Greenwood Racing Inc. v. American Guarantee and Liability Insurance Company

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

GREENWOOD RACING INC., et al.,

Plaintiffs,

CIVIL ACTION

v. NO. 21-1682

AMERICAN GUARANTEE & LIABILITY

INSURANCE CO. and STEADFAST

INSURANCE CO.,

Defendants.

PAPPERT, J. November 1, 2021

MEMORANDUM

Greenwood and its subsidiaries (collectively “Greenwood”) sued its insurance

carriers, American Guarantee and Liability Insurance Company and Steadfast

Insurance Company, seeking a declaration that the losses it sustained as a result of the

coronavirus pandemic were covered by its insurance policies. Steadfast, which issued

Greenwood an environmental liability insurance policy that expired on April 1, 2020,

moves to dismiss Greenwood’s claims against it. The Court grants the Motion and

dismisses the claims without prejudice.

I

Greenwood owns and operates a casino, racetrack and other gambling facilities

in Pennsylvania and New Jersey. (Compl. ¶ 1, ECF No. 1-3.) In mid-March of 2020,

the COVID-19 pandemic and subsequent government actions brought these businesses

to a sudden halt. (Id. ¶¶ 161–64, 170.) Pennsylvania Governor Tom Wolf encouraged

non-essential businesses to close on March 14, 2020, then ordered them to do so on

March 19. (Id. ¶¶ 151, 154). Two of Greenwood’s facilities, Parx Racing and Oaks Race

& Sports Book, closed on March 13. (Id. ¶¶ 33, 35.) Its two other Pennsylvania

locations, Parx Casino and South Philadelphia Race & Sportsbook, closed on March 15.

(Id. ¶¶ 32–34.) All of these locations remained closed for several months. (Id. ¶¶ 32–

35.) Oaks Race & Sportsbook never reopened. (Id. ¶ 35.)

Greenwood suffered tremendous losses as a result of the shutdowns. (Id. ¶ 168.)

It also incurred substantial costs to reduce the risk of coronavirus at its facilities. (Id.

¶ 167.) It increased its cleaning regimen, purchased additional protective equipment

and cleaning supplies, and spent money reorganizing its premises to make them safer.

(Id.) Despite the closure of its properties and the additional steps taken to prevent the

spread of coronavirus, some employees tested positive. (Id. ¶ 168.)

Between April 1, 2017 and April 1, 2020, Greenwood’s Pennsylvania locations

were insured in part under an environmental liability policy issued by Steadfast. (Id.

¶¶ 92, 95; Z Choice Real Estate Environmental Liability Declarations, ECF No. 1-4 at

409.)1 Among other things, the policy covered “cleanup costs” that result from a “new

pollution event” at or emanating from a covered location, if the event is discovered

during the policy period and reported to Steadfast within ninety days of the end of the

policy. (Compl. ¶ 97; Extended Reporting Period § I.B.1, at 444.) The policy covered

two types of cleanup costs, “emergency expenses” and costs and expenses incurred in

the “investigation, removal, remediation . . . neutralization or immobilization of . . .

contamination” to the extent these activities were required by “governmental

authority.” (Compl. ¶ 99; Amendatory Endorsement § III.F.1–3, at 455.)

1 The page numbers provided in citations to Greenwood’s environmental liability policy all

refer to their page number in Exhibit B – State Court Filings, ECF No. 1-4.

The policy also included a “suspension of operations” endorsement that covered

“other loss” caused by a suspension of operations at a covered location, subject to

several conditions: (1) the suspension must be caused by a new pollution event, (2) it

must be an event for which cleanup costs coverage is provided, (3) the suspension must

be the direct result of a government-mandated cleanup and (4) the suspension must be

reported to Steadfast within ninety days of the end of the policy. (Compl. ¶¶ 98, 104;

Coverage D: Suspension of Operations §§ I.D.2, II, at 448–450.) “Other loss” included

loss of business income. (Compl. ¶ 103.)

Greenwood claims that it incurred both extra expenses and government

mandated cleanup costs as a result of the coronavirus pandemic, the actual presence of

coronavirus at its covered locations, and various government orders. (Id. ¶¶ 202–03,

212.) It also contends that its coronavirus-related losses are covered by the suspension

of operations endorsement. (Id. ¶¶ 213–14.) Steadfast disagrees, and on June 22, 2020,

it denied Greenwood coverage. (Id. ¶ 267.)

Greenwood then filed suit in Pennsylvania state court, seeking a declaration that

its losses were covered by a number of insurance policies, including the environmental

liability policy issued by Steadfast. (Id. ¶ 281.) Steadfast and its codefendant removed

the case, (ECF No. 1), and Steadfast moved to dismiss the claims against it, (ECF No.

12).

II

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6),

the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim

to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially

plausible when the facts pleaded “allow[ ] the court to draw the reasonable inference

that [a] defendant is liable for the misconduct alleged.” Id. “[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 ‘show[n]’—‘that the pleader is entitled to relief.’”

Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).

When the complaint includes well-pleaded factual allegations, the Court “should

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

entitlement to relief.” Connelly v. Lane Const. Corp., 809 F.3d 780, 787 (3d Cir. 2016)

(quoting Iqbal, 556 U.S. at 679). However, this “presumption of truth attaches only to

those allegations for which there is sufficient factual matter to render them plausible

on their face.” Schuchardt v. President of the U.S., 839 F.3d 336, 347 (3d Cir. 2016)

(internal quotation and citation omitted). “Conclusory assertions of fact and legal

conclusions are not entitled to the same presumption.” Id.

In deciding a motion to dismiss, “courts generally consider only the allegations

contained in the complaint, exhibits attached to the complaint, and matters of public

record.” Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014) (quoting Pension Benefit

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

court ruling on a Rule 12(b)(6) motion generally may not consider matters extraneous to

the pleadings, though an exception exists if the “document [is] integral to or explicitly

relied upon in the complaint.” Id. at 249 (emphasis in original) (quoting In re

Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997)); see also

Schuchardt, 839 F.3d at 353 (same).

III

Under Pennsylvania law, insurance policies are contracts between insurer and

policy holder. Kurach v. Truck Ins. Exch., 235 A.3d 1106, 1116 (Pa. 2020). Their proper

interpretation is a question of law for the court to decide. Sikirica v. Nationwide Ins.

Co., 416 F.3d 214, 220 (3d Cir. 2005). In doing so, courts must “effectuate the intent of

the contracting parties as reflected by the written language of the insurance policies.”

Kurach,235 A.3d at 1116. Where the terms of the policy are unambiguous, courts will

give them their plain and ordinary meaning, unless doing so would violate clearly

established public policy. Id. Where they are ambiguous, they must be construed in

favor of the policyholder. Id.

Language in a policy is ambiguous if it is susceptible to more than one

reasonable interpretation. Id. A word is not ambiguous, however, simply because it is

undefined. Gemini Ins. Co. v. Meyer Jabara Hotels LLC, 231 A.3d 839, 849 (Pa. Super.

Ct. 2020). Instead, “words of common usage in an insurance policy are to be construed

in their natural, plain, and ordinary sense,” Madison Const. Co. v. Harleysville Mut.

Ins. Co., 735 A.2d 100, 108 (Pa. 1999), and courts may look to dictionaries to determine

their meaning, Gemini, 231 A.3d at 849. In addition, individual terms and provisions

cannot be read in isolation; the policy must be considered as a whole. Pennsylvania

Nat. Mut. Cas. Ins. Co. v. St. John, 106 A.3d 1, 14 (Pa. 2014).

The insured bears the initial burden of showing that its claims are “within the

policy's affirmative grant of coverage.” Sciolla v. W. Bend Mut. Ins. Co., 987 F. Supp.

2d 594, 599 (E.D. Pa. 2013) (quoting Koppers Co. v. Aetna Cas. & Sur. Co., 98 F.3d

1440, 1446 (3d Cir. 1996)). Thus, to withstand a Rule 12(b)(6) motion, the policy holder

“must plausibly plead not only that it has an insurance contract but that the contract

covers its claimed injuries.” Penn Asian Senior Servs. v. Selective Ins. Co. of S.C., No.

20-4919, 2021 WL 4478215, at *1 (E.D. Pa. Sept. 30, 2021).

IV

Steadfast first argues that Greenwood’s claims against it must be dismissed

because it does not plausibly allege a “new pollution event” occurred at any of its

covered locations, a prerequisite to coverage under the policy. The Court agrees.

Greenwood’s policy defines a pollution event as “the discharge, dispersal, release,

or escape of any . . . irritant, contaminant or pollutant . . . into or upon land, or any

structure on land, [or] the atmosphere . . . in concentrations or at levels in excess of

those naturally present in the environment.” (Amendatory Endorsement § III.FF, at

456.) It includes “any ‘microbial substances’ that are present on, at or within any

buildings or other structures at a ‘covered location.’” (Id.) Under the policy, viruses are

“microbial substances.” (Z Choice Real Estate Environmental Liability § III.X, at 417.)

A “new” pollution event is one that first occurs during the policy period. (Id. § III.BB,

at 417.) Given the policy’s expansive definition of a new pollution event, Greenwood

need only allege that a virus was present in a building at a covered location during the

policy period. It fails to do so.

A

Greenwood alleges that “actual incidents of COVID-19 were detected at certain

covered locations” because “from time to time, employees from certain covered locations

have tested positive for COVID-19.” (Compl. ¶ 168). But is impossible to conclude from

this vague assertion that coronavirus was detected at its covered locations during the

policy period. Greenwood’s Complaint covers events from March 13 of 2020 to at least

March 8 of 2021. Compare (Compl. ¶ 162 with id. ¶ 171). By contrast, the

environmental liability policy period expired on April 1, 2020. (Z Choice Real Estate

Environmental Liability Declarations, Item 2, at 409.) Because of the broad temporal

sweep of the Complaint, Greenwood’s assertion that employees tested positive “from

time to time” says little about whether the virus was actually present during the last

three weeks of March, the only period where the presence of infected workers at a

covered location could have caused a covered pollution event. And as Greenwood

acknowledges, only a “minimal number” of employees were working during the early

days of the pandemic. (Compl. ¶ 166.)

Other courts have dismissed similarly vague claims. In DZ Jewelry, LLC v.

Certain Underwriters at Lloyds London, No. 20-3606, 2021 WL 1232778, (S.D. Tex.

Mar. 12, 2021), for example, the court held coronavirus was not present at the covered

location based on allegations that three of the plaintiff’s employees tested positive

because the plaintiff failed to specify whether those employees had been at work near

the time of their positive tests. Id. at 5. The fact that employees contracted COVID-19

at some unspecified time could not establish that the coronavirus was actually present

at the covered property. Id; see also Johnson v. Hartford Fin. Servs. Grp., Inc., No. 20-

2000, 2021 WL 37573, at *5 (N.D. Ga. Jan. 4, 2021) (dismissing complaint that did not

identify any employee or patient whose COVID-19 was connected to the covered

properties).

Greenwood’s other allegations are even more speculative. It claims that it is “a

virtual certainty” that coronavirus was present during the policy period because of “the

prevalence of Coronavirus in the communities where Greenwood’s covered properties

are located and the positive test results of certain of Greenwood’s employees.” (Compl.

¶ 202.) But again, it fails to provide any specifics about when or where these employees

tested positive, making it impossible to infer the coronavirus was actually present

during the covered time period. Nor is the high rate of COVID-19 in the community

sufficient to establish that the coronavirus was present at Greenwood facilities. See

Cafe Plaza de Mesilla Inc. v. Cont'l Cas. Co., 519 F. Supp. 3d 1006, 1014 (D.N.M. 2021)

(rejecting the “conclusory argument that the widespread existence of the virus locally

. . . makes it “reasonable” to infer that the virus was present on the premises”);

Johnson, 2021 WL 37573, at *5 (referring to similar allegations as “conjecture and

speculation”). The speculative nature of these assertions is reinforced by the fact that

Greenwood’s facilities were closed to the public for most of the relevant period. (Compl.

¶¶ 162–64, 170.)

B

Nor is the mere risk that coronavirus might be present at a covered location a

pollution event. The policy’s definition of “pollution event” requires the actual presence

of a contaminant or pollutant. “Pollution event” is defined as the “discharge, dispersal,

release, or escape” of a contaminant or pollutant, not the risk or potential that those

things might happen. (Amendatory Endorsement § III.FF, at 456.) These words would

have no meaning if a pollution event could occur without anything actually being

discharged, dispersed, released, or escaping into or from a covered location. Similarly,

a pollution event only occurs if the contaminant is present “in concentrations . . . in

excess of those naturally present in the environment.” This language is incompatible

with a definition of pollution event that encompasses potential contaminants in

addition to actual ones. Perhaps most significantly, the policy explicitly includes only

microbial substances that are “present” at the covered location. (Id.) The potential cycle

of “person to person and surface to person infection” that might have taken place had

Greenwood stayed open is not a pollution event. (Compl. ¶ 211.)

V

Greenwood then attempts to argue that it is entitled to emergency expenses even

if no pollution event occurred. (Pls.’ Mem. Opp’n Mot. Dismiss at 12–14, ECF No. 20.)

Emergency expenses are “costs, charges and expenses incurred to avoid or otherwise

mitigate an actual imminent and substantial endangerment to the public health.”

(Amendatory Endorsement § III.L, at 456.) In Greenwood’s view, because emergency

expenses include costs incurred to “avoid . . . an imminent” endangerment to the public

health, they must extend to precautionary measures taken to prevent a pollution event

from occurring in the first place. (Pls.’ Mem. at 12–13.)

A

This interpretation is inconsistent with the policy. See Riccio v. Am. Republic

Ins. Co., 705 A.2d 422, 426 (Pa. 1997) (“[A]n insurance policy, like every other written

contract, must be read in its entirety and [its] intent . . . gathered from consideration of the

entire instrument.”). The policy is clear: all “cleanup costs,” including emergency

expenses, must “result[] from a ‘new pollution event.’” (Extended Reporting Period §

I.B.1, at 444.) In other words, coverage is limited to costs that were caused by a

pollution event at a covered location. See Cher-D, Inc. v. Great Am. All. Ins. Co., No. 05-

5936, 2009 WL 943530, at *6 (E.D. Pa. Apr. 7, 2009) (“The Supreme Court of

Pennsylvania has interpreted the words ‘resulting from’ in an insurance contract as

meaning proximate causation.”); Bowers v. Great E. Cas. Co., 260 Pa. 147, 151 (1918)

(concluding that the phrase “resulting from wholly or in part” requires the condition

referred to be at least “a remote or proximate cause” of the occurrence at issue).

This does not render meaningless the words “avoid” and “imminent,” it simply

recognizes that the policy covers efforts to avoid the imminent risks of endangerment

presented by pollution events, not to avoid pollution events in the first place. If there

was no pollution event, there can be no coverage.

B

Greenwood maintains that a literal interpretation of its emergency expenses

coverage violates Pennsylvania public policy. (Pls.’ Mem. at 15–16.) A line of

Pennsylvania cases establish that third-party liability insurers may be liable for

measures policyholders take to mitigate hazardous conditions on their own land that

present an imminent and substantial threat to the property of third parties, even if the

policy excludes damage to the insured’s own property. See e.g., Leebov v. U. S. Fid. &

Guar. Co., 165 A.2d 82, 84 (Pa. 1960); Redevelopment Auth. of City of Philadelphia v.

Ins. Co. of N. Am., 675 A.2d 1256, 1259 (Pa. Super. Ct. 1996); Lehigh Elec. & Eng'g Co.

v. Selected Risks Ins. Co., 30 Pa. D. & C.3d 120, 122 (Ct. C.P. Luzerne Cnty. 1982).

Leebov and its progeny do not control this case. First, these cases dealt with

situations in which the insured was under a legal obligation to repair third-party

property damage caused by the mitigated condition. See Interstate Fire & Cas. Co. v.

B.T. Washington, Inc., No. 94-232, 1995 WL 273643, at *4 (E.D. Pa. May 5, 1995);

Consol. Rail Corp. v. Certain Underwriters at Lloyds, No. 84-2609, 1986 WL 6547, at *4

(E.D. Pa. June 5, 1986). As a consequence, “the insured's actions were notedly designed

to save both the insured and the insurer from . . . claims that would have resulted in

the absence of remedial measures.” Lehigh Elec., 30 Pa. D. & C.3d at 126. Here,

Greenwood does not allege that it would have been legally required to compensate

anyone had it not taken the precautionary measures it did. It is not even clear that its

own expenses would have been higher had coronavirus actually been detected as its

facilities. See (Compl. ¶ 168).

Second, each of these cases involved contamination that had already damaged

the insured’s property. See Leebov, 165 A.2d at 83 (landslide); Redevelopment Auth.,

675 A.2d at 1257 (contamination from petroleum products); Lehigh Elec., 30 Pa. D. &

C.3d at 122 (chemical spill); Aronson Assocs., Inc. v. Pennsylvania Nat. Mut. Cas. Ins.

Co., 14 Pa. D. & C.3d 1, 3 (Ct. C.P. Dauphin Cnty. 1977) (gasoline spill); Sunoco, Inc. v.

Illinois Nat. Ins. Co., No. 04-4087, 2007 WL 127737, at *1 (E.D. Pa. Jan. 11, 2007)

(chemical spill). There is no indication that the Pennsylvania Supreme Court would

extend Leebov to situations where the insured took steps to mitigate a threat that had

yet to appear on its own property, much less pose a risk to its neighbors.

Third, the “emergency expenses” provision provides Greenwood with better

coverage than the policies at issue in Leebov and the cases following it. Those cases

expanded third-party liability coverage to cover costs incurred to mitigate “an imminent

threat of substantial harm to others” that, if realized, the insured and insurer would be

obligated to pay for. Greenwood, on the other hand, is entitled to reimbursement for

costs incurred to avoid or mitigate “an actual imminent and substantial endangerment

to the public health or the environment” regardless of whether it is legally obligated to

redress any harm that might occur if the danger goes unmitigated. Greenwood already

has the benefit of the protection Leebov offers, plus more. The Court will not “expand

state law in ways not foreshadowed by state precedent.” City of Philadelphia v. Beretta

U.S.A. Corp., 277 F.3d 415, 421 (3d Cir. 2002).

VI

Greenwood’s environmental liability policy also covers “reasonable and necessary

costs . . . incurred in the investigation, removal, remediation . . . neutralization or

immobilization of . . . contamination” if those costs are “required by” a governmental

authority and “result[] from” a new pollution event at a covered location. (Amendatory

Endorsement § III.F.1, at 455; Extended Reporting Period § I.B.1, at 444.) Greenwood’s

Complaint fails to allege that either of these conditions were satisfied.

A

Again, cleanup costs are only covered “to the extent [they] result[] from a ‘new

pollution event’” at or emanating from a covered location. (Extended Reporting Period

§ I.B.1, at 444.) Costs that Greenwood would have incurred absent a pollution event do

not “result from” a pollution event and are not covered. See Another Planet Ent., LLC v.

Vigilant Ins. Co., No. 20-07476, 2021 WL 774141, at *1 (N.D. Cal. Feb. 25, 2021).

Greenwood does not allege that any governmental authority required it to take

any action in response to the actual presence of coronavirus at its facilities. Instead, it

alleges that it was required to suspend its operations because of the likelihood that

coronavirus would be present “wherever people are located or congregate.” (Comp.

¶¶ 209–11.) But as previously discussed, the policy’s definition of “pollution event”

requires the actual presence of the virus. Potentialities and probabilities are not

enough. State and local orders responding to nothing more than a generalized concern

about person to person and surface to person spread do not “result from” a pollution

event.

The government orders referenced in Greenwood’s Complaint applied to it

whether or not coronavirus was actually present at its covered locations. Greenwood

lists a variety of government pronouncements that encouraged or required Greenwood

to close its operations in Pennsylvania, (Compl. ¶¶ 150–56, 160), but nowhere does it

claim that that it was subject to these orders because coronavirus was actually present

at its facilities. Instead, they applied to entire industries, regardless of whether

coronavirus was ever detected. (Compl. ¶¶ 151–54.) Because Greenwood would bear

the costs of complying with these orders even if it never experienced a pollution event,

they are not covered by its policy.

B

Even if Greenwood plausibly pleaded that the orders resulted from a covered

pollution event, it does not allege that these orders imposed any covered costs. The

policy’s definition of cleanup costs includes “costs, charges and expenses.” These terms,

especially in combination, refer to money spent, not revenue lost. See Cost, Black's Law

Dictionary (11th ed. 2019) (“[t]he amount paid or charged for something”); Expense, id.

(“[a]n expenditure of money, time, labor, or resources to accomplish a result”); Charge,

id. (“[p]rice, cost, or expense”). This understanding is reinforced by Greenwood’s

separate coverage for loss of business income. Compare (Amendatory Endorsement

§ III.F.1, at 455 with Coverage D: Suspension of Operations, § II, at 448–49 (defining

“loss of business income” and “other loss”)). If the phrase “costs, charges and expenses”

included Greenwood’s losses, it would render the suspension of operations endorsement

superfluous. As a consequence, “cleanup costs” coverage extends only to expenditures

required by governmental authorities, not to other losses occasioned by their orders.

While Greenwood alleges that it incurred substantial costs “at the direction of

governmental authorities,” it does not specify what those costs were or what authority

required it to incur them. (Compl. ¶ 161.) This conclusory assertion is not enough to

state a claim for coverage under the environmental policy. Greenwood must allege

facts that link its expenditures to applicable government orders. But it does not claim

that any of the orders listed in the Complaint required Greenwood to spend any money.

They merely required the facilities to close. (Compl. ¶ 154.) And where Greenwood

does specify expenses incurred responding to the threat of the coronavirus, it fails to

connect them to a government order. (Compl. ¶ 167.)

VII

Finally, Greenwood does not allege facts that could entitle it to coverage under

the suspension of operations endorsement. The endorsement only covers lost business

income if a pollution event “directly causes” a suspension of operations at a covered

location, the event triggers cleanup costs coverage under the policy, and the suspension

is the direct result of a government mandated cleanup. (Coverage D: Suspension of

Operations, §§ I.D.2, II, at 448–50.) As previously discussed, Greenwood does not allege

facts to establish that any of these criteria were satisfied. Without sufficient factual

allegations that Greenwood experienced a qualifying pollution event or performed any

government mandated clean-up, it cannot claim coverage under this provision.

VIII

Courts should freely give leave to amend a complaint when justice so

requires. Fed. R. Civ. P. 15(a)(2). “This certainly includes amendment to cure defective

allegations.” Shifflett v. Korszniak, 934 F.3d 356, 366 (3d Cir. 2019) (citing 6 Wright &

Miller, Federal Practice and Procedure § 1474 (3d ed. 2019)). Greenwood requests, if

necessary, leave to amend. (Pls.’ Mem. at 24.) It will be allowed to do so to the extent it

can plausibly show it is entitled to recover under the policy.

BY THE COURT:

/s/ Gerald J. Pappert

GERALD J. PAPPERT