PS Business Mgmt v. Fireman's Fund Ins ( 2022 )

Case: 21-30723 Document: 00516384085 Page: 1 Date Filed: 07/06/2022
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
July 6, 2022
No. 21-30723 Lyle W. Cayce
Clerk
PS Business Management, L.L.C.; CJA Nola Realty,
L.L.C.,
Plaintiffs—Appellants,
versus
Fireman’s Fund Insurance Company,
Defendant—Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:21-CV-1229
Before Richman, Chief Judge, and Ho and Engelhardt, Circuit
Judges.
Per Curiam:*
PS Business Management and CJA Nola Realty (collectively,
“Plaintiffs”) sued their commercial property insurer to recover the financial
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 21-30723 Document: 00516384085 Page: 2 Date Filed: 07/06/2022
No. 21-30723
losses they suffered as a consequence of the COVID-19 pandemic. The
district court dismissed their complaint for failure to state a claim. We affirm.
I.
PS Business Management has offices in three states and provides
business consulting services to entertainment professionals. CJA Nola
Realty manages PS Business Management’s New Orleans office. Like many
businesses, Plaintiffs suffered losses as a consequence of the COVID-19
pandemic.
Both companies filed a claim with their insurers, including Fireman’s
Fund Insurance Company and Allianz Global Risk, to recover those losses
under various provisions of their commercial property insurance policy.
Plaintiffs’ policy includes a communicable disease provision that establishes
coverage for certain specified losses if there has been a qualifying
“communicable disease event.” Coverage under all other relevant
provisions of the policy is triggered by “direct physical loss or damage” to
the property.
After Plaintiffs’ claim for coverage was denied, they brought this
action in Louisiana state court against Fireman’s Fund, Allianz Global Risk,
and Allianz Global Corporate & Specialty, SE “for damages and asserting
bad faith in the denial of coverage.” Defendants removed the action to
federal court on diversity grounds, and Plaintiffs voluntarily dismissed the
Allianz defendants from the action.
Fireman’s Fund, the sole remaining defendant, moved to dismiss
Plaintiffs’ complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure. The district court granted the motion after concluding that the
communicable disease coverage provision did not apply and that, by
requiring “direct physical loss or damage,” the remaining policy provisions
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unambiguously excluded “alleged losses that are intangible or incorporeal.”
Plaintiffs timely appealed.
II.
We review a district court’s dismissal de novo. Stratta v. Roe, 961 F.3d
340, 349 (5th Cir. 2020). “Similarly, the interpretation of an insurance policy
is a question of law that we review de novo.” Singleton v. Elephant Ins. Co.,
953 F.3d 334, 337 (5th Cir. 2020). “To defeat a Rule 12(b)(6) motion to
dismiss, a plaintiff must plead enough facts to state a claim to relief that is
plausible on its face.” Johnson v. BOKF Nat’l Ass’n, 15 F.4th 356, 361 (5th
Cir. 2021) (quotations omitted). “The court accepts all well-pleaded facts as
true, views them in the light most favorable to the plaintiff, and draws all
reasonable inferences in the plaintiff’s favor.” Id.III.
“In diversity cases, we apply the law of the forum state to determine
which state’s law applies.” Mumblow v. Monroe Broad., Inc., 401 F.3d 616,
620 (5th Cir. 2005). This action was brought in Louisiana, and “[u]nder
Louisiana’s choice-of-law rules, the law of the state where the insurance
contract was issued and executed generally governs the interpretation of that
contract.” Pioneer Expl., L.L.C. v. Steadfast Ins. Co., 767 F.3d 503, 512 (5th
Cir. 2014).
The parties agree that, under Louisiana’s choice of law rules, “New
York law likely applies.” But they also agree that “relevant New York and
Louisiana law does not appear to conflict.” See Rainbow USA, Inc. v. Nutmeg
Ins. Co., 612 F. Supp. 2d 716, 725–27 (E.D. La. 2009) (outlining how
Louisiana and New York law are similar with respect to interpreting
insurance contracts).
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Our court has “held . . . that if the laws of the states do not conflict,
then no choice-of-law analysis is necessary, and we simply apply the law of
the forum state.” Pioneer Expl., 767 F.3d at 512 (cleaned up). “Because we
conclude that the substantive contract law of New York and Louisiana is in
harmony” on the determinative issues in this appeal, “no choice of law
analysis is necessary, and we apply Louisiana law.” Mumblow, 401 F.3d at
621.
A.
The parties agree that the key question here is whether, under the
policy, “direct physical loss or damage” requires corporeal or tangible loss
or damage to the insured property. It is undisputed that the policy does not
define “direct physical loss or damage,” and thus we must assess the
phrase’s “plain, ordinary and generally prevailing meaning.” Sims v.
Mulhearn Funeral Home, Inc., 956 So. 2d 583, 589 (La. 2007). “When the
words of an insurance contract are clear and explicit and lead to no absurd
consequences, courts must enforce the contract as written and may make no
further interpretation in search of the parties’ intent.” Gorman v. City of
Opelousas, 148 So. 3d 888, 892 (La. 2014) (quotations omitted).
Plaintiffs contend that “direct physical loss or damage” encompasses
“COVID-19 related issues” and “does not require physical damage.” But
in Q Clothier New Orleans, L.L.C. v. Twin City Fire Insurance Co., we
concluded that “the Louisiana Supreme Court would interpret ‘direct
physical loss of or damage to property’ to cover only tangible alterations of,
injuries to, and deprivations of property.” 29 F.4th 252, 257 (5th Cir. 2022).
See also id. at 260 (“[W]e conclude the plain and ordinary meaning of
‘physical loss of or damage to property’ is a tangible alteration to, injury to,
or deprivation of property.”). Indeed, as we noted in Q Clothier, “every
other circuit court to interpret this language” in the COVID-19 context has
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understood it that same way. Id. at 259. See Terry Black’s Barbecue, L.L.C. v.
State Auto. Mut. Ins. Co., 22 F.4th 450, 456–57 (5th Cir. 2022) (collecting
cases). 1
Still, Plaintiffs contend that, at least with respect to this policy,
construing “direct physical loss or damage” in such a manner would lead to
“absurd results” in two respects. See Sher v. Lafayette Ins. Co., 988 So.2d
186, 193 (La. 2008) (“An insurance policy should not be interpreted in an
unreasonable or a strained manner . . . so as to achieve an absurd
conclusion.”) (quotations omitted).
First, they note that “stock” is covered business personal property
under the policy, with “stock” defined as the insured’s “interest in labor,
materials, or services furnished or arranged by [the insured] on personal
property of others.” Yet to recover, there must be “direct physical loss or
damage,” and if that means actual physical damage, Plaintiffs contend it
would be impossible for any of “the non-physical items of stock
contemplated by the policy” to be covered.
We disagree. Plaintiffs overlook that such intangible interests are
covered under their policy only when they are “on [the] personal property of
others.” Thus, as the district court observed, the policy simply “covers the
value of services embedded in someone else’s property if that property is
physically lost or damaged.” This by no means makes it impossible for the
intangible interests contemplated by the policy to be covered. For instance,
the district court noted that “damage to a stadium before a show sponsored
1
We also note that New York courts have “uniformly . . . den[ied] coverage under
similar insurance provisions where the insured property itself was not alleged or shown to
have suffered direct physical loss or physical damage.” 10012 Holdings, Inc. v. Sentinel Ins.
Co., Ltd., 21 F.4th 216, 221 (2nd Cir. 2021) (collecting cases).
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by Plaintiffs might result in coverage of the value of services done by
Plaintiffs’ agents prior to the show.”
Second, Plaintiffs contend that, under this definition of “direct
physical loss or damage,” coverage under the policy’s communicable disease
coverage provision would be “invalidate[d] . . . in all events” because it
would only apply when the property “has gone through a distinct,
demonstrable physical alteration.” But Plaintiffs are mistaken. Unlike many
of the policy’s other coverage provisions, “direct physical loss or damage”
is not what triggers communicable disease coverage. Instead, it is the
occurrence of a “communicable disease event” under the policy. Once such
an event occurs, the insured can recover for, among other things, the
“necessary costs incurred to . . . [m]itigate, contain, remediate, clean,
detoxify, [and] disinfect” the property.
B.
Plaintiffs contend that, even if “direct physical loss or damage”
requires that there be a corporeal effect on the property, their claim for
coverage survives because they’ve alleged that their property was physically
damaged by COVID-19. More specifically, Plaintiffs emphasize their
allegation that they “lost valuable merchandise, business records, and the
property of certain clients as a result of COVID-19 contamination.”
But Plaintiffs’ complaint is devoid of allegations explaining how this
property was—or could be—“lost” due to “COVID-19 contamination.”
See Kelson v. Clark, 1 F.4th 411, 416 (5th Cir. 2021) (“[W]e do not presume
to be true . . . ‘naked assertions devoid of further factual enhancement.’”)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Moreover, as one of our
sister circuits has observed, COVID-19 is “a virus that injures people, not
property.” Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398, 403 (6th
Cir. 2021). See Iqbal, 556 U.S. at 679 (“Determining whether a complaint
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states a plausible claim for relief . . . requires the reviewing court to draw on
its judicial experience and common sense.”). 2 As such, Plaintiffs have not
plausibly alleged that they are entitled to coverage under the provisions
requiring “direct physical loss or damage.”
C.
Nevertheless, Plaintiffs assert that they are entitled to coverage
pursuant to their policy’s communicable disease coverage provision. As we
have noted, unlike the other relevant policy provisions, communicable
disease coverage is not triggered by “direct physical loss or damage.”
Rather, the existence of a “communicable disease event” under the policy is
what unlocks coverage. Once such an event occurs, the insured can recover
“for direct physical loss or damage” that is “caused by or resulting from [the]
covered communicable disease event.” This includes the “necessary costs
incurred to” (1) “[t]ear out and replace” property “in order to gain access
to the communicable disease;” (2) “[r]epair or rebuild” property that “has
been damaged or destroyed by the communicable disease;” and (3)
“[m]itigate, contain, remediate, clean, detoxify, disinfect, neutralize,
2
Plaintiffs have clarified in their briefing, both before the district court and on
appeal, that this allegation in their complaint refers to “the required cleaning” of items
contaminated with COVID-19. They offer as examples “a shrunken shirt after [its] first
washing,” “a bumper sticker with curled edges due to” cleaning, and a cap that has “faded
. . . due to the application of” a cleaning agent. But even if we were to credit this
clarification, it would simply confirm that Plaintiffs have not “allege[d] that the virus
altered” their property directly. Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th
327, 335 (7th Cir. 2021) (noting COVID-19’s “impact on physical property is
inconsequential” because the virus “may be wiped off surfaces using ordinary cleaning
materials, and it disintegrates on its own in a matter of days”). This does not suffice under
Plaintiffs’ policy, which largely “requires direct physical loss or damage” for there to be
coverage.
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cleanup, remove, dispose of, test for, monitor, and assess the effects [of] the
communicable disease.”
However, the policy defines a “communicable disease event” as “an
event in which a public health authority has ordered that a location be
evacuated, decontaminated, or disinfected due to the outbreak of a
communicable disease at such location.” We agree with the district court
that while “COVID-19 is undoubtedly a communicable disease within the
meaning of the policy,” Plaintiffs have failed to allege the existence of a
qualifying “communicable disease event.”
Plaintiffs resist this conclusion. While they appear to acknowledge
that there was not “an order specific to the insured[] location,” they stress
that, because of the pandemic, various “[s]tate and local government
authorities” imposed “restrictions on business operations” and restricted
“access to their offices.”
But that is not enough. Again, for there to be coverage under this
provision, “a public health authority [must] order[] that a location be
evacuated, decontaminated, or disinfected due to the outbreak of a
communicable disease at such location.” Plaintiffs have not alleged that any
public health order mandated that their premises “be evacuated,
decontaminated, or disinfected,” let alone that such an order was issued due
to an “outbreak” at any of their offices. Accordingly, Plaintiffs have failed to
plausibly allege that they are entitled to communicable disease coverage
under their policy. See Dakota Girls, LLC v. Philadelphia Indem. Ins. Co., 17
F.4th 645, 651–52 (6th Cir. 2021) (reaching same conclusion in case involving
a similar communicable disease coverage provision).
D.
That leaves Plaintiffs’ claim that Fireman’s Fund breached its duty of
good faith and fair dealing under Louisiana Revised Statutes §§ 22:1973 and
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22:1892 by denying coverage. But these provisions “do not provide a cause
of action against an insurer absent a valid, underlying insurance claim.” Pelle
v. Munos, 296 So. 3d 14, 25 (La. Ct. App. 2020). See Bayle v. Allstate Ins. Co.,
615 F.3d 350, 363 (5th Cir. 2010) (noting that, under Louisiana law, “[b]reach
of contract is a condition precedent to recovery for the breach of the duty of
good faith”). Because Plaintiffs have failed to plausibly allege that they are
entitled to coverage, “the district court properly denied [their] claim for
statutory penalties.” See Bayle, 615 F.3d at 363.
***
For the foregoing reasons, we affirm the judgment of the district court.
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