benamax

seeks coverage for losses sustained for the business interruption caused by the

cumulative effect of the pandemic and the social constraints imposed by the

government.

The parties agree that Merchants issued a Commercial Businessowners Policy

(the “Policy”) to Benamax covering, inter alia, losses caused by direct physical loss of or

1 Benamax Ice operates a walk-in style quick service food retail establishment serving frozen desserts including, but

not limited to Ice Cream and Italian Ice.

damage to property. Merchants moves to dismiss on the basis that Benamax’s economic

losses are not covered under the Policy and because Benamax has not sufficiently

alleged qualifying physical damage and because the Policy’s “Virus or Bacteria”

exclusion applies and precludes coverage.

The unfortunate circumstances many businesses face has resulted in an uptick in

insurance litigation over policy coverage for economic losses endured because of the

public’s trepidation and the government’s social gathering management policies. The

litigation, although recent, has quickly accrued caselaw considering policy coverage,

such as and including Policy one at issue here. Defendant argues that several courts,

including some in this district, have interpreted the Merchant Policy and found that the

plaintiffs’ economic losses in those cases, as related to the COVID-19 pandemic, are not

covered for a variety of reasons, but most notably because of the Virus or Bacteria

exclusion. See Delaware Valley Plumbing Supply, Inc. v. Merchants Mut. Ins. Co., No.

20-CV-08257 (NLH), 2021 WL 567994, at *7 (D.N.J. Feb. 16, 2021) (“While the Court

recognizes the significant harm suffered by individuals and businesses as a result of the

COVID-19 pandemic, the Policy provided by Defendant explicitly barred coverage for

the losses allegedly suffered by Plaintiff here.”); Gavrilides Management Co. v.

Michigan Insurance Co., No. 20-258-CB-C30 (Mich. Cir. Ct. July 1, 2020) (granting

insurer motion to dismiss); Social Life Magazine, Inc. v. Sentinel Ins. Co. Ltd., No. 20

CIV 3311 (VEC) (S.D.N.Y. May 14, 2020) (denying policyholder’s preliminary injunction

motion based upon failure to demonstrate likely success on the merits).

Benamax’s Complaint alleged that it suffered “direct physical loss of” or damage to

property” because its property was rendered unusable for its intended purpose because

of New Jersey Executive Order 107, commonly referred to the ‘stay-at-home order.’ The

closing of restaurants resulted in a direct physical loss of or damage to property because

the Benamax property was rendered unusable for its intended purpose qualifying it for

coverage. The reasonable expectations of the insured dictate that the definition of

“property damage” in Section II of the Policy would apply to all sections of the policy.

For this reason, Benamax claims that both Gavrilides Management Co. and Social Life

Magazine Inc. are of no persuasive value and that authority exists for the Court to deny

the motion. In addition, Benamax claims that it is entitled to “Civil Authority” coverage

because it was denied access to its property resulting in property damage. Finally,

Benamax argues that the Virus or Bacteria exclusion may not be considered on a Rule

12(b)(6) motion to dismiss, and even if it can be it is precluded by regulatory estoppel.

I. Standard of Review

Federal Rule of Civil Procedure 12(b)(6) allows a party to move for dismissal of a

claim based on “failure to state a claim upon which relief can be granted.” Fed. R. Civ.

P. 12(b)(6). A complaint should be dismissed pursuant to Rule 12(b)(6) if the alleged

facts, taken as true, fail to state a claim. Fed. R. Civ. P. 12(b)(6). When deciding a motion

to dismiss pursuant to Rule 12(b)(6), ordinarily only the allegations in the complaint,

matters of public record, orders, and exhibits attached to the complaint, are taken into

consideration.1 See Chester County Intermediate Unit v. Pa. Blue Shield, 896 F.2d 808,

812 (3d Cir. 1990). It is not necessary for the plaintiff to plead evidence. Bogosian v.

1“Although a district court may not consider matters extraneous to the pleadings, a document

integral to or explicitly relied upon in the complaint may be considered without converting the

motion to dismiss into one for summary judgment.” U.S. Express Lines, Ltd. v. Higgins, 281

F.3d 383, 388 (3d Cir. 2002) (internal quotation marks and citations omitted) (emphasis

deleted). Accord Lum v. Bank of Am., 361 F.3d 217, 221 n.3 (3d Cir. 2004) (citations omitted).

Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977). The question before the Court is not

whether the plaintiff will ultimately prevail. Watson v. Abington Twp., 478 F.3d 144,

150 (2007). Instead, the Court simply asks whether the plaintiff has articulated “enough

facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,

550 U.S. 544, 570 (2007).

“A claim has facial plausibility2 when the plaintiff pleads factual content that

allows the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550

U.S. at 556). “Where there are well-pleaded factual allegations, a court should assume

their veracity and then determine whether they plausibly give rise to an entitlement to

relief.” Iqbal, 556 U.S. at 679.

The Court need not accept “‘unsupported conclusions and unwarranted

inferences,’” Baraka v. McGreevey, 481 F.3d 187, 195 (3d Cir. 2007) (citation omitted),

however, and “[l]egal conclusions made in the guise of factual allegations . . . are given

no presumption of truthfulness.” Wyeth v. Ranbaxy Labs., Ltd., 448 F. Supp. 2d 607,

609 (D.N.J. 2006) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)); see also Kanter

v. Barella, 489 F.3d 170, 177 (3d Cir. 2007) (quoting Evancho v. Fisher, 423 F.3d 347,

351 (3d Cir. 2005) (“[A] court need not credit either ‘bald assertions’ or ‘legal

conclusions’ in a complaint when deciding a motion to dismiss.”)). Accord Iqbal, 556

2This plausibility standard requires more than a mere possibility that unlawful conduct has

occurred. “When a complaint pleads facts that are ‘merely consistent with’ a defendant’s

liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.’’”

Id.

U.S. at 678-80 (finding that pleadings that are no more than conclusions are not

entitled to the assumption of truth).

Further, although “detailed factual allegations” are not necessary, “a plaintiff’s

obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels

and conclusions, and a formulaic recitation of a cause of action’s elements will not do.”

Twombly, 550 U.S. at 555 (internal citations omitted). See also Iqbal, 556 U.S. at 678

(“Threadbare recitals of the elements of a cause of action, supported by mere conclusory

statements, do not suffice.”).

Thus, a motion to dismiss should be granted unless the plaintiff’s factual

allegations are “enough to raise a right to relief above the speculative level on the

assumption that all allegations in the complaint are true (even if doubtful in fact).”

Twombly, 550 U.S. at 556 (internal citations omitted). “[W]here the well-pleaded facts

do not permit the court to infer more than the mere possibility of misconduct, the

complaint has alleged-but it has not ‘shown’-‘that the pleader is entitled to relief.’”

Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).

Under New Jersey law, insurance contracts are subject to special rules of

interpretation because they are contracts of adhesion. Zacarias v. Allstate Ins. Co., 775

A.2d 1262, 1264 (N.J. 2001) (citations omitted). “If the policy language is clear, the

policy should be interpreted as written, [but][i]f the policy is ambiguous, the policy will

be construed in favor of the insured.” Colliers Lanard & Axilbund v. Lloyds of London,

458 F.3d 231, 236 (3d Cir. 2006) (quoting Nav–Its, Inc. v. Selective Ins. Co. of Am., 869

A.2d 929, 933 (N.J. 2005). When there is ambiguity, the insurance policy should be

interpreted to “comport with the reasonable expectations of the insured, even if a close

reading of the written text reveals a contrary meaning.” Zacarias, 775 A.2d at 126.

New Jersey courts have held that insurance policy exclusions must be narrowly

construed and that the burden is on the insurer to bring the case within the exclusion.

Am. Motorists Ins. Co. v. L-C-A Sales Co., 713 A.2d 1007, 1013 (1998) (citation omitted).

“Nevertheless, [New Jersey courts] adhere to the principle that an insurance policy

should generally be interpreted ‘according to its plain and ordinary meaning,’ so as not

to disregard the ‘clear import and intent’ of a policy exclusion.” Id. (citations omitted).

II. Discussion

Benamax purchased the Policy, a Merchants Advantage Plus Businessowners Policy

from Defendant for its Westmont property for the Policy Period of February 15, 2020

through February 15, 2021. Compl. at ¶¶ 8-11. Benamax alleges that it suffered “direct

physical loss of” or “damage to property” as contemplated by the Policy because its

property was rendered unusable for its intended purpose because of New Jersey

Executive Order 107, commonly referred to the ‘stay-at-home order.’2 Defendant claims

that Benamax could have adapted to a “take-out only” service method and continued

utilization of the property. The parties agree that the Policy provides coverage for

Business Income and action of Civil Authority.

Business Income coverage is provided, per the Policy, as follows:

f. Business Income

(1) Business Income

2 The Policy defines “suspension: as: “(a) The partial slowdown or complete cessation of your business activities; or

(b) That a part or all of the described premises is rendered untenantable, if coverage for Business Income applies.”

See Deft. Mot. to Dismiss, Doc. 6-3 pg.42 of 249. Plaintiff acknowledges that the Complaint states, “Benamax was

required to close its food serve establishment” whereas the Policy requires a suspension of operations. Plaintiff

submits that while an amended pleading could remedy the differing language, that it is not necessary because

Plaintiff’s averment is fundamentally the same as the requirement of the Policy.

(a) We will pay for the actual loss of Business Income you sustain

due to the necessary suspension of your "operations" during the "period of

restoration". The suspension must be caused by direct physical loss of or

damage to property at the described premises. The loss or damage must be

caused by or result from a Covered Cause of Loss. With respect to loss of or

damage to personal property in the open or personal property in a vehicle,

the described premises include the area within 100 feet of the site at which

the described premises are located. With respect to the requirements set

forth in the preceding paragraph, if you occupy only part of the site at

which the described premises are located, your premises means: (i) The

portion of the building which you rent, lease or occupy; and (ii) Any area

within the building or on the site at which the described premises are

located, if that area services, is used to gain access to, the described

premises.

(b) We will only pay for loss of Business Income that you sustain

during the "period of restoration" and that occurs within 12 consecutive

months after the date of direct physical loss or damage. We will only pay

for ordinary payroll expenses for 60 days following the date of direct

physical loss or damage, unless a greater number of days is shown in the

Declarations.

(c) Business Income means the:

(i) Net Income (Net Profit or Loss before income taxes) that would

have been earned or incurred if no physical loss or damage had occurred,

but not including any Net Income that would likely have been earned as a

result of an increase in the volume of business due to favorable business

conditions caused by the impact of the Covered Cause of Loss on

customers or on other businesses; and (ii) Continuing normal operating

expenses incurred, including payroll.

. . . .

(3) With respect to the coverage provided in this Additional

Coverage, suspension means: (a) The partial slowdown or complete

cessation of your business activities; or

(b) That a part or all of the described premises is rendered

untenantable, if coverage for Business Income applies.

See Policy, Deft. Ex. Ex. 3 [Dkt. No. 6-3], pgs. 41-42.

The Civil Authority coverage clause provides:

i. Civil Authority When a Covered Cause of Loss causes damage to

property other than property at the described premises, we will pay for the

actual loss of Business Income you sustain, and necessary Extra Expense

caused by action of civil authority that prohibits access to 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 pgs. 43-44.

Several courts in this district and in the New Jersey state courts have determined

that an analysis of the Business Income clause and the Civil Authority Clause is

unnecessary in the face of a policy which contains a Virus or Bacteria Exclusion. See

Garmany of Red Bank, INC. v. Harleysville Insurance Company & Nationwide

Insurance Company, No. 20 CV 08676 (FLW), 2021 WL 1040490, at *6 (D.N.J. Mar.

18, 2021) (“Indeed, as I also observed in Causeway, the majority of courts to consider

the issue of causation in this context, including New Jersey courts, have determined that

‘[t]he Governor issued his executive orders affecting Plaintiff's business as a direct result

of COVID-19 ... and any losses incurred therefrom are squarely within the exclusion.’”);

Delaware Valley Plumbing Supply, Inc., No. 20-CV-08257 (NLH), 2021 WL 567994, at

*7 (“Therefore, ‘[b]ecause the Stay-at-Home Orders were issued to mitigate the spread

of the highly contagious novel coronavirus, Plaintiff's losses are tied inextricably to that

virus.’ ”); N&S Restaurant LLC v. Cumberland Mutual Fire Insurance Company, No.

20-05289 (RBK/KMW), 2020 WL 6501722, at *3 (D.N.J. Nov. 5, 2020) (noting the

differing and split conclusions regarding the interpretation of the term ‘direct physical

loss’” but finding it unnecessary to address given the Virus Exclusion in the policy); see

also Mac Property Group LLC v. Selective Fire and Cas. Ins. Co., No. L-2629-20, 2020

WL 7422374, at *8-9 (N.J. Super. Ct. Nov. 5, 2020) (“Since the virus is alleged to be the

cause of the governmental action, and the governmental action is asserted to be the

cause of the loss, plaintiff cannot avoid the clear and unmistakable conclusion that the

coronavirus was the cause of the alleged damage or loss.”); Mattdogg, Inc. v. Phil.

Indem. Ins. Co., No. L-820-20, 2020 WL 7702634, at *4 (N.J. Super. Ct. Law. Div. Nov.

17, 2020).

Here, the Policy’s “Virus or Bacteria” exclusion states that Merchants “will not

pay for loss or damage caused directly or indirectly by”:

j. Virus or Bacteria

(1) Any virus, bacterium or other microorganism that induces or is

capable of inducing physical distress, illness or disease.

(2) However, the exclusion in paragraph (1) does not apply to loss

or damage caused by or resulting from “fungi”, wet rot or dry rot. Such loss

or damage is addressed in Exclusion i.;

(3) With respect to any loss or damage subject to the exclusion

Paragraph (1), such exclusion supersedes any exclusion relating to

“pollutants”.

Ex. 3 at 27, 29 (Form BP 00 03 01 10).

According to Defendant, the exclusion specifies “loss or damage caused directly

or indirectly by. . . any virus, bacterium or other microorganism that induces or is

capable of inducing physical distress, illness or disease”. See Deft. Ex. 3, [Dkt. No. 6-3],

at pp. 27, 29. The “Virus or Bacteria” exclusion applies to the coverage at issue in this

matter and is a complete defense to coverage compelling the dismissal of Plaintiff’s

complaint on this ground alone.

Contrary to Benamax’s assertion, there is authority in this district to apply the

exclusion at the motion to dismiss stage. See N&S Restaurant LLC, 2020 WL 6501722

at 3 (“The Third Circuit and courts within this Circuit have regularly granted motions to

dismiss in insurance cases when the plaintiff's allegations fall squarely within the

policy's exclusion to coverage.” (citing Brewer v. U.S. Fire Ins. Co., 446 F. App'x 506,

510 (3d Cir. 2011); see also, Eye Care Ctr. of N.J., PA v. Twin City Fire Ins. Co., No. 20-

5743, 2021 WL 457890, at *2 (D.N.J. Feb. 8, 2021) (“The virus exclusion applies in

blanket fashion to all forms of coverage in the policy. If applicable, then, it will dispose

of the case.”). Moreover, consideration of the entire insurance policy is appropriate at

this stage, even though it was not attached to the Complaint, because courts may

consider “an undisputedly authentic document that a defendant attaches as an exhibit to

a motion to dismiss if the plaintiff’s claims are based on the document.” Pension Benefit

Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).

Here, Benamax’s claims come within the Virus and Bacteria exclusion. First, the

Coronavirus is a “virus” and courts have treated it and the measures3 to contain it as

coming within a virus or bacteria exclusion. See Causeway Automotive, LLC v. Zurich

Am. Ins. Co., No. 20-8393, 2021 WL 486917, *6 (D.N.J. Feb. 10, 2021) (“The Executive

Orders were issued for the sole reason of reducing the spread of the virus that causes

COVID-19 and would not have been issued but for the presence of the virus in the State

of New Jersey.”) (citing 7th Inning Stretch LLC v. Arch Ins. Co., No. 20-8161, 2021 U.S.

Dist. LEXIS 11326, at *5 (D.N.J. Jan. 19, 2021) (“Because the Stay-at-Home Orders were

issued to mitigate the spread of the highly contagious novel coronavirus, Plaintiffs’

losses are tied inextricably to that virus and are not covered by the policies.”).

Benamax’s Complaint also denotes causation of its business losses to the

Coronavirus. Comp. ¶¶ 15-19. See Boulevard Carroll Entm't Grp., Inc. v. Fireman's

Fund Ins. Co., No. 20- 11771(SDW), 2020 WL 7338081, at *2 (D.N.J. Dec. 14, 2020)

3 New Jersey Executive Order No. 103 states that the Coronavirus induces or is capable

of inducing physical distress, illness or disease. Ex. 1 (“Coronavirus disease 2019 . . . is a

contagious, and at times fatal, respiratory disease caused by the SARS-CoV-2 virus”).

(coverage barred because “the Policy clearly excludes coverage for damage, loss or

expense arising from a virus. Because the Stay-at-Home Orders were issued to mitigate

the spread of the highly contagious novel coronavirus, Plaintiff's losses are tied

inextricably to that virus and are not covered by the Policy”).

Finally, the Court rejects Plaintiff’s regulatory estoppel argument. In her

opposition brief, Plaintiff raises, for the first time, that the doctrine of regulatory

estoppel precludes the enforcement of the Virus or Bacteria exclusion for the reasons

stated in Morton Int’l v. General Accident Ins. Co., 134 N.J. 1 (1993). Under Morton, a

plaintiff must allege: (1) that the insurance industry asserted one meaning and scope of

a proposed exclusion to state regulatory authorities; and (2) that the industry

subsequently argued for a much narrower interpretation when seeking to enforce the

exclusion in litigation. Id.

In a similar case in this court against Defendant, where the plaintiff made nearly

identical arguments in the opposition brief but not the complaint, the court held that the

regulatory estoppel argument failed for factual and facial reasons. Delaware Valley

Plumbing Supply, Inc. v. Merchants Mut. Ins. Co., No. 20 CV 08257 (NLH), 2021 WL

567994, at *6 (D.N.J. Feb. 16, 2021). This Court adopts the reasoning in Delaware

Valley and notes that there is strong authority for its ruling, as multiple courts in the

Eastern District of Pennsylvania have recently addressed this identical issue and

reached the same conclusion. Id. (citing Humans & Resources, LLC, D/B/A Cadence

Restaurant v. Firstline Nat'l Insurance Co., No. 20-CV-2152, 2021 WL 75775 (E.D. Pa.

Jan. 8, 2021); TAQ Willow Grove, LLC v. Twin City Fire Ins., No. CV 20-3863, 2021 WL

131555, at *8-9 (E.D. Pa. Jan. 14, 2021); Newchops Rest. Comcast LLC v. Admiral

Indem. Co., No. CV 20-1869, 2020 WL 7395153, *9-10 (E.D. Pa. Dec. 17, 2020); Kessler

Dental Assocs., P.C. v. Dentists Ins. Co., No. 2:20-CV-03376-JDW, 2020 WL 7181057,

*3 (E.D. Pa. Dec. 7, 2020); Brian Handel D.M.D., P.C. v. Allstate Ins. Co., No. CV 20-

3198, 2020 WL 6545893, *5 (E.D. Pa. Nov. 6, 2020)). Plaintiff’s regulatory estoppel

claim will be denied because it is improperly plead and fails as a matter of law.

Thus, given the ample authority in this district, the State of New Jersey, and

courts in other states4, the Court finds that Benamax’s claims fall within the Virus or

Bacteria exclusion and must be dismissed for failure to state a claim upon which relief

can be granted.

An Appropriate Order shall issue.

Dated: March 29, 2021 s/ Joseph H. Rodriguez

HON. JOSEPH H. RODRIGUEZ,

United States District Judge

4 See, eg., Gavrilides, supra,(Michigan Circuit Court ruled that an identical virus exclusion barred

coverage for the policyholder’s business income claims related to the COVID-19 pandemic.); Kessler

Dental Associates, P.C. v. Dentists Insurance Company, No. 2:20-cv-03376-JDW, 2020 WL 7181057, at

*3 (E.D. Pa. Dec. 7, 2020) (coverage barred by Virus Exclusion excluding coverage for loss or damage

caused by “any ‘virus, bacteria or other microorganism that cause or could cause physical illness, disease

or disability’”); Brian Handel D.M.D., P.C. v. Allstate Insurance Co., No. 20-3198, 2020 WL 6545893, at

*4 (E.D. Pa. Nov. 6, 2020) (coverage barred by Virus Exclusion excluding coverage for loss or damage

caused by “[a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical

distress, illness or disease”); Mark's Engine Co. No. 28 Restaurant, LLC v. Travelers Indemnity Co. of

Connecticut, No. 20-cv-04423, 2020 WL 5938691, at *2, 5 (C.D. Cal. Oct. 2, 2020) (coverage barred by

Virus Exclusion excluding coverage for loss or damage caused by “any virus, bacterium or other

microorganism that induces or is capable of inducing physical distress, illness or disease”); Mauricio

Martinez, DMD, P.A. v. Allied Ins. Co. of Am., 20-cv-00401, 2020 WL 5240218, at *2 (M.D. Fla. Sept. 2,

2020) (coverage barred by Virus Exclusion excluding coverage for loss or damage caused by “[a]ny virus,

bacterium or other microorganism that induces or is capable of inducing physical distress”); Franklin

EWC, Inc. v. Hartford Financial Servs. Grp., Inc., 20-cv-04434, 2020 WL 5642483, at *2 (N.D. Cal. Sept.

22, 2020) (coverage barred by Virus Exclusion stating that “[w]e will not pay for loss or damage caused

directly or indirectly by [virus]. Such loss or damage is excluded regardless of any other cause or event

that contributes concurrently or in any sequence to the loss”); Diesel Barbershop, LLC v. State Farm

Lloyds, 20-CV-461, 2020 WL 4724305, at *6 (W.D. Tex. Aug. 13, 2020) (coverage barred by Virus

Exclusion stating that insurer “does not insure for a loss regardless of ‘whether other causes acted

concurrently or in any sequence within the excluded event to produce the loss’ ” and finding that “it was

the presence of COVID-19 in ... Texas that was the primary root cause of Plaintiffs’ business temporarily

closing”).