Part Two LLC v. Owners Insurance Company

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ALABAMA

WESTERN DIVISION

)

PART TWO LLC, )

)

Plaintiff, )

)

v. ) 7:20-cv-01047-LSC

)

OWNERS INSURANCE )

COMPANY, )

)

Defendant. )

)

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Memorandum of Opinion

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Part Two LLC (“Part Two”) sued its insurer, Owners Insurance Company

(“Owners”), for breach of contract and bad faith. (Doc. 5-1.) Owners’ motion to

dismiss, filed under Rule 12(b)(6) of the Federal Rules of Civil Procedure, is now

before the Court. (Doc. 4.) The parties fully briefed the motion.1 (Docs. 4, 17, 18, 19,

1 In a prior Memorandum of Opinion, see Doc. 14, the Court explained how and why federal subject

matter jurisdiction exists in this case. Part Two and Owners are completely diverse, and precedent,

judicial experience, and common sense all show Part Two’s breach of contract claim, taken

alongside its bad faith claim, places more than $75,000 in controversy. Roe v. Michelin North Am.,

Inc., 613 F.3d 1058, 1062 (11th Cir. 2010) (in estimating the amount in controversy, district courts

make “reasonable deductions, reasonable inferences,” and use “their judicial experience and

common sense”).

20.) After careful consideration of the briefs and cited authority, the Court will apply

the unambiguous virus exclusion in Part Two’s insurance policy and dismiss this

case with prejudice.

I. Standard of Review

A non-movant survives a 12(b)(6) motion by stating “a claim to relief that is

plausible on its face.” Ray v. Spirit Airlines, Inc., 836 F.3d 1340, 1347–48 (11th Cir.

2016). Gauging plausibility is a two-step process. Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009). The Court begins “by identifying pleadings that, because they are no more

than conclusions, are not entitled to the assumption of truth.” Id. at 679. Then the

Court “assume[s] [the] veracity” of all well-pleaded factual allegations. Id. Unless

those factual allegations raise the non-movant’s right to relief “above the speculative

level,” the 12(b)(6) motion is due to be granted. Bell Atl. Corp. v. Twombly, 550 U.S.

544, 555 (2007). Accepting Part Two’s factual allegations as true and drawing all

reasonable inferences in Part Two’s favor, see Bryant v. Avado Brands, Inc., 187 F.3d

1271, 1273 n.1 (11th Cir. 1999), the facts are as follows:

II. Facts

Part Two owns and operates a retail store in Tuscaloosa, Alabama. (Doc. 5-1

at ¶ 33.) “As a result of COVID-19 and mandatory government orders,” Part Two

closed its doors for several weeks in the spring of 2019. (Id. at ¶ 34.) The closure cost

Part Two about $30,000 in lost revenue. (Doc. 13 at ¶ 2.)

Owners provided Part Two with property coverage and business interruption

coverage from October 28, 2019, through October 28, 2020.2 (Doc. 5-1 at ¶ 33.) That

coverage promises the following:

We [Owners] will pay for direct physical loss of or damage to

Covered Property . . . caused by or resulting from any Covered

Cause of Loss.

. . .

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 [covered property]. . . . The loss

2 When a Court rules on a 12(b)(6) motion to dismiss, it generally is “limited to reviewing

what is within the four corners of the [plaintiff’s] complaint.” Brickley v. Caremark RX, Inc., 461

F.3d 1325, 1329 n.7 (11th Cir. 2006). If a Court looks beyond the plaintiff’s complaint, usually it

“must convert the motion to dismiss into one for summary judgment.” Property Mgmt. & Invs., Inc.

v. Lewis, 752 F.2d 599, 604 (11th Cir. 1985). An exception exists “where the plaintiff refers to

certain documents in the complaint and those documents are central to the plaintiff’s claim.”

Brooks v. Blue Cross and Blue Shield of Fla., Inc., 116 F.3d 1364, 1369 (11th Cir. 1997) (citing Venture

Assoc. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993)). When that happens, “the

Court may consider the documents part of the pleadings for purposes of Rule 12(b)(6) dismissal,

and the defendant’s attaching such documents to the motion to dismiss will not require conversion

of the motion into a motion for summary judgment.” Id.

Here the Court considers Part Two’s insurance policy—even though that policy lies

outside the four corners of Part Two’s complaint. Part Two’s complaint refers to the policy

multiple times, neither party questions the policy’s authenticity, and the policy is central to both

of Part Two’s causes of action. The Court therefore considers it without converting Owners’

12(b)(6) motion into a motion for summary judgment. See Fin. Sec. Assurance, Inc. v. Stephens, Inc.,

500 F.3d 1276, 1284–85 (11th Cir. 2007) (considering an insurance policy attached to a motion to

dismiss “because it is referred to in the complaint, it is central to [the plaintiff’s] claim, . . . and

neither party challenges its authenticity”).

or damage must be caused by or result from a Covered Cause of

Loss.

(Doc. 4-1 at 65, 79.) The insurance policy also includes extra expense coverage and

civil authority coverage. Those provisions state, in relevant part:

We will pay Extra Expense3 (other than the expense to repair or

replace property) to:

(1) Avoid or minimize the “suspension” of business and to

continue operations at the described premises or at

replacement premises or temporary locations, including

relocation expenses and costs to equip and operate the

replacement location or temporary location.

(2) Minimize the “suspension” of business if you cannot

continue “operations.”

. . .

When a Covered Cause of Loss causes damage to property other

than property at the described premises, we [Owners] 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

3 The policy defines “Extra Expense” as “necessary expenses you incur during the ‘period of

restoration’ that you would not have incurred if there had been no direct physical loss or damage

to property caused by or resulting from a Covered Cause of Loss.” (Doc. 4-1 at 79.)

damage or continuation of the Covered Cause of Loss

that caused the damage . . .

(Id. at 79–80.) These promises are all subject to a series of exclusions. (Id. at 88–96.)

The most relevant exclusion—styled “Virus Or Bacteria”—excludes all “loss or

damage caused by or resulting from virus, bacterium or other microorganism that

induces or is capable of inducing physical distress, illness or disease.” (Id. at 89.)

This exclusion applies to any loss caused “directly or indirectly” by virus. (Id. at 88.)

Unphased by the “Virus or Bacteria” exclusion in its contract, Part Two filed

a business interruption claim for revenues lost due to COVID-19 and COVID-19

shutdown orders. (Doc. 5-1 at ¶¶ 34–35.) Owners denied that claim on April 3, 2020.

(Id. at ¶ 36.) That denial is the basis for both of Part Two’s causes of action.

III. Analysis

In diversity cases—like this one—this Court applies the substantive law of the

forum state. McMahan v. Toto, 256 F.3d 1120, 1132 (11th Cir. 2001) (citing Erie R.R.

Co. v. Tompkins, 304 U.S. 64, 78 (1938)). The forum state here is Alabama: Part Two

filed this case in Tuscaloosa County Circuit Court, and Owners removed it to the

United States District Court for the Northern District of Alabama. Because neither

party disputes that contract interpretation is substantive or otherwise argues that

Alabama law does not control, the Court will apply Alabama law.

A. Part Two Has Not Stated A Plausible Breach of Contract Claim

Because an Unambiguous Exclusion Denies Coverage for Its

Alleged Losses.

The Alabama Supreme Court has not yet decided how a “Virus Or Bacteria”

exclusion applies to COVID-19-related losses. With no controlling authority or on-

point case, the Court “must anticipate” how Alabama’s Supreme Court would

decide the issues now before the Court. State Farm Mut. Auto. Ins. Co. v. Duckworth,

648 F.3d 1216, 1224 (11th Cir. 2011).

Although Alabama’s Supreme Court has not answered this specific question,

general principles of Alabama insurance and contract law supply all that is necessary.

See id. (the process for deciding how a state court would rule on an unanswered

question “is not exact; often we must draw our decision from comparisons to

analogous cases.”). Under Alabama law, a “court must enforce [an] insurance policy

as written if [its] terms are unambiguous.” Safeway Ins. Co. of Ala., Inc. v. Herrera,

912 So. 2d 1140, 1143 (Ala. 2005). This rule applies both to grants of coverage and to

exclusions. Hooper v. Allstate Ins. Co., 571 So. 2d 1001, 1002 (Ala. 1990). For both,

“a court gives words . . . their common, everyday meaning and interprets them as a

reasonable person in the insured’s position would have understood them.”

Traveler’s Cas. and Sur. Co. v. Ala. Gas Corp., 117 So. 3d 695, 699 (Ala. 2012)

(quoting State Farm Mut. Auto. Ins. Co. v. Brown, 26 So. 3d 1167, 1169-70 (Ala.

2009)).

The virus exclusion in Part Two’s policy is unambiguous. It excludes any

“loss or damage caused by or resulting from a virus, bacterium, or other

microorganism that induces or is capable of inducing . . . illness or disease.” (Doc. 4-

1 at 89.) This exclusion applies to any “loss or damage caused directly or indirectly”

by virus, “regardless of any other cause or event that contributes concurrently or in

any sequence to the loss.” (Id. at 88) (emphasis added). It applies to business

interruption coverage, to extra expense coverage, and to civil authority coverage. (Id.

at 79–80, 88.) Read together, the exclusion’s “common, everyday meaning” is clear.

The Court sees no ambiguity.

The only remaining question is whether a virus lies within the causal chain of

Part Two’s alleged loss. To ask the question is to answer it. See generally Travis v.

Cent. Sur. & Ins. Corp., 117 F.2d 595, 596 (5th Cir. 1941) (“To ask these questions is

to answer them.”). Of course a virus directly or indirectly caused COVID-19-related

damage and COVID-19-related orders. By causing that damage and by causing those

orders, a virus caused Part Two’s alleged harm—lost income “as a result of COVID-

19 and mandatory government orders.” This unambiguously places Part Two’s

alleged loss outside the policy and outside Owners’ contracted-for risk. Many federal

courts have reached the same conclusion when applying similar or synonymous virus

exclusions. See, e.g., Newchops Rest. Comcast LLC v. Admiral Indem. Co., No. 20-1948,

2020 WL 7395153, at *8 (E.D. Pa. Dec. 17, 2020) (“Even if the insureds had suffered

covered losses under either or both the civil authority and business income

provisions, the virus exclusion precludes coverage.”); N&S Rest LLC v. Cumberland

Mut. Fire Ins. Co., No. 2:20-05289, 2020 WL 6501722, at *5 (D. N.J. Nov. 5, 2020)

(“Accordingly, based on the Court’s independent evaluation of the Policy’s Virus

Exclusion and the wealth of well-reasoned opinions from other districts holding

similarly, the Court finds that the Virus Exclusion bars coverage.”); Mauricio

Martinez, DMD, P.A. v. Allied Ins. Co. of Am., No. 2:20-cv-00401-FtM-66NPM,

2020 WL 5240218, at *2 (M.D. Fla. Sep. 2, 2020) (“Because Martinez’s damages

resulted from COVID-19, which is clearly a virus, neither the Governor’s executive

order . . . nor the disinfection of the dental office of the virus is a ‘Covered Cause of

Loss’ under the plain language of the policy exclusion.”).

Part Two responds to Owners’ virus-exclusion argument two ways. First, Part

Two says the Court should not apply the exclusion “at this point in the life of the

case.” (Doc. 17 at 11.) Instead the Court should wait until summary judgment to

decide whether the exclusion is ambiguous and how it applies. Second, Part Two

points to the virus exclusion’s “origin and evolution” to argue the exclusion does

not reach COVID-19-caused losses. (Id. at 9.)

Neither of Part Two’s arguments persuade the Court. To the first argument:

whether an exclusion is ambiguous or unambiguous is a question of law. See Twin

City Fire Ins. Co. v. Ohio Cas. Ins. Co., 480 F.3d 1254, 1258 (11th Cir. 2007) (“In

Alabama, the interpretation of a contract . . . is a question of law, reviewed de novo.”);

Upton v. Miss. Valley Title Ins. Co., 469 So. 2d 548, 553 (Ala. 1985). The Court may

answer that question and apply an unambiguous exclusion without discovery or

factual development. Cf. Robinson v. Liberty Mut. Ins. Co., 958 F.3d 1137 (11th Cir.

2020) (applying Alabama law to an exclusion within an insurance contract, finding

no ambiguity, and granting the insurer’s motion to dismiss). Part Two’s second

argument also falls short. The policy unambiguously excludes virus-caused losses,

and neither the origin nor the evolution of the exclusion can create ambiguity where

none exists. See Lambert v. Coregis Ins. Co., Inc., 950 So. 2d 1156 (Ala. 2006) (quoting

Herrera, 912 So. 2d at 1143) (“[T]he parties cannot create ambiguities by setting

forth different interpretations or by inserting strained or twisted reasoning.”).

Because Part Two’s policy does not cover any loss caused directly or indirectly by a

virus, and because Part Two alleges only virus-caused losses, its breach of contract

claim is due to be dismissed.

B. With No Plausible Breach of Contract Claim, Part Two’s Bad

Faith Claim Fails as a Matter of Law.

Breach of contract and bad faith are joined at the hip. See Acceptance Ins. v.

Brown, 832 So. 2d 1, 16 (Ala. 2001). “[C]ontractual liability is a prerequisite for

liability for bad faith. Therefore, one who cannot prove she was entitled to benefits

under an insurance policy cannot recover on a bad-faith claim.” Id. Having failed to

state a plausible breach of contract claim, Part Two’s bad faith claim likewise fails.

State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 318 (Ala. 1999) (“We think it

clear that these authorities limit bad faith liability to those cases in which the insured

is entitled to benefits under the policy.”).

C. Both of Part Two’s Claims Are Due to Be Dismissed with

Prejudice.

In its response brief, Part Two “requests the opportunity to amend” its

complaint and avoid a dismissal with prejudice. (Doc. 17 at 11.) The Court will not

grant Part Two’s request because any amendment would be futile. For Part Two to

prevail, the Court would have to blind itself to the virus exclusion and judicially

rewrite Part Two’s insurance policy. See St. Paul Fire & Marine Ins. Co. v. Britt, 203

So. 3d 804, 811 (Ala. 2016). (“A court must not rewrite a policy so as to include or

exclude coverage that was not intended.”). Rather than allow a futile amendment,

the Court will dismiss this case with prejudice. See Mann v. Palmer, 713 F.3d 1306,

1316 (11th Cir. 2013).

IV. Conclusion

The Court will enter an Order consistent with this Memorandum of Opinion.