Troy Stacy Enters. v. Cincinnati Ins. Co.

NOT RECOMMENDED FOR PUBLICATION
File Name: 22a0230n.06
Case No. 21-4008
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
)
TROY STACY ENTERPRISES INC., dba Craft FILED
) Jun 08, 2022
& Vinyl; SWEARINGEN SMILES LLC;
) DEBORAH S. HUNT, Clerk
ELEISHA J. NICKOLES, D.D.S.; REEDS
)
JEWELERS OF NIAGRA FALLS, INC.;
)
BURNING BROTHERS BREWING LLC;
) ON APPEAL FROM THE UNITED
CHICAGO MAGIC LOUNGE LLC; CDC
) STATES DISTRICT COURT FOR
CATERING, INC., t/a Brookside Manor,
) THE SOUTHERN DISTRICT OF
individually and behalf of all others similarly
) OHIO
situated,
)
Plaintiffs-Appellants, )
)
v. ) OPINION
)
CINCINNATI INSURANCE COMPANY; )
CINCINNATI CASUALTY COMPANY; )
CINCINNATI INDEMNITY COMPANY; )
CINCINNATI FINANCIAL CORPORATION, )
Defendants-Appellees. )
Before: SUTTON, Chief Judge; COLE and DONALD, Circuit Judges.
COLE, Circuit Judge. Like many companies across the United States, Troy Stacy
Enterprises and six other businesses sought to recoup economic losses attributable to the COVID-
19 pandemic through their insurance policies with Cincinnati Insurance and other providers.
Cincinnati Insurance moved to dismiss the complaints. The district court found that, under each
Case No. 21-4008, Troy Stacy Enters. Inc., et al. v. Cincinnati Ins. Co., et al.
relevant state’s laws, Troy Stacy failed to state a claim because it had not plausibly alleged either
“physical loss” or “physical damage.” We affirm.
I.
Troy Stacy Enterprises Inc.; Swearingen Smiles LLC; Eleisha J. Nickoles DDS; Reeds
Jewelers of Niagara Falls, Inc.; Burning Brothers Brewing LLC; Chicago Magic Lounge LLC; and
CDC Catering, Inc. t/a Brookside Manor are all businesses that hold property insurance policies
with Cincinnati Insurance Company. After the COVID-19 pandemic broke out in March 2020,
civil orders issued in each business’s home state—Ohio, West Virginia, New York, Minnesota,
Illinois, and Pennsylvania, respectively—restricted normal business operations to prevent the
virus’s spread. Like many others across the United States during this period, the businesses could
not operate as they normally would, and they lost income and incurred other expenses to comply
with the civil orders.
To recover some of these losses, the businesses submitted claims for reimbursement to
Cincinnati Insurance for “direct physical loss or damage” to their property. (Am. Compl., R. 61,
PageID 2884.) When Cincinnati Insurance denied their claims, they filed four separate suits that
were eventually consolidated. Troy Stacy Enters. Inc. v. Cincinnati Ins. Co., 337 F.R.D. 405, 406–
08 (S.D. Ohio 2021). In their consolidated complaint, the businesses (collectively, “Troy Stacy”)
claim the COVID-19 virus rendered their properties “to a state dangerous and/or unsatisfactory for
use because of the fortuitous presence and effect of the coronavirus, fomites, and respiratory
droplets or nuclei directly upon the property.” (Am. Compl., R. 61, PageID 2927.) Troy Stacy
brought claims for breach of contract, seeking business income coverage, civil authority coverage,
extra expense coverage, and sue-and-labor coverage. Troy Stacy also sought declaratory judgment
on these four claims.
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Case No. 21-4008, Troy Stacy Enters. Inc., et al. v. Cincinnati Ins. Co., et al.
Although the businesses hold separate policies with Cincinnati Insurance, the policies are
meaningfully similar. Relevant to the claims at issue here, each business’s policy states the
following:
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 “loss” to property at a “premises”
caused by or resulting from any Covered Cause of Loss.
(E.g., Craft & Vinyl Policy, R. 61-1, PageID 3011; Swearingen Smiles Policy, R. 61-2, PageID
3154.) The policies define “Covered Causes of Loss” as “direct ‘loss’ unless the ‘loss’ is excluded
or limited[.]” (E.g., Brookside Manor Policy, R. 61-7, PageID 4929.) “Loss” means “accidental
physical loss or accidental physical damage.” (E.g., Craft & Vinyl Policy, R. 61-1, PageID 3031.)
The policies also provide “Extra Expense” coverage and “Civil Authority” coverage. An
“Extra Expense” is a necessary expense an insured incurs during a “period of restoration” that it
would not have sustained without direct loss to property. (Am. Compl., R. 61, PageID 2897.)
“Civil Authority” coverage protects an insured when a loss causes damage to non-insured property,
and a civil authority prevents access to the insured premises. (Id. at PageID 2897–98.)
Cincinnati Insurance moved to dismiss the consolidated suit, arguing that Troy Stacy did
not plausibly allege that COVID-19 or the stay-at-home orders caused physical loss or physical
damage to its business. The district court granted the motion to dismiss. Troy Stacy Enters. Inc.
v. Cincinnati Ins. Co., --- F. Supp. 3d ---, 2021 WL 4346688, *1 (S.D. Ohio 2021). First, contrary
to Cincinnati Insurance’s argument, the court determined that Ohio’s choice-of-law requirements
“cut in favor of applying the law of each plaintiff’s state of residence.” Id. at *3. Second, analyzing
the contract rules of each of the six states at issue here, the court held that Troy Stacy failed to
state a claim because “whether the ‘loss’ comes by way of the virus, the disease, or government
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closure orders, under every applicable state’s law, [its] reading asks too much of the policy
language.” Id. at *5. Troy Stacy now appeals.
II.
As a preliminary matter, choice of law is a threshold question that must be resolved before
we reach any other issue this case presents. “Federal courts sitting in diversity must apply the
choice-of-law principles of the forum”—in this instance, Ohio. Tele-Save Merch. Co. v.
Consumers Distrib. Co., Ltd., 814 F.2d 1120, 1122 (6th Cir. 1987) (citing Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). Here, the parties do not cite any choice-of-law
provision in the insurance policies. In Ohio, when the parties have not designated a choice of
applicable law, courts generally resolve the conflict by applying the Restatement (Second) of
Conflict of Laws. Gries Sports Enters., Inc. v. Modell, 473 N.E.2d 807, 810 (Ohio 1984); see also
Morgan v. Biro Mfg. Co., 474 N.E.2d 286, 288–89 (Ohio 1984); Macurdy v. Sikov & Love, P.A.,
894 F.2d 818, 820 (6th Cir. 1990). But before turning to the Restatement and undertaking a choice-
of-law analysis, “an actual conflict between Ohio law and the law of another jurisdiction must
exist[.]” Hayslip v. Genuine Parts Co., 420 F. Supp. 3d 666, 677 (S.D. Ohio 2019) (quoting
Glidden Co. v. Lumbermens Mut. Cas. Co., 861 N.E.2d 109, 115 (Ohio 2006)).
Cincinnati Insurance argues that Ohio law should govern because each of the states at issue
here—Ohio, West Virginia, New York, Minnesota, Illinois, and Pennsylvania—approach policy
interpretation the same way. We agree. Principles of policy interpretation are fundamentally the
same in each state. “In Ohio, as in all States (we expect), the state courts construe the terms of a
contract in accordance with their conventional meaning.” Santo’s Italian Café LLC v. Acuity Ins.
Co., 15 F.4th 398, 400 (6th Cir. 2021); see also Laboy v. Grange Indem. Ins. Co., 41 N.E.3d 1224,
1227 (Ohio 2015) (Ohio); Cherrington v. Erie Ins. Prop. & Cas. Co., 745 S.E.2d 508, 524 (W. Va.
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Case No. 21-4008, Troy Stacy Enters. Inc., et al. v. Cincinnati Ins. Co., et al.
2013) (West Virginia); U.S. Fid. & Guar. Co. v. Annunziata, 492 N.E.2d 1206, 1207 (N.Y. 1986)
(New York); Travelers Indem. Co. v. Bloomington Steel & Supply Co., 718 N.W.2d 888, 894
(Minn. 2006) (Minnesota); Cent. Ill. Light Co. v. Home Ins. Co., 821 N.E.2d 206, 213 (Ill. 2004)
(Illinois); 401 Fourth St., Inc. v. Invs. Ins. Grp., 879 A.2d 166, 171 (Pa. 2005) (Pennsylvania).
Each of these state courts also views policy terms in the context of the policy as a whole and its
overall purpose. See Wohl v. Swinney, 888 N.E.2d 1062, 1065 (Ohio 2008) (Ohio); Glen Falls
Ins. Co. v. Smith, 617 S.E.2d 760, 769 (W. Va. 2005) (West Virginia); Nomura Home Equity Loan,
Inc., Series 2006-FM2, by HSBC Bank USA, Nat’l Ass’n v. Nomura Credit & Cap., Inc., 92 N.E.3d
743, 748 (N.Y. 2017) (New York); Bolduc v. N.Y. Fire Ins. Co., 69 N.W.2d 660, 664 (Minn. 1955)
(Minnesota); Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307, 314 (Ill. 2006)
(Illinois); Pa. Nat’l Mut. Cas. Ins. Co. v. St. John, 106 A.3d 1, 14 (Pa. 2014) (Pennsylvania).
Because the states at issue employ the same principles of policy interpretation, there is no actual
conflict that requires us to engage in a choice-of-law analysis. Accordingly, Ohio law governs this
dispute.
III.
We review the district court’s interpretation of the contracts de novo and in accordance
with the substantive law of Ohio. Dakota Girls, LLC v. Phila. Indem. Ins. Co., 17 F.4th 645, 648
(6th Cir. 2021); see also Brown Jug, Inc. v. Cincinnati Ins. Co., 27 F.4th 398, 402 (6th Cir. 2022).
If the state’s highest court has not issued an opinion directly on point, we make an “Erie guess”
and “determine how that court, if presented with the issue, would resolve it.” Conlin v. Mortg.
Elec. Registration Sys., Inc., 714 F.3d 355, 358–59 (6th Cir. 2013).
We also review de novo a district court’s ruling on a motion to dismiss. Brown Jug,
27 F.4th at 402 (citing Jasinski v. Tyler, 729 F.3d 531, 538 (6th Cir. 2013)). “[O]nly a complaint
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Case No. 21-4008, Troy Stacy Enters. Inc., et al. v. Cincinnati Ins. Co., et al.
that states a plausible claim for relief survives a motion to dismiss.” Ashcroft v. Iqbal, 556 U.S.
662, 679 (2009).
IV.
Troy Stacy is entitled to business income coverage only if the presence of the COVID-19
virus on insured property or the civil authority orders constitutes “direct accidental physical loss
or accidental physical damage.” Troy Stacy’s extra expense coverage is also tied to direct loss
because this coverage is available only if Troy Stacy incurred necessary expenses resulting from
direct loss to property due to a cause covered by the policy. Troy Stacy alleges that the COVID-
19 virus caused the “physical loss” of and physical “damage” to its insured properties by
“corrupting, attaching to, and physically altering . . . [their] surfaces” and by “necessitating
remedial measures” such as cleaning. (Appellant Br. 4–5.)
We have already considered and ruled on similar insurance policy provisions under Ohio
law in the context of the COVID-19 pandemic. In Dakota Girls, LLC v. Philadelphia Indemnity
Insurance Co., 17 F.4th 645, 647 (6th Cir. 2021), a group of private preschools alleged that their
insurance company wrongfully denied their COVID-related claims for lost business income and
extra expenses. Their insurance policy, similar to Troy Stacy’s, covered “direct physical loss of
or damage to” their properties. Id. The district court granted the insurance company’s motion to
dismiss, and we affirmed. Id.Specifically, we concluded that a “loss” requires the insured to show “either destruction of
the property or the owner’s dispossession[.]” Id. at 649 (citing Santo’s Italian Café, 15 F.4th at
404). We also determined that “damage” requires a “direct physical alteration of the property[.]”
Id. Accordingly, the policy language “excludes from coverage . . . mere economic injury and loss
of use[.]” Id. (citation omitted). Put simply, the physical loss or damage contemplated by the
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Case No. 21-4008, Troy Stacy Enters. Inc., et al. v. Cincinnati Ins. Co., et al.
policy is not the same as a loss of use due to the temporary, surface-level presence of a virus. See
id. (citing Santo’s Italian Café, 15 F.4th at 402).
V.
Finally, Troy Stacy contends it should be able to recoup losses under the civil authority
coverage provision of its insurance policy. To do so, the policy prescribes three requirements:
(1) something must cause damage to non-insured property; (2) a civil order must prohibit access
to the insured property; and (3) a civil order must also prohibit access to the “area immediately
surrounding the damaged property[.]” Troy Stacy alleges that its proximity to nearby hospitals—
which it says also suffered direct physical loss or damage due to COVID-19 “in the same manner”
that its property was damaged—demonstrates its eligibility to recover under this provision.
(Appellant Br. 52.) But, as we have already detailed, Troy Stacy has not plausibly alleged “damage
to property.” If its own property was not damaged by COVID-19, neither were the hospitals. And
because this is a necessary element to civil authority coverage, Troy Stacy has failed to state a
claim for this coverage too.
VI.
The COVID-19 pandemic has caused hardship for many businesses across the country, and
we are sympathetic to the challenges they have been forced to confront. See Dakota Girls, 17 F.4th
at 653; Santo’s Italian Café, 15 F.4th at 407. Nevertheless, we may not reconstruct the insurance
policy’s terms or grant Troy Stacy a contractual benefit it did not bargain for.
We affirm.
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