Restaurant Group Management, LLC v. Zurich American Insurance Company

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[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-12107
Non-Argument Calendar
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RESTAURANT GROUP MANAGEMENT, LLC,
ATLANTA'S BEST PATIO, LLC,
f.k.a. Peach State Restaurants, LLC,
d.b.a. Einstein's,
EAT AT JOE'S, LLC,
a.k.a. Political Concepts,
d.b.a. Joe's on Juniper,
NORTHLAKE ROXX, LLC,
d.b.a. Hudson Grille Tucker,
RESTAURANT 104, LLC,
a.k.a. Atlanta Sports Restaurant, LLC,
d.b.a. Hudson Grille Midtown, et al.,
Plaintiffs-Appellants,
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versus
ZURICH AMERICAN INSURANCE COMPANY,
Defendant-Appellee.
____________________
Appeal from the United States District Court
for the Northern District of Georgia
D.C. Docket No. 1:20-cv-04782-TWT
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Before ROSENBAUM, BRANCH, and GRANT, Circuit Judges.
PER CURIAM:
This appeal involves claims for insurance coverage
stemming from restaurant closures and reduced capacity caused by
the COVID-19 pandemic. The question is whether, under Georgia
law, the COVID-19 related business losses suffered by the
plaintiffs—the owners and operators of food service establishments
in metropolitan Atlanta, as well as a restaurant management
group—constituted “direct physical loss of or damage to” insured
property under a policy issued by the defendant, Zurich American
Insurance Company. The district court held that it did not and
granted Zurich’s motion to dismiss. The restaurants appealed.
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21-12107 Opinion of the Court 3
Our Court recently decided a case involving claims for
COVID-19 losses under a set of nearly identical insurance contract
provisions, concluding that, under Georgia law, direct physical loss
of or damage to property requires a “tangible change to a property”
and that COVID-19 caused only “intangible harm.” Henry’s
Louisiana Grill, Inc. v. Allied Ins. Co. of Am., No. 20-14156 (11th
Cir. June 3, 2022), slip op. at 6, 8. Because the losses alleged here
did not involve a tangible change to the restaurants, the district
court properly dismissed the case. Therefore, after careful review,
we affirm.
I. Factual Background
The plaintiffs own and operate restaurants in metropolitan
Atlanta and are insured under the same commercial property
policy (the “Policy”) issued by Zurich American Insurance
Company. The Policy covers real and personal property losses,
losses due to suspension of business operations, extra expenses, and
losses stemming from government orders. However, to recover
under any of these policy provisions, the claimed losses must stem
from “direct physical loss of or damage to” property.
In April 2020, COVID-19 spread throughout the country,
and Georgia’s governor declared a state of emergency and issued a
shelter in place order, shutting down the restaurants. In May 2020,
the governor issued another order, permitting the restaurants to
reopen but requiring social distancing, additional sanitation
measures, and limited capacity.
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In March 2020, the restaurants submitted claims with Zurich
for “loss of stock, suspension of operations, limitations on ingress
and egress, civil authority ordered closings, limitations on
operations and loss of business income occasioned by the virus.”
Zurich denied their claims.
The restaurants sued Zurich in Georgia state court for
breach of contract and bad faith for the denial of their insurance
claims. Zurich removed the suit to federal district court and
moved to dismiss. The district court granted the motion, holding
that “direct physical loss of or damage to” property required
showing a tangible injury to the property and that COVID-19 and
the accompanying closure orders did not create one. 1 The
restaurants appealed.
1
The district court held that the tangible injury to property requirement
applied to coverage under all but one Policy provision. As to the one Policy
provision that did not require a showing of direct physical damage—the
Expense to Reduce Loss provision, which covers mitigation expenses
reasonably necessary to reduce lost business income—the district court found
that the restaurants identified no mitigation expenses. The district court then
dismissed the claims relating to the Expense to Reduce Loss provision without
prejudice. The restaurants do not challenge the dismissal of these claims, and
we do not address them on appeal. Access Now, Inc. v. Southwest Airlines
Co., 385 F.3d 1324, 1330 (11th Cir. 2004) (“[A] legal claim or argument that has
not been briefed before the court is deemed abandoned and its merits will not
be addressed.”).
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II. Standard of Review
We review de novo a district court’s order granting a
motion to dismiss for failure to state a claim under Rule 12(b)(6).
Lisk v. Lumber One Wood Preserving, LLC, 792 F.3d 1331, 1334
(11th Cir. 2015); FED. R. CIV. P. 12(b)(6). “We take the factual
allegations in the complaint as true and construe them in the light
most favorable to the plaintiffs.” Edwards v. Prime, Inc., 602 F.3d
1276, 1291 (11th Cir. 2010). Yet we need not accept the legal
conclusions in the complaint as true. Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (“[T]he tenet that a court must accept as true all of
the allegations contained in a complaint is inapplicable to legal
conclusions.”).
To avoid dismissal for failure to state a claim under Rule
12(b)(6), a complaint must contain sufficient factual matter that,
accepted as true, “state[s] a claim to relief that is plausible on its
face.” Iqbal, 556 U.S. at 678 (quotation omitted).
III. Discussion
For any of the plaintiffs’ insurance claims to be viable, they
had to stem from “direct physical loss of or damage to” covered
property. The dispositive question, therefore, is whether losses
from the suspension of business operations, reduced capacity, and
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increased cleaning and sanitation costs constitute “direct physical
loss of or damage to” property under Georgia law. 2
Our recent decision in Henry’s Louisiana Grill resolves this
appeal. In that case, we addressed whether (under Georgia law),
“direct physical loss of or damage to” property included losses
stemming from the suspension of business operations and extra
costs incurred because of COVID-19. Henry’s Louisiana Grill, Inc.,
No. 20-14156, slip op. at 4. Looking to the Georgia Court of
Appeals’s decision in AFLAC Inc. v. Chubb & Sons, Inc., 581 S.E.2d
317 (Ga. Ct. App. 2003), which read the phrase “direct physical loss
of, or damage to” to mean an “actual change in insured property,”
id. at 319, we held that “a tangible change to property” is required
and that the harm caused by COVID-19 is “intangible.” Henry’s
Louisiana Grill, Inc., No. 20-14156, slip op. at 6, 8.
Here, the restaurants identify two alleged “direct physical
loss[se]s” caused by the COVID-19 pandemic: reduced seating
capacity and “property contamination due to the virus.” But
neither reduced capacity nor the presence of the virus on surfaces
within the restaurants constitutes tangible harm to the insured
properties. See id. Because the restaurants failed to plead a direct
physical loss of or damage to property—a prerequisite to recover
under each of the Policy provisions at issue—Zurich properly
2
The parties do not dispute that Georgia law controls the interpretation of the
Policy.
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denied the restaurants’ claims. Accordingly, the district court did
not err in granting Zurich’s motion to dismiss. 3
AFFIRMED.
3
The restaurants also ask us to certify several questions to the Georgia Supreme
Court, including about the meaning of “direct physical loss of or damage to.” This
Court may certify a question to the Georgia Supreme Court if we “maintain more
than substantial doubt as to how the issue before us would be resolved” under
Georgia law. See Toomey v. Wachovia Ins. Servs., Inc., 450 F.3d 1225, 1231 (11th
Cir. 2006). Yet “certification should never be automatic or unthinking. We use much
judgment, restraint, and discretion in certifying. We do not abdicate.” Escareno v.
Noltina Crucible and Refractory Corp., 139 F.3d 1456, 1461 (11th Cir. 1998)
(quotation omitted). In light of our binding decision in Henry’s Louisiana Grill, we
do not harbor substantial doubt about the correctness of the district court’s decision
here. Accordingly, we DENY the restaurants’ motion to certify questions to the
Georgia Supreme Court.