SA Hospitality Group, LLC et al v. Hartford Fire Insurance Company

Filing 50

ORDER granting 11 Defendant Hartford Fire Ins. Co.'s Motion to Dismiss for reasons set forth in the attached Memorandum of Decision. The Complaint is dismissed with prejudice. The Clerk is directed to close this matter. Signed by Judge Vanessa L. Bryant on 06/03/2021. (Diamond, Matthew)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT

SA HOSPITALITY GROUP, LLC et
al. on behalf of themselves and all
others similarly situated
Plaintiffs,
v.
HARTFORD FIRE INS. Co.
Defendant.

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No. 20-cv-1033 (VLB)

June 3, 2021

MEMORANDUM OF DECISION GRANTING DEFENDANT’S MOTION TO DISMISS,
Dkt. 11
This is an insurance coverage dispute concerning whether Defendant
Hartford Fire Insurance Company (“Harford Fire”) is obliged to indemnify Plaintiff
SA Hospitality Group, LLC and its subsidiaries (collectively “SA Hospitality”) for
loss business income and extra expenses incurred as a result of civil authority
orders suspending or curtailing non-essential business activity to slow the spread
of COVID-19. See generally, [Dkt. 1 (Compl.)]. The complaint was filed as a putative
nationwide class action. [Compl. ¶¶ 66-81](class action allegations).
Now before the Court is Hartford Fire’s motion to dismiss the complaint for
failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P.
12(b)(6). For reasons articulated below, the Court grants Hartford Fire’s motion.
Background
For the purpose of deciding Hartford Fire’s motion to dismiss, the Court
“draw[s] all reasonable inferences in Plaintiff[’s] favor, assume[s] all well-pleaded
factual allegations to be true, and determine[s] whether they plausibly give rise to
1

an entitlement to relief.” Faber v. Metro Life Ins. Co., 648 F.3d 98, 104 (2d. Cir. 2011)
(citations omitted). The following facts are drawn from the allegations in the
Complaint. The Court may also consider the insurance policy at issue because,
although it was not affixed to the complaint as an exhibit or expressly incorporated
by reference, it is integral to the coverage dispute and the Plaintiffs quote it
extensively in the Complaint. Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d
Cir. 2002). Hartford Fire filed a complete copy of insurance policy no. 13 UUN BL
4042, Property Choice Coverage Part, between SA Hospitality Group, LLC and
Hartford Fire Insurance Co., for the policy period of June 1, 2019 to June 1, 2020 ,
as an exhibit to its motion to dismiss. [Dkt. 11-1 (Decl. of Charles Michael)]; [Dkt.
11-3, Def. Ex. A][hereinafter the “Policy”].
The Court can also take judicial notice of pleadings filed in other actions as
a public record without converting the motion into a motion for summary judgment
pursuant to Fed. R. Evid. 201(b); see Rothman v. Gregor, 220 F.3d 81, 92 (2d Cir.
2000).
I.

Insurance policy provisions at issue
As a general proposition, “the purpose of business interruption insurance is

to indemnify the insured against losses arising from an inability to continue normal
business operations and functions due to damage sustained as a result of the
hazard insured against. In other words, the goal is to preserve the continuity of the
insured's earning.” United Air Lines, Inc. v. Ins. Co. of State of PA, 439 F.3d 128,
131 (2d Cir. 2006). It is a form of first-party property insurance. Port Auth. of New
York & New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226, 233-34 (3d Cir.

2

2002)(distinguishing between first-party and third-party insurance contracts when
interpreting “physical loss” under a commercial property insurance policy).
The insuring agreement for the Policy’s business interruption coverage
component is contained in Section A of the Property Choice- Special Business
Income Coverage form, Form PC 00 20 0113, HFIC00080, [Dkt. 11-3 at 80]. It states:
We will pay up to the Special Business Income Limit of Insurance stated in
the Property Choice -Schedule of Premises and Coverages for the actual
loss of Business Income you sustain and the actual, necessary and
reasonable Extra Expense you incur due to the necessary interruption of
your business operations during the Period of Restoration due to direct
physical loss of or direct physical damage to property caused by or resulting
from a Covered Cause of Loss at "Scheduled Premises" where a limit of
insurance is shown for Special Business Income. If you are a tenant, this
Coverage applies to that portion of the building which you rent, lease or
occupy, and extends to common service areas and access routes to your
area. (emphasis added)
The term “Extra Expense” is defined in Section A(2) of the business
interruption section of the Policy to mean, in relevant part:
… the actual, necessary and reasonable expenses you incur during the
Period of Restoration that you would not have incurred if there had been no
direct physical loss of or direct physical damage to property caused by or
resulting from a Covered Cause of Loss at "Scheduled Premises".
Id. (emphasis added)
The insuring agreement for the Policy’s civil authority coverage extension is
contained in section A (2)(a) of the Property Choice Special Business IncomeAdditional Coverages section of the Policy, Form PC 26 02 01 13, HFIC00065, [Dkt.
11-1 at 66]. It provides that:
This insurance is extended to apply to the actual loss of Business Income
you sustain and the actual, necessary and reasonable Extra Expense you
incur when access to your "Scheduled Premises" is specifically prohibited
by order of a civil authority as the direct result of a Covered Cause of Loss

3

to property in the immediate area of your "Scheduled Premises”. (emphasis
added)
The term “Covered Cause of Loss” in the business interruption section of
the Policy is defined by cross reference to mean:
…direct physical loss or direct physical damage that occurs during the
Policy Period and in the Coverage Territory unless the loss or damage is
excluded or limited in this policy.
Section A, Property Choice Covered Causes of Loss and Exclusion Form, Form PC
00 20 0113, HFIC00086 [Dkt. 11-3 at 87](emphasis added).
The phrase “direct physical loss or direct physical damage” is undefined by
the Policy.
II.

SA Hospitality’s claim
On March 11, 2020, the World Health Organization declared COVID-19 a

global pandemic. [Dkt. 1 (Compl.) ¶ 1](citing WHO Director-General's Opening
Remarks at the Media Briefing on COVID-19, World Health Organization (March 11,
2020), https://www.who.int/director-general/speeches/detail/who-director-generals-opening-remarks-at-the-media-briefing-on-covid-19---11-march-2020). Two days
later, the President of the United States declared a national state of emergency.
[Compl. ¶ 2](citing Presidential Proclamation on Declaring a National Emergency
Concerning the Novel Coronavirus Disease (COVID-19) Outbreak, 85 FR 15337
(Mar. 13, 2020)). As is now commonly known, the virus is spread from close contact
with symptomatic, pre-symptomatic, and asymptomatic infected persons. [Compl.
¶¶ 39-42, 44]. The virus can also live on common surfaces, like cardboard, copper,
and stainless steel and is detectable in aerosols, thus contact with contaminated

4

surfaces and airborne particles may be additional transmission routes. [Compl. ¶¶
43-44].
In response to the virus’s infectivity and lethality, governmental entities
entered civil authority orders suspending or severely curtailing operation of nonessential businesses to slow the spread of the virus. [Compl. ¶¶ 3, 47-48]. These
restrictions and prohibitions adversely effected most non-essential businesses,
especially restaurants and foodservice businesses. [Compl. ¶ 4].
SA

Hospitality

owns and

operates

restaurants

and

other

dining

establishments in New York and Florida that were adversely impacted by closure
orders restricting restaurants and bars to take-out service and delivery only.
[Compl. ¶ 48]. SA Hospitality procured a standard form all-risk commercial property
insurance policy from Hartford Fire, which includes business interruption coverage
to indemnify policy holders for lost income and profits if their business is
shutdown. [Compl. ¶¶ 49-51].
By letter dated April 8, 2020, Hartford Fire denied SA Hospitality’s claim for
indemnification for business interruption losses under the Policy because their
properties had not suffered any direct physical loss and because the losses were
excluded by the bacteria and virus exclusion endorsement. [Compl. ¶ 61].1 Two
weeks later, SA Hospitality filed a putative class action against Hartford Fire in the
Southern District of New York. SA Hospitality Group, LLC, et al., on behalf of

The Complaint alleges that Hartford Fire also denied coverage based on “… other
exclusions which were not applicable to Plaintiffs’ losses,” but the complaint does
not specify which additional exclusions purportedly applied. [Compl. ¶ 61]. Nor
does the parties’ briefing address any other relevant exclusion or coverage
defense beyond the two issues adjudicated herein
1

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themselves and all others similarly situated v. The Hartford Financial Group, Inc.,
et al., No. 20-cv-3258 (GHW); [Dkt. 11-6, Def. Ex. D (Compl. in 20-cv-3258 (GHW))].
SA Hospitality voluntarily dismiss the complaint after Hartford Fire filed a motion
to dismiss. [SA Hospitality Group, LLC, et al., 20-cv-3258, supra., ECF No. 33 (Mot.
to Dismiss), ECF. No. 36 (Not. of Vol. Dismissal)].
SA Hospitality then commenced a substantially similar action in this District.
The gravamen of their complaint before this Court is that civil authority orders
trigger coverage under the business interruption policy because the orders
themselves allegedly caused direct physical loss and damage to the Plaintiffs’ and
the other class members’ Covered Properties, requiring suspension of operations
at the Covered Properties. See [Compl. ¶ 95]. Plaintiff argues that the Policy’s virus
exclusion does not preclude coverage because its losses were caused by the civil
authority orders, not the virus. [Compl. ¶ 60]. The Complaint seeks a declaration
that Hartford Fire is liable for losses under the “Business Income” coverage
provisions (Count 1, Compl. ¶¶ 82-88), “Civil Authority” (Count 3, Compl. ¶¶ 99105), and “Extra Expense Coverage” provisions (Count 5, Compl. ¶¶ 114-120)
provisions of the Policy. SA Hospitality also brought breach of contract claims
based on Hartford Fire’s coverage obligations under each of these policy
provisions.
Discussion
I.

Legal Standard
To survive a motion to dismiss, a plaintiff must plead “enough facts to state

a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
6

544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In
considering a motion to dismiss for failure to state a claim, the Court should follow
a “two-pronged approach” to evaluate the sufficiency of the complaint. Hayden v.
Paterson, 594 F.3d 150, 161 (2d Cir. 2010). “A court ‘can choose to begin by
identifying pleadings that, because they are no more than conclusions, are not
entitled to the assumption of truth.’” Id. (quoting Iqbal, 556 U.S. at 679). “At the
second step, a court should determine whether the ‘wellpleaded factual
allegations,’ assumed to be true, ‘plausibly give rise to an entitlement to relief.’”
Id. (quoting Iqbal, 556 U.S. at 679). “The plausibility standard is not akin to a
probability requirement, but it asks for more than a sheer possibility that a
defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (internal quotations
omitted).
In general, the Court’s review on a motion to dismiss pursuant to Rule
12(b)(6) “is limited to the facts as asserted within the four corners of the complaint,
the documents attached to the complaint as exhibits, and any documents
incorporated by reference.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191
(2d Cir. 2007). The Court may also consider “matters of which judicial notice may
be taken” and “documents either in plaintiffs’ possession or of which plaintiffs had
knowledge and relied on in bringing suit.” Brass v. Am. Film Techs., Inc., 987 F.2d
142, 150 (2d Cir. 1993); Patrowicz v. Transamerica HomeFirst, Inc., 359 F. Supp. 2d
140, 144 (D. Conn. 2005). As discussed above, the Court takes judicial notice of the

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insurance policy at issue and the disposition of SA Hospitality’s first complaint
filed in the Southern District of New York.
II.

Applicable law
The Court has diversity jurisdiction over this matter pursuant to 28 U.S.C. §

1331(d) because this is a class action in which the amount in controversy exceeds
$5,000,000, exclusive of interest and costs, and at least one member of the putative
class is a citizen of a different state than that of Defendant. [Compl. ¶ 12]. Even
absent application of the Class Action Fairness Act, diversity jurisdiction under 28
U.S.C. § 1331(a) exists because SA Hospitality and all of its joined subsidiaries are
citizens of New York and Hartford Fire is a Connecticut citizen. See [Compl. ¶¶ 1533].
Federal courts sitting in diversity apply the choice of law rules of the forum
state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 498 (1941). Absent a choice
of law provision in a contract, Connecticut courts apply the “most significant
relationship” test of the Restatement (Second) of Conflict of Laws § 188. Reichhold
Chemicals, Inc. v. Hartford Accident & Indem. Co., 252 Conn. 774, 781 (2000) (a/k/a
“Reichhold II”).
In Reichhold II, the Connecticut Supreme Court recognized a rebuttable
presumption in favor of applying the law of the state “which the parties understood
was to be the principal location of the insured risk.” 252 Conn. at 782 (citing § 193
of the Restatement (Second)). That presumption may be overcome by a showing
of “…exceptional circumstances where the interests of another state substantially
outweigh the interests of the site state.” Id. at 789 (emphasis added).

8

Here, Hartford Fire argues that New York law applies because it is the location
of the insureds’ risk as all the insured restaurants are New York limited liability
companies with their principal places of business in New York. [Dkt. 11 (Def. Mem.
in Supp.) at 12].2 SA Hospitality does not address the choice of law issue or argue
that another state’s law applies; instead, it argues for a competing interpretation of
New York insurance law, tacitly conceding that New York law applies. See, e.g. [Dkt.
16 (Pls. Mem. in Opp’n) at 11-26]. Although both parties cite decisions applying law
from other states, the object of the Court’s inquiry is to “… ascertain what the [New
York] law is, not what it ought to be.” Klaxon Co, 313 U.S. at 497. To put a finer
point on the matter, the Court is bound to follow state law as interpreted by its
intermediate appellate courts unless the Court finds persuasive evidence that the
highest state court, which has not ruled on the issue, would reach a different
conclusion. Pahuta v. Massey-Ferguson, Inc., 170 F.3d 125, 134 (2d Cir. 1999)
III.

Whether SA Hospitality alleged “direct physical loss”

The language “due to direct physical loss of or direct physical damage to
property,” is a condition precedent to triggering Business Income and Extra
Expense coverage under the Policy. SA Hospitality does not dispute that this is a
triggering condition, but rather argues that it sustained a “direct physical loss”
because it was unable to use its property for its intended purpose because of civil
authority orders restricting access to reduce the spread of COVID-19. [Pls. Mem. in
Opp’n at 17-25]. The Court agrees with Hartford Fire that this language is

Unless otherwise stated, all pin citations to the parties’ briefing refers to the
page number in the ECF header caption.
2

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unambiguous, and its interpretation is controlled by Roundabout Theatre Co. v.
Cont'l Cas. Co., 751 N.Y.S.2d 4 (1st Dep’t 2002). SA Hospitality fails to present a
persuasive argument to show that the New York Court of Appeals would reach a
different conclusion.
“It is well established under New York law that a policyholder bears the
burden of showing that the insurance contract covers the loss.” Morgan Stanley
Grp. Inc. v. New England Ins. Co., 225 F.3d 270, 276 (2d Cir. 2000). “[T]he initial
interpretation of a contract is a matter of law for the court to decide.” Id. (citations
and internal quotations omitted). This threshold inquiry concerns whether the
insurance policy’s terms are ambiguous; “unambiguous provisions of an
insurance contract must be given their plain and ordinary meaning and the
interpretation of such provisions is a question of law for the court.” White v. Cont'l
Cas. Co., 9 N.Y.3d 264, 267 (N.Y. 2007)(internal citations omitted).
It is well established that if a policy provision is ambiguous, it is construed
against the insurer. Id. A policy provision is ambiguous if it is “susceptible to two
reasonable interpretations.” State v. Home Indem. Co., 66 N.Y.2d 669, 671 (1985).
Ambiguity is not determined by reading the insurance policy’s terms in isolation,
but rather “….when viewed objectively by a reasonably intelligent person who has
examined the context of the entire integrated agreement and who is cognizant of
the customs, practices, usages and terminology as generally understood in the
particular trade or business.” Morgan Stanley Grp. Inc., 225 F.3d at 275. Courts
seek to avoid surplusage when interpreting insurance policies. Westview Assocs.

10

v. Guar. Nat. Ins. Co., 95 N.Y.2d 334, 339 (2000). The Court must give effect to all
the terms of the policy and not treat any term as meaningless.
In Roundabout Theatre Co., the insured-theater company sought business
interruption coverage for lost income and extra expenses

for cancelled

performances when its theatre was rendered inaccessible by a city order closing
the street after an elevator on an adjacent building collapsed. 751 N.Y.S.2d at 4-5.
The theatre itself sustained minimal damage to its roof and air conditioning system,
which was repaired within a day, but the theatre remained inaccessible pursuant
to the city order for about a month. Id. at 5. The insured’s business interruption
insurance coverage was triggered by “interruption, postponement or cancellation
of an insured Production as a direct and sole result of loss of, damage to or
destruction of property or facilities (including the theatre building occupied ... by
the Insured, and [certain equipment] ).” Id. at 5 (emphasis in original).
The insurer disclaimed coverage, inter alia, because the policy required
“physical damage to the property or facilities contracted by the Insured.” Id. at 56. On summary judgment, the insured’s assignee argued that coverage “existed
because this was an “all-risk” policy, the loss at issue was “fortuitous,” and
because the policy's reference to “loss of, damage to, or destruction of property or
facilities” should be read to include “loss of use” of the premise…” Id. at 6. The
trial court granted summary judgment for the insured’s assignee, finding that
coverage existed under the policy because “loss of, damage to, or destruction of
[the insured's] property or facilities” encompasses a “loss of use” of the property

11

[,] otherwise, […] the phrase “loss of” would be redundant to “destruction of” the
property.” Id.
The Appellate Division reversed the trial court and entered judgment for the
insurer. First, the appellate court held that the trial court erred when it placed the
initial burden on the insurer to provide that the loss was excluded, rather than on
the insured to show that the policy was triggered. Id. at 6-7. In other words,
“[l]abeling the policy as “all risk” does not relieve the insured of its initial burden
of demonstrating a covered loss under the terms of the policy.” Id. at 6 (citing
Whitaker v. Nationwide Mut. Fire Ins. Co., 115 F. Supp. 2d. 612, 617 (E.D. Va. 1999)).
The Appellate Division repudiated the trial court’s reasoning that the term
“loss of” must include “loss of use of” to avoid redundancy with “destruction of”
the property. Id. Instead, the Appellate Division reasoned that “loss of, damage to,
or destruction of property or facilities” must be read in the context of the perils
insured against: “ ‘all risks of direct physical loss or damage to the [insured's]
property,’ not otherwise excluded.” Id. The words “direct” and “physical”
contained in the definition of the perils insured against narrowed the scope of
coverage and precluded coverage for losses resulting from off-site property
damage. Id. The Appellate Division held that the insuring agreement “clearly and
unambiguously provides coverage only where the insured’s property suffers direct
physical damage.” Id. at 8.
The Appellate Division found additional support for this interpretation in the
policy section titled Definition of Loss, which would not extend to “rebuild[ing],
repair[ing], or replac[ing]” a third party’s property. Id. at 8. It also considered the

12

policy’s “Substitute Theatre” provision, which require the Insured to “… ‘exercise
due diligence and dispatch to occupy a substitute theatre ... following loss of,
damage to, or destruction of the theatre,’ ... and that the new theatre must be
reasonably comparable in size and quality ‘as the theatre which has been damaged
or destroyed.’” Id. at 8-9 (emphasis in original). Consequently, because the impetus
for the City’s closure of the street was not “physical damage” to the theatre, the
loss resulting from the suspension of operations was outside of the scope of the
policy. Id.
Thereafter, in Newman Myers Kreines Gross Harris, P.C. v. Great N. Ins. Co.,
17 F. Supp. 3d 323 (S.D.N.Y. 2014), the Southern District of New York sitting in
diversity and applying New York state law, held that the preemptive utility shut-off
to commercial buildings in preparation for a hurricane did not constitute “direct
physical loss or damage” to the insured’s property and thus coverage was not
triggered. See id. at 327, n. 4 (explaining that New York law applies). The district
court reasoned that “the words ‘direct’ and ‘physical,’ which modify the phrase
‘loss or damage,’ ordinarily connote actual, demonstrable harm of some form to
the premises itself, rather than forced closure of the premises for reasons
exogenous to the premises themselves, or the adverse business consequences
that flow from such closure.” Id. at 331 (citing Roundabout Theatre Co. 751 N.Y.S.2d
at 8 and Couch on Insurance, § 148:46 (3rd ed.2009) (defining “physical loss” as a
requirement which is “widely held to exclude alleged losses that are intangible or
incorporeal”) and § 167:15 (“business interruption policies generally require some
physical damage to the insured's business in order to invoke coverage”).

13

Every trial court in this circuit that has considered the issue has concluded
that civil authority orders curtailing business operations in response to the COVID19 pandemic do not constitute “direct physical loss of or physical damage to
property” under New York law. 3 The New York’s state trial courts are in accord.
Visconti Bus Serv., LLC v. Utica Nat'l Ins. Grp., 71 Misc. 3d 516, 2021 WL 609851, at
*4 (N.Y. Sup. Ct. 2021)(“… mere loss of use or functionality does not constitute a
“direct physical loss” within the meaning of a policy providing coverage for “direct
physical loss or damage” to covered property”)(citing Roundabout Theatre Co.,
Inc. v. Continental Cas. Co., supra and Newman Myers, supra); Soundview Cinemas
Inc. v. Great Am. Ins. Grp., 71 Misc. 3d 493, 142 N.Y.S.3d 724, 734-35 (N.Y. Sup. Ct.
2021); Mangia Rest. Corp. v. Utica First Ins. Co., No. 713847/ 2020, 2021 WL
1705760, at *5 (N.Y. Sup. Ct. 2021)
SA Hospitality has not pointed to any New York case that reached a contrary
conclusion about language like “direct physical loss of or physical damage to

3

Deer Mountain Inn, LLC, et, al, v. Union Ins. Co., No. 120CV0984BKSDJS, 2021 WL
2076218, at *1 (N.D.N.Y. May 24, 2021); Rye Ridge Corp. v. Cincinnati Ins. Co., No.
20 CIV. 7132 (LGS), 2021 WL 1600475, at *3 (S.D.N.Y. Apr. 23, 2021); Kim-Chee, LLC
v. Phila. Indemnity Ins. Co., No. 1:20-CV-1136, 2021 WL 1600831, at *4 (W.D.N.Y.
Apr. 23, 2021); Mohawk Gaming Enterprises, LLC v. Affiliated FM Ins. Co., No. 8:20CV-701, 2021 WL 1419782, at *5 (N.D.N.Y. Apr. 15, 2021); Jeffrey M. Dressel, D.D.S.,
P.C. v. Hartford Ins. Co. of the Midwest, Inc., No. 20-CV-2777(KAM)(VMS), 2021 WL
1091711, at *5 (E.D.N.Y. Mar. 22, 2021); Sharde Harvey, DDS, PLLC v. Sentinel Ins.
Co., Ltd., No. 20CV3350PGGRWL, 2021 WL 1034259, at *7 (S.D.N.Y. Mar. 18,
2021)(recommended ruling; Food for Thought Caterers Corp. v. Sentinel Ins. Co.,
Ltd., No. 20-CV-3418 (JGK), 2021 WL 860345 (S.D.N.Y. Mar. 6, 2021); DeMoura v.
Cont'l Cas. Co., No. 20CV2912NGGSIL, 2021 WL 848840, (E.D.N.Y. Mar. 5, 2021);
Tappo of Buffalo, LLC v. Erie Ins. Co., No. 20-CV-754V(SR), 2020 WL 7867553, at *4
(W.D.N.Y. Dec. 29, 2020); 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd., No. 20 CIV.
4471 (LGS), 2020 WL 7360252, at *2 (S.D.N.Y. Dec. 15, 2020); Michael Cetta, Inc. v.
Admiral Indem. Co., No. 20 CIV. 4612 (JPC), 2020 WL 7321405, at *6 (S.D.N.Y. Dec.
11, 2020), appeal withdrawn, No. 21-57, 2021 WL 1408305 (2d Cir. Mar. 23, 2021).
14

property,” or any split from Roundabout Theater in the New York Appellate
Division, or even among the federal courts or state trial courts applying New York
law. Instead, Plaintiff argues that Roundabout Theater is contrary to well-settled
New York insurance law principles. [Pl. Mem. in Opp’n at 12-17]. First, Plaintiff
argues that the Roundabout Theatre court conflated the terms “loss” with
“damage,” notwithstanding their separation by the disjunctive “or”. [Id. at 14]. The
Court disagrees.

Roundabout

Theater considered

and rejected a similar

surplusage argument:
The [lower] court's interpretation that the phrase ‘loss of’ must include ‘loss
of use of,’ because otherwise ‘loss of’ would be redundant to ‘destruction of,’
is flawed. Initially, as [defendant] points out, ‘loss of’ could refer to the theft
or misplacement of theatre property that is neither damaged nor destroyed,
yet still requires the cancellation of performances.

751 N.Y.S.2d at 8.
Moreover, the phrase “loss of” is narrowed by the condition immediately
preceding it: “due to direct physical [loss of]…” supra. 2. As Judge Cronan
observed in Michael Cetta, Inc. v. Admiral Indem. Co., Roundabout Theatre’s
holding that “loss of use” does not broadly constitute a “direct physical loss of or
damage to property” also comports with the ordinary and industry usage of these
terms. No. 20 CIV. 4612 (JPC), 2020 WL 7321405, at *6 (S.D.N.Y. Dec. 11, 2020) (citing
Black’s Law Dictionary as to industry usage). As to the language’s ordinary usage,
Judge Cronan posited that if a pond were closed to fishing because of a swim race,
the fisherman lost the use of the premises for his intended purpose without “direct
physical loss of or damage to” the pond. Id. Similarly, if a parent were to prohibit a

15

teenager from driving as a punishment, the teenager lost use of the vehicle, but the
vehicle was unaltered. Id.
Plaintiff cites no New York caselaw or other authority questioning the wisdom
of Roundabout Theatre. Nor has it cited any authority suggesting the highest court
of that state should or would overrule it. On the contrary, Roundabout Theatre is
well settled and near-universally applied New York law. The only authority to reach
a conflicting position under New York law is Kingray Inc. v. Farmers Grp. Inc., No.
EDCV20963JGBSPX, 2021 WL 837622, at *7 (C.D. Cal. Mar. 4, 2021). There, a beauty
salon argued that the COVID-19 closure orders constituted “direct physical loss or
damage” to its property. The Central District of California held that temporary
dispossession of its property could constitute “direct physical loss,” relying on the
disjunctive “or” in the operative language. However, the district court did not
address Roundabout Theatre or the line of authority from state and federal courts
in New York applying Roundabout Theatre. The Court finds Kingray, Inc.
unpersuasive as it relies on the surplusage argument expressly rejected by
Roundabout Theatre without addressing why the New York Court of Appeals would
reach a contrary outcome. No other court applying New York law has followed
Kingray’s interpretation of similar language. The Northern District of New York
rejected its interpretation in Deer Mountain LLC, et al. v. Union Ins. Co., No.
120CV0984BKSDJS, 2021 WL 2076218, at *7 (N.D.N.Y. May 24, 2021) and
distinguished Kingray from the line of authority applying Roundabout Theatre.
Plaintiff argues instead that “[t]he Third Circuit, interpreting New York law,
has clearly held that it is not necessary for there to be a physical change in the

16

property for there to be a “physical loss;” it is enough that the property cannot be
used for its intended purpose.” [Pl. Mem. in Opp’n at 17](citing Port Auth. of N.Y. &
N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 236 (2002)). To the extent Port Authority,
can be construed to suggest Roundabout Theaters was wrongly decided, it does
not presage Roundabout Theaters’ reversal. Notably, nearly two decades after the
Third Circuit issued its decision, the many cases cited above apply Roundabout
Theaters.
Plaintiff’s reliance on Port Authority is misplaced for two reasons. Plaintiff
overstates the Third Circuit’s holding and the facts of this case are distinguishable.
The issue in Port Authority was whether the presence of asbestos at levels below
the threshold considered unsafe by the EPA constituted “physical loss or damage”
under a property insurance policy. 311 F.3d at 231-32. In a matter of first impression
under New York and New Jersey law, the Third Circuit held that an insured suffers
a loss when the structure is rendered uninhabitable and unusable by large
quantities of asbestos in the air, or there is a threat of imminent release in such
dangerous quantities. Id. at 236. “The mere presence of asbestos, or the general
threat of future damage from that presence, lacks the distinct and demonstrable
character necessary for first-party insurance coverage.” Id. The Third Circuit
affirmed the grant of summary judgment because the insured failed to show
evidence of an imminent threat of asbestos contamination. Id.
Port Authority makes clear how an insured could suffer a “direct physical
loss” without structural damage to the property under New York law, thus avoiding
surplusage. The concept of “physical loss” in Port Authority is still premised on

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the existence of a physical, tangible force adversely affecting the property to such
a degree rendering it unsuitable for its intended purpose, but yet it is not
tantamount to “damage.” Friable asbestos is or can easily become air bound and
create a physical condition inimical to human health and safety. The out-ofjurisdiction cases do not alter this conclusion. “To be sure, the cases involving
odors, noxious fumes, and water contamination did not involve tangible, structural
damage to the architecture of the premises. But the critical policy term at issue,
requiring “physical loss or damage,” does not require that the physical loss or
damage be tangible, structural or even visible.” Newman Myers, 17 F. Supp. 3d at
330. Similarly, the Policy’s operative language could refer to “loss” to mean the
absolute destruction of the property, as the Policy does not include the language
“destruction of” that was present in Roundabout Theatre. See Michael Cetta, 2020
WL 7321405, at *9.
Turning now to the policy at issue, the operative language “…due to direct
physical loss of or direct physical damage to property” unambiguously requires
SA Hospitality to show “….demonstrable [physical] harm of some form to the
premises itself, rather than forced closure of the premises for reasons exogenous
to the premises themselves, or the adverse business consequences that flow from
such closure.” Newman Myers, 17 F. Supp. 3d at 331 (citing Roundabout Theatre
Co., 751 N.Y.S.2d at 5). SA Hospitality alleges that the civil closure orders were the
cause of their loss, not the virus. [Compl. ¶ 60](“… predominant cause, and thus
the efficient proximate cause of Plaintiffs’, and other Class Members’ losses, were
the Closure Orders, not because coronavirus was found in or on Plaintiffs’ insured

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property.”). SA Hospitality does not allege that any of its establishments were
contaminated by the virus or that any public health official directed the closure of
any of its establishments because the virus was detected there. On the contrary,
SA Hospitality seeks to proceed on a class basis, arguing that closure orders affect
policy holders nationwide. [Compl. ¶¶ 48, 62-65].
Consequently, because SA Hospitality failed to plead that it sustained a
“…direct physical loss of or direct physical damage to property,” it fails to
establish an entitlement to declaratory relief on Count One of the Complaint for
Business Income coverage. Count Two of the Complaint for breach of contract
based on Hartford’s denial of its claim necessarily fails because SA Hospitality is
not entitled to Business Income coverage under the Policy.
For the same reason, Counts Five and Six fail. SA Hospitality is not entitled
to extra expense coverage. The term “Extra Expense” means, in relevant part, “ …
expenses you incur during the Period of Restoration that you would not have
incurred if there had been no direct physical loss of or direct physical damage to
property caused by or resulting from a Covered Cause of Loss at "Scheduled
Premises". Supra. 3. (emphasis added). This language unequivocally requires SA
Hospitality to show that it suffered a “direct physical loss of or physical damage to
property.” Accordingly, the Court dismisses Counts Five and Six of the Complaint.
IV.

Civil Authority Coverage
The Policy’s Civil Authority provision operates to extend Business Income

and Extra Expense coverage “…when access to your "Scheduled Premises" is
specifically prohibited by order of a civil authority as the direct result of a Covered

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Cause of Loss to property in the immediate area of your ‘Scheduled Premises.’ ”
Supra. 3-4. Thus, to trigger Civil Authority coverage, SA Hospitality must show
that: (a) a civil authority order (2) prohibits access to a Scheduled Premises, (3) as
the direct result of a Covered Cause of Loss, (4) to property in the immediate area
of the Scheduled Premise.
The term “Covered Cause of Loss” is defined by cross reference to mean
“…direct physical loss or direct physical damage that occurs during the Policy
Period and in the Coverage Territory unless the loss or damage is excluded or
limited in this policy.” Supra. 3 (emphasis added).
Hartford Fire argues that SA Hospitality has not alleged “direct physical
loss” to its premises or in the immediate area. [Def. Mem. in Supp. at 20]. Next,
Hartford Fire argues that SA Hospitality does not allege access to their Scheduled
Premise was prohibited because restaurants have been allowed to operate take out
and delivery services. [Id. at 21]. Third, Hartford Fire argues that SA Hospitality
failed to allege that any prohibition against accessing the subject property was the
“direct result” of damage to “property in the immediate area.” [Id. at 22-23].
Plaintiff fails to satisfy the first essential element and therefore the Court
need not analyze the remaining three elements. Since SA Hospitality cannot allege
“direct physical loss,” it cannot allege that the civil authority orders were a “direct
result of a Covered Cause of Loss.” See Sharde Harvey, DDS, PLLC, 2021 WL
1034259, at *14 (S.D.N.Y. Mar. 18, 2021)(citing Food for Thought Caterers Corp. v.
Sentinel Ins. Co., Ltd., No. 20-CV-3418 (JGK), 2021 WL 860345, at * 4 (S.D.N.Y. Mar.
6, 2021); Tappo of Buffalo, LLC v. Erie Ins. Co., No. 20-CV-754V(SR), 2020 WL

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7867553, at *4 (W.D.N.Y. Dec. 19, 2020); Visconti Bus Serv., LLC, 2021 WL 609851
at *1, *10; 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd., No. 20 CIV. 4471 (LGS),
2020 WL 7360252, at *2-3 (S.D.N.Y. Dec. 15, 2020); Michael Cetta, 2020 WL 7321405
at *11).
SA Hospitality does not present any authority suggesting that the language
in the civil authority provision should be interpreted more expansively than the
identical condition contained in the insuring agreement of the business
interruption section. See [Pl. Mem. in Opp’n at 26].
Therefore, the Court grants Hartford Fire’s motion to dismiss Counts Three
and Four.
It is unnecessary to consider Hartford Fire’s remaining arguments,
including whether the virus exclusion applies because SA Hospitality is unable to
allege that it triggered coverage under the Policy.

Conclusion
For the foregoing reasons, the Court GRANTS Hartford Fire’s Motion to
Dismiss on all counts. As the Court noted, the Defendant voluntarily dismissed the
action in the Southern District of New York and has thus had the opportunity to
amend its allegations. Moreover, the Court finds that allowing leave to amend
would be futile. This case is DISMISSED with prejudice. The Clerk is directed to
close this matter.

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It is so ORDERED.

/s/
Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut, this June 3, 2021

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