New Orleans Equity v. U.S. Specialty ( 2023 )

Case: 21-30544 Document: 00516602507 Page: 1 Date Filed: 01/09/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
January 9, 2023
No. 21-30544
Lyle W. Cayce
Clerk
New Orleans Equity L.L.C., doing business as
Galatoire’s Restaurant, doing business as
Galatoire’s 33 Bar & Steak,
Plaintiff—Appellant,
versus
U.S. Specialty Insurance Company,
Defendant—Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:20-CV-1935
Before Higginbotham, Jones, and Oldham, Circuit Judges.
Per Curiam:*
Appellant, owner of Galatoire’s in New Orleans, sued its insurance
provider for refusing to cover its revenue losses suffered during the opening
*
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opinion should not be published and is not precedent except under the limited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.
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No. 21-30544
months of the Covid-19 pandemic. The district court granted summary
judgment in favor of the insurance provider. We affirm.
I. Background
New Orleans Equity L.L.C. owns and operates Galatoire’s Restaurant
and Galatoire’s 33 Bar & Steak on Bourbon Street. One of the most popular
members of Galatoire’s wait staff worked the weekend of March 13 to 15,
2020. Little did he or his employer know that he would test positive for
Covid-19 on March 17. The day before, on March 16, the Governor of
Louisiana announced that, effective March 17, “all restaurants . . . shall cease
allowing for any on premises consumption of food or beverages.” The City
of New Orleans issued a similar order, announced on March 16 and effective
March 17. The evening of March 16, Galatoire’s management decided to fire
all 148 non-management employees. By April 20, Appellant lost over
$1,000,000 in gross revenue, which rose to $3,445,000 by September 23,
2020.
In March 2020, Appellant had an insurance policy with U.S. Specialty
Insurance Company (USSIC) that covered business interruption losses
“directly and solely caused” by an “accidental contamination” of an
“insured product.” The policy did not contain a Covid-19, virus, or
pandemic exclusion. Appellant notified USSIC of a claim that it had
sustained a loss due to accidental contamination of an insured product by the
sick waiter. USSIC conducted an investigation and denied coverage.
Appellant sued USSIC for breach of contract in federal court. 1
Following discovery, both parties moved for summary judgment. The
district court granted summary judgment for USSIC. This appeal followed.
1
Diversity jurisdiction exists under 28 U.S.C. § 1332. Appellant is a resident of
Louisiana, USSIC is a resident of Texas, and the amount in controversy exceeds $75,000.
2
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II. Discussion
“This court reviews the district court’s grant of summary judgment
de novo, applying the same legal standards as the district court.” DePree v.
Saunders, 588 F.3d 282, 286 (5th Cir. 2009). A party is entitled to summary
judgment “if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322,
106 S. Ct. 2548, 2552 (1986). The interpretation of an insurance policy is a
question of law reviewed de novo. EMJ Corp. v. Hudson Specialty Ins. Co.,
833 F.3d 544, 547 (5th Cir. 2016).
To meet its burden of proving coverage under the policy, Appellant
must show that (1) an insured event occurred (here, that insured products
were accidentally contaminated), (2) the event was reported to USSIC, and
(3) the insured event directly and solely caused a loss. Appellant fails to
submit summary judgment evidence that it has satisfied the first and third
requirements.
1. Insured Product
The parties agree that the policy covers business interruption losses if
caused by an “accidental contamination” of an “insured product.” The
parties disagree over the proper interpretation of the term “Insured
Products.” 2 As defined by the policy, “Insured Products” means:
all ingestible products for human consumption, or any of their
ingredients or components, that have been reported to the
2
Louisiana law governs the interpretation of this policy. Under Louisiana law,
courts must interpret insurance policy terms according to “their plain, ordinary and
generally prevailing meaning, unless the words have acquired a technical meaning.”
Cadwallader v. Allstate Ins. Co., 848 So. 2d 577, 580 (La. 2003) (citing La. Civ. Code.
art. 2047).
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Insurer on the application on file with the Insurer for the
effective dates of this Policy or by addendum to such
application and that are:
a. in production; or
b. have been manufactured, handled or distributed by the
Insured; or
c. manufactured by any contract manufacturer for the
Insured; or
d. being prepared for or are available for sale; or
e. all ingestible products for human consumption served at
any restaurant location operating under the same trade
name as the Insured.
Appellant contends that Galatoire’s itself is an insured product because it
was “reported to the Insurer on the application.” Under this reading,
everything constituting the restaurant, such as the “plates, flatware, salt and
pepper dispensers, etc.,” is an “insured product.” The district court rightly
dismissed this argument as ignoring the clause’s limiting term of “ingestible
products for human consumption.” Thus, Appellant’s summary judgment
evidence must show that food products, including “ingredients or
components,” were accidentally contaminated, and that contaminated food
“directly and solely caused” its business interruption losses.
2. Contamination
The district court held, and USSIC argues, that Appellant must
submit evidence of actual contamination of food products to meet its burden.
Appellant essentially makes two arguments in response: (1) that it provided
evidence of contamination via expert testimony; and (2) that a requirement
of scientific testing or proof of sickness would render the contract illusory.
The first is wrong, and the second misunderstands Appellant’s burden under
the policy.
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First, Appellant emphasizes as evidence of contamination the report
of its expert, Dr. Cameron, which concluded that the infected employee
“likely unknowingly expelled infectious virus in tiny aerosolized droplets
each time he spoke to patrons.” (emphasis added). The report stated further
that it “is therefore likely that [the waiter’s] virus was distributed across all
aspects of table service, contaminating food and beverages, utensils, and table
linens.” (emphasis added).
According to the plain meaning of its text, the policy mandates the
insured to submit proof of actual contamination, not of likely contamination.
The clause pertaining to “Notice of an Incident” requires the insured to
“make every reasonable effort to . . . determine whether an Insured Event
has actually occurred,” and when submitting a “Notice of a Claim,” the
insured must determine “that an Insured Event has actually occurred.”
(emphasis added). Further, a comparison of the definitions of coverage for
“Accidental Contamination” and “Malicious Tampering” supports this
interpretation. The former has no qualifying language before “accidental or
unintentional contamination, impairment or mislabeling of an Insured
Product,” while the latter begins, “Any actual, alleged or threatened
intentional, malicious, and wrongful alteration or contamination of the
Insured’s Products . . . .” (emphasis added). Thus, if the “alleged wrongful
contamination of an Insured Product” is covered under Malicious
Tampering, then the Accidental Contamination clause should be read to
cover only actual contamination of an insured product. It is undisputed that
Appellant has neither provided evidence of actual contamination of food nor
submitted a claim for malicious tampering.
Second, Appellant argues that if proof of actual contamination is
required, then contamination of this kind will never qualify as an insured
event. Appellant misunderstands the district court’s opinion and USSIC’s
argument to be that actual contamination can only be proven by scientific
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testing or by evidence of sick customers. To be sure, both of those types of
evidence might suffice to show actual contamination, but neither is required
by the policy. It is not USSIC’s burden to show Appellant how to submit
evidence of actual contamination. Appellant’s frustration over its inability to
proffer evidence of actual contamination suggests not that the policy is
illusory, but that the contamination alleged here is not an insured event.
3. Causation
The biggest problem with Appellant’s case is that Appellant cannot
prove that the sick waiter’s alleged contamination of food was the “sole and
direct cause” of Appellant’s business interruption losses. The district court
heard argument on this issue but granted summary judgment to USSIC on
the ground that Appellant had not shown that an insured event occurred.
Nevertheless, this court may affirm the grant of summary judgment for any
reason “supported by the record and argued in the court below,” even if not
relied upon by the district court. Maria S. ex rel. E.H.F. v. Garza, 912 F.3d
778, 783 (5th Cir. 2019); see also LLEH, Inc. v. Wichita Cnty., 289 F.3d 358,
364 (5th Cir. 2002).
The policy defines “Loss” as including only the “reasonable and
necessary expenses or costs incurred by the Insured directly and solely as the
result of a covered Insured Event.” (emphasis added). The undisputed facts
show that the insured event, if it occurred, was neither the direct nor the sole
cause of Appellant’s business interruption losses. The facts are these: On
March 16, upon learning of the Governor’s and Mayor’s announcements that
would shut down in-person dining at Galatoire’s, Appellant decided to fire
all 148 non-management employees. Appellant admitted that it complied
with the Governor’s and Mayor’s orders, that business slowed during the
pandemic, and that Appellant reopened its restaurants when permitted.
Appellant’s representative testified during his deposition that he attributed
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all of the company’s financial losses to the pandemic. This evidence does not
forbid the finding that food contamination was a cause of Appellant’s losses.
But it does mean that food contamination was not “the sole and direct
cause.”
Accordingly, Appellant has failed to submit summary judgment
evidence that it proved coverage under the policy.
For the foregoing reasons, the district court’s judgment is
AFFIRMED.
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