Muriel's New Orleans, LLC v. State Farm Fire and Casualty Company
ORDER AND REASONS: IT IS HEREBY ORDERED that Defendant State Farm Fire and Casualty Company's 12 Rule 12(b)(6) Motion to Dismiss Plaintiff's Petition for Failure to State a Claim is DENIED WITHOUT PREJUDICE, as set forth in document. IT IS FURTHER ORDERED that Muriel's is granted leave to amend the Complaint to address the deficiencies identified in this Order by 5/10/2021. IT IS FURTHER ORDERED that State Farm is granted leave to file responsive motions to Muriel's amended complaint if necessary. Signed by Chief Judge Nannette Jolivette Brown on 4/26/2021. (jls)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
MURIEL’S NEW ORLEANS, LLC
STATE FARM FIRE AND
ORDER AND REASONS
This litigation arises from a denial of insurance coverage for damages allegedly arising
from the COVID-19 pandemic. Pending before the Court is Defendant State Farm Fire and
Casualty Company’s (“State Farm”) “Rule 12(b)(6) Motion to Dismiss Plaintiff’s Petition for
Failure to State a Claim.” 1 Plaintiff Muriel’s New Orleans, LLC (“Muriel’s”) opposes the
motion. 2 Considering the motion, the memoranda in support and in opposition, the record, and
the applicable law, the Court denies the motion and grants Plaintiff leave to amend the
deficiencies identified in this Order.
In this litigation, Muriel’s alleges that it entered into an “all-risk” insurance contract with
State Farm to cover losses at its restaurant, Muriel’s Jackson Square, in New Orleans, Louisiana
(the “Policy”). 3 According to Muriel’s, the Policy was in “full effect, providing property, business
Rec. Doc. 12.
Rec. Doc. 27.
Rec. Doc. 1-1 at 2–3.
personal property, business income, and extra expense, and additional coverages for the insured
premises between the period of June 19, 2019 through June 19, 2020.” 4 During this time, Muriel’s
allegedly “faithfully paid policy premiums” to State Farm. 5 Muriel’s alleges that under the Policy,
insurance coverage extends to “the actual loss of business income sustained and necessary extra
expenses incurred when access to the insured premises is specifically prohibited by order of civil
authority” (the “Civil Authority” provision). 6
In March and April 2020, in response to the COVID-19 pandemic, Louisiana Governor
John Bel Edwards and New Orleans Mayor LaToya Cantrell issued a series of orders and
emergency proclamations restricting public gatherings and limiting restaurant operations (the
“Closure Orders”). 7 Muriel’s alleges that it sustained a “massive and detrimental hit to its business
income” and lost the “functionality and use of its physical property” as a result of the Closure
Orders. 8 Muriel’s avers that “this loss of use is damage as required to trigger insurance coverage
for ‘physical damage’ under the Policy.” 9 Muriel’s also claims that its alleged losses are covered
under the Policy's Civil Authority provision. 10
Muriel’s alleges that State Farm nevertheless denied coverage, claiming that Muriel’s: (1)
had not suffered physical loss or damage, and (2) was precluded from coverage due to the “virus
Id. at 3.
Id. at 10–20.
Id. at 4–5.
Id. at 5.
Id. at 5, 8.
exclusion” in the Policy. 11 Muriel’s asserts that State Farm’s denial of coverage represents a
breach of contract resulting in “significant damages.” 12 In addition to damages, Muriel’s seeks a
judicial declaration as to its rights and State Farm’s obligations under the Policy. 13
On June 22, 2020, Muriel’s filed a petition in the Civil District Court for the Parish of
Orleans, State of Louisiana. 14 State Farm removed the case to this Court on August 19, 2020,
asserting diversity jurisdiction pursuant to Title 28, United States Code, Section 1332. 15 On
September 11, 2020, Muriel’s filed a motion to remand the case to state court. 16 The Court denied
the motion to remand on November 18, 2020. 17
On September 16, 2020, State Farm filed the instant motion to dismiss.18 Muriel’s filed
an opposition to the instant motion on November 10, 2020. 19 On November 20, 2020, with leave
of Court, State Farm filed a reply brief in further support of the motion to dismiss. 20 On December
18, 2020, with leave of Court, both parties filed notices of supplemental authority regarding the
Id. at 5 (internal quotations omitted).
Id. at 7.
Id. at 8.
Rec. Doc. 1-1.
Rec. Doc. 1.
Rec. Doc. 9.
Rec. Doc. 30.
Rec. Doc. 12.
Rec. Doc. 27.
Rec. Doc. 32.
instant motion to dismiss. 21 On January 12, 2021, with leave of Court, State Farm filed a response
to Muriel’s notice of supplemental authority in opposition to the motion to dismiss.22 On January
26, 2021, with leave of Court, Muriel’s filed a second notice of supplemental authority in
opposition to the instant motion. 23 With leave of Court, State Farm filed a response to Muriel’s
second notice of supplemental authority in opposition to the instant motion on February 3, 2021. 24
II. Parties’ Arguments
State Farm’s Arguments in Support of the Motion to Dismiss
State Farm moves the Court to dismiss Muriel’s breach of contract and declaratory
judgment claims pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court summarizes
State Farm’s arguments with respect to each claim.
State Farm asserts that Muriel’s breach of contract claim should be dismissed
State Farm argues that Muriel’s breach of contract claim should be dismissed because
“there is no coverage for [Muriel’s] alleged losses”. 25 First, State Farm argues that the Policy’s
“Virus Exclusion” provision bars Muriel’s breach of contract claim. 26 State Farm asserts that the
“unambiguous” Virus Exclusion provision serves to bar Muriel’s claim because the Policy
provides coverage for “accidental direct physical loss[es]” that are “not excluded” by the Policy’s
exclusions, including the specified Virus Exclusion provision. 27
Rec. Doc. 38; Rec. Doc. 40.
Rec. Doc. 44.
Rec. Doc. 52.
Rec. Doc. 58.
Rec. Doc. 12-2 at 11.
Id. at 11–18.
Id. at 12.
State Farm contends that “Louisiana courts have repeatedly given effect to comparable
policy exclusions barring coverage for bacteria and microorganisms.” 28 State Farm points to the
Petition in this case to support its assertion that a virus is in the “chain of causation” for Muriel’s
alleged losses. 29 State Farm argues that “the COVID-19 virus is plainly at the root of the
government orders at issue.” 30 State Farm asserts that under the terms of the Policy, the alleged
losses sustained by Muriel’s are not covered regardless of other perils that may have contributed
“concurrently or in any sequence” to the loss. 31 State Farm also argues that there is no basis for
“carving out an exception to the Virus Exclusion for losses resulting from a virus because the
virus has reached pandemic status.” 32 State Farm notes that the Virus Exclusion does not require
the “actual presence of the virus at the insured premises for the exclusion to apply.” 33
Second, State Farm argues that even in the absence of the Virus Exclusion provision,
Muriel’s does not allege losses covered by the Policy. 34 Specifically, State Farm contends that
Muriel’s allegations are “insufficient to establish the required ‘accidental direct physical loss to’
Covered Property” as required by the Policy.35 In support, State Farm points to Fifth Circuit
caselaw interpreting the meaning of “physical loss or damage” to “exclude alleged losses that are
Id. at 12–13.
Id. at 13.
Id. State Farm also contends that the virus is a but-for cause of Muriel’s alleged losses. Id. at 14.
Id. at 16.
Id. at 18–24.
Id. at 18.
intangible or incorporeal.” 36 State Farm contends that Muriel’s fails to allege direct physical
losses because Muriel’s does not claim that “the COVID-19 virus has ever been present on its
property” and Muriel’s seeks recovery only for “financial damage due to the lost functionality
and use of the restaurant.” 37 State Farm further contends that Muriel’s alleged loss of use of its
property due to the Closure Orders does not constitute a covered loss under the Policy because
the Policy covers direct physical loss “to” property, not direct physical loss “of” property. 38
Third, State Farm argues that the Civil Authority provision in the Policy’s Endorsement
is inapplicable to this case. 39 According to State Farm, the Civil Authority provision “provides
coverage for loss of income caused where damage to other property caused by a covered risk
causes a civil authority to prohibit access to the insured property, causing loss of income to the
insured.” 40 State Farm contends that Muriel’s does not allege facts to support the applicability of
the Civil Authority provision. 41 Specifically, State Farm avers that Muriel’s “does not allege
damage to a nearby property” and fails to “plead a prohibition on access to its property” as
required by the Civil Authority provision. 42 In addition, State Farm claims that Muriel’s “fails to
plead the requisite causal link between actual damage to nearby premises and the prohibition on
access.” 43 State Farm further contends that the Civil Authority coverage is circumscribed by the
Id. at 19 (citing Hartford Ins. Co. v. Miss. Valley Gas Co., 181 F. App’x 465, 470 (5th Cir. 2006)).
Id. at 20 (internal quotation omitted).
Id. at 23–24.
Id. at 24.
Id. at 25.
Id. at 26.
Policy’s Virus Exclusion provision. 44
Fourth, State Farm argues that the “Loss of Income” and “Extra Expense” provisions set
forth in the Endorsement to the Policy do not provide coverage in this case. 45 State Farm contends
that like the Civil Authority provision, the Loss of Income and Extra Expense provisions are
limited by the Virus Exclusion provision. 46 Additionally, State Farm asserts that Loss of Income
and Extra Expense coverage applies only to losses sustained due to the necessary suspension of
operations during a “period of restoration.” 47 State Farm argues that such coverage is inapplicable
here because “[t]here are no allegations that the coronavirus necessitated repairs, replacement, or
rebuilding, or that new permanent locations are being sought.” 48
Fifth, State Farm argues that three additional policy exclusions bar Muriel’s claims: (1)
the “Ordinance or Law” provision bars coverage for any losses due to the “enforcement of any
ordinance or law;” (2) the “Acts or Decisions” provision bars coverage for any losses caused by
“conduct, acts or decisions . . . of any person, group, organization, or governmental authority;”
and (3) the “Consequential Loss” provision bars coverage for any losses caused by “delay, loss
of use or loss of market.” 49
State Farm argues that Muriel’s declaratory judgment claim should be
State Farm argues that Muriel’s claim for a judicial declaration as to its rights and State
Id. at 25.
Id. at 27–28.
Id. at 27.
Id. at 28.
Id. at 28–30 (internal quotations omitted).
Farm’s obligations under the Policy should be dismissed. 50 State Farm contends that the
declaratory judgment claim should be dismissed for the same reasons as the breach of contract
claim, namely that “there is no coverage for the claimed losses.” 51 State Farm asserts that the
declaratory judgment action claim in this case is redundant and should be dismissed on the same
grounds as the breach of contract claim. 52
Muriel’s Arguments in Opposition to the Motion to Dismiss
Muriel’s offers several overlapping arguments in opposition to the motion to dismiss.53
First, Muriel’s notes that the Twombly pleading standard “requires plausibility, not success on the
merits before discovery.” 54
Second, Muriel’s contends that its claims are not barred by the “Ordinance or Law”
provision of the Policy. 55 Muriel’s argues that the COVID-19 emergency order issued by Mayor
Cantrell represents “an action or decision by a governmental authority that results in direct
physical loss,” not an “ordinance” or “law” of the City of New Orleans. 56 Muriel’s argues that
the Proclamation of Governor Edwards similarly is not an “ordinance” or “law.” 57
Third, Muriel’s contends that the Policy issued by State Farm covers “losses” rather than
Id. at 30.
Id. at 31.
Rec. Doc. 27.
Id. at 9.
Id. at 10.
“damages,” and that this distinction is significant. 58 Specifically, Muriel’s asserts that the
Louisiana Supreme Court “has not spoken” on the definition of “direct physical loss” as compared
to “physical damage.” 59 Muriel’s argues that pursuant to the McCarran-Ferguson Act, 15 U.S.C.
§ 1012, the Louisiana Supreme Court “should be charged with the interpretation of critical
insurance terms regulated by the Louisiana Department of Insurance.” 60 In support of its assertion
that “loss” is meaningfully distinct from “damage,” Muriel’s points to decisions issued by the
Louisiana First Circuit Court of Appeal and a federal district court in the Western District of
Missouri. 61 Muriel’s asserts that it suffered “loss of use” because “[t]he insured property was
uninhabitable by Muriel’s customers because the City and State decided it was unsafe.” 62
Fourth, Muriel’s argues that the Virus Exclusion is a “pollution/contamination” exclusion
and the COVID-19 pandemic does not satisfy the applicable “pollutant test” under Louisiana
law. 63 Muriel’s asserts that “[a] virus is a thing. It is a contaminant, a pollutant with both a
physical form and physical mass.” 64 Muriel’s contends that a pandemic, by contrast, is an event
“like civil unrest, terrorism, or war.” 65 Muriel’s avers that “State Farm clearly excludes damages
from civil unrest, terrorism, and war” but does not exclude damages resulting from “pandemic,
Id. at 11–15.
Id. at 12.
Id. at 12–13.
Id. at 13–15 (citing Mangerchine v. Reaves, 63 So. 3d 1049, 1056 (La. App. 1 Cir. 3/25/11); Studio 417,
Inc. v. Cincinnati Ins. Co., No. 20-CV-03127-SRB, 2020 WL 4692385, at *8 (W.D. Mo. Aug. 12, 2020)).
Id. at 16.
Id. at 17–18; 25–26.
Id. at 21.
epidemics, or other societal transmission of communicable disease despite having ready access
to boilerplate language used throughout the insurance industry.” 66
Fifth, Muriel’s argues that State Farm inappropriately relies on “parol evidence and policy
arguments” to clarify the contracting parties’ intent because the contract at issue here is “clear
and unambiguous.” 67 Muriel’s asserts that the contract clearly “excludes viral contamination,
which State Farm admits is not alleged in this case, and does not exclude Pandemic Events or
Communicable Disease events.” 68 Muriel’s contends that “[i]f parol evidence is to be considered,
discovery is necessary to provide balance to State Farm’s unilateral view,” and that “if parol
evidence is to be considered then the contract is ambiguous and should be interpreted against
State Farm and in favor of coverage.” 69
Sixth, Muriel’s contends that State Farm should be “equitably estopped from obtaining a
policy ‘clarification’  regarding contamination events at the property and then applying that
small change as if a Pandemic Event or Communicable Disease Exclusion had been approved
and amended to the policy.” 70 In making this argument, Muriel’s suggests that State Farm’s
decision not to include “Pandemic Events” and “Communicable Disease” exclusions was “bad
faith contracting” in order to avoid implementing a premium reduction across State Farm’s
policies. 71 Muriel’s appears to argue that State Farm should therefore be estopped from arguing
Id. at 20–25.
Id. at 19.
Id. at 19–20 (internal citation omitted).
Id. at 20. Muriel’s also claims that State Farm hid its “true intent” from Muriel’s by adding the word
“virus” to the list of policy exclusions instead of including a “Pandemic Event Exclusion” in the wake of
the 2002 – 2003 SARS outbreak. Id. at 21.
Id. at 27.
Id. at 28.
that the Virus Exclusion extends to pandemics. 72
State Farm’s Arguments in Further Support of the Motion to Dismiss
In reply, State Farm first reiterates that coverage for Muriel’s alleged losses is barred by
the Virus Exclusion provision in the Policy. 73 State Farm responds to Muriel’s argument that the
absence of a pandemic exclusion renders the Policy applicable by arguing that “[t]here is no basis
in the Policy language or the law for carving an exception to the Virus Exclusion for losses
resulting from a virus because the virus has reached pandemic status.” 74 State Farm also asserts
that the Pollution Exclusion is distinct from, and does not limit the application of, the Virus
Exclusion. 75 Moreover, State Farm contends that the Virus Exclusion provision “does not say
anything about contamination” and does not require the actual presence of the virus on the insured
property to exclude coverage. 76
Second, State Farm reasserts that even absent the Virus Exclusion provision, Muriel’s
does not allege covered losses. 77 State Farm submits that Muriel’s “erroneously contends that no
tangible damage to property is necessary to establish direct physical loss.” 78 State Farm also
reiterates that physical loss “to” property and physical loss “of” property carry distinct
Id. at 26–28. Muriel’s also filed two notices of supplemental authority. Rec. Docs. 40, 52.
Rec. Doc. 32 at 7–11.
Id. at 9.
Id. at 10.
Id. at 10–11.
Id. at 11–15.
Id. at 12.
In addition, State Farm points out that the Closure Orders required Muriel’s to limit its
operations and did not require Muriel’s to close or forbid access to its restaurant. 80 State Farm
also notes that Muriel’s admits that at the time it filed the Petition it was permitted to operate at
50% capacity. 81 Therefore, State Farm argues that the Closure Orders did not render Muriel’s
property “uninhabitable.” 82
Finally, State Farm argues that the Policy identifies “loss of use” as a “consequential loss,”
and excludes it under all coverages. 83 For the foregoing reasons, State Farm contends that
Muriel’s claims should be dismissed. 84
III. Legal Standards
Legal Standard for Rule 12(b)(6) Motion to Dismiss
Federal Rule of Civil Procedure 12(b)(6) provides that an action may be dismissed “for
failure to state a claim upon which relief can be granted.” 85 A motion to dismiss for failure to
state a claim is “viewed with disfavor and is rarely granted.” 86 “To survive a motion to dismiss,
a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that
is plausible on its face.’” 87 “Factual allegations must be enough to raise a right to relief above the
Id. at 13.
Id. at 14.
Id. at 13.
Id. at 15.
Id. State Farm also filed two notices of supplemental authority. Rec. Docs. 38, 62.
Fed. R. Civ. P. 12(b)(6).
Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982).
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
speculative level.” 88 A claim is facially plausible when the plaintiff has pleaded facts that allow
the court to “draw a reasonable inference that the defendant is liable for the misconduct
On a motion to dismiss, asserted claims are liberally construed in favor of the claimant,
and all facts pleaded are taken as true. 90 However, although required to accept all “well-pleaded
facts” as true, a court is not required to accept legal conclusions as true. 91 “While legal
conclusions can provide the framework of a complaint, they must be supported by factual
allegations.” 92 Similarly, “[t]hreadbare recitals of the elements of a cause of action, supported by
mere conclusory statements” will not suffice. 93
The complaint need not contain detailed factual allegations, but it must offer more than
mere labels, legal conclusions, or formulaic recitations of the elements of a cause of action. 94 That
is, the complaint must offer more than an “unadorned, the defendant-unlawfully-harmed-me
accusation.” 95 From the face of the complaint, there must be enough factual matter to raise a
reasonable expectation that discovery will reveal evidence as to each element of the asserted
Twombly, 550 U.S. at 556.
Id. at 570.
Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993); see
also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322–23 (2007).
Iqbal, 556 U.S. at 677–78.
Id. at 679.
Id. at 678.
claims. 96 If factual allegations are insufficient to raise a right to relief above the speculative level,
or if it is apparent from the face of the complaint that there is an “insuperable” bar to relief, the
claim must be dismissed. 97
Legal Standard for Interpreting Insurance Contracts Under Louisiana Law
Under Louisiana law, “an insurance policy is a contract between the parties and should be
construed by using the general rules of interpretation of contracts set forth in the Louisiana Civil
Code.” 98 “The Louisiana Civil Code provides that ‘[t]he judiciary’s role in interpreting insurance
contracts is to ascertain the common intent of the parties to the contract’ by construing words and
phrases ‘using their plain, ordinary and generally prevailing meaning.’” 99 “Interpretation of an
insurance contract generally involves a question of law.” 100
If the contract is clear and unambiguous and does not have absurd consequences, the court
applies the ordinary meaning of the contractual language. 101 If the insurance policy contains
ambiguous provisions, the “[a]mbiguity . . . must be resolved by construing the policy as a whole;
one policy provision is not to be construed separately at the expense of disregarding other policy
Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 257 (5th Cir. 2009).
Moore v. Metro. Human Serv. Dep’t, No. 09-6470, 2010 WL 1462224, at * 2 (E.D. La. Apr. 8, 2010)
(Vance, C.J.) (citing Jones v. Bock, 549 U.S. 199, 215 (2007)); Carbe v. Lappin, 492 F.3d 325, 328 n. 9
(5th Cir. 2007).
In re Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5th Cir. 2007) (quoting Cadwallader v. Allstate
Ins. Co., 848 So.2d 577, 580 (La. 2003)); Mark v. Sunshine Plaza, Inc., No. 16-455, 2016 WL 6876645, at
*2 (E.D. La. Nov. 22, 2016) (Morgan, J.) (quoting Wisznia Co. v. Gen. Star Indem. Co., 759 F.3d 446, 448
(5th Cir. 2014) (quoting Mayo v. State farm Mut. Auto. Ins. Co., 2003-1801, at 3 (La. 2/25/04); 869 So.2d
96, 99)) (quotation marks omitted) (alterations omitted).
Wisznia Co., 759 F.3d at 448–49 (quoting Mayo, 2003–1801, at 3 (La.2/25/04); 869 So.2d at 99 (citing
La. Civ. Code arts. 2045, 2047)).
In re Katrina Canal Breaches Litig., 495 F.3d at 206 (citing Bonin v. Westport Ins. Corp., 930 So.2d
906, 910 (La. 2006)).
Prejean v. Guillory, 2010-0740, at 6 (La. 7/2/10), 38 So. 3d 274, 279; see also Sapp v. Wood Grp. PSN,
Inc., No. 15-3, 2016 WL 6995897, at *4 (E.D. La. Nov. 30, 2016) (Brown, J.).
provisions.” 102 “An insurance contract, however, should not be interpreted in an unreasonable or
strained manner under the guise of contractual interpretation to enlarge or restrict its provisions
beyond what is reasonably contemplated by unambiguous terms or achieve an absurd
conclusion.” 103 “Courts lack the authority to alter the terms of insurance contracts under the guise
of contractual interpretation when the policy's provisions are couched in unambiguous terms.”104
In the Petition, Muriel’s asserts breach of contract and declaratory judgment claims
against State Farm. 105 Specifically, Muriel’s alleges that State Farm breached its insurance
contract with Muriel’s by denying coverage for losses Muriel’s sustained as a result of the
COVID-19 Closure Orders. 106 In the instant motion, State Farm argues that Muriel’s breach of
contract and declaratory judgment claims should be dismissed for three reasons: (1) Muriel’s does
not allege direct physical loss to the covered property as required by the Policy; (2) the Policy’s
Virus Exclusion bars coverage for the alleged losses; and (3) the Civil Authority provision of the
Endorsement to the Policy does not apply to Muriel’s alleged losses. 107 The Court addresses each
issue in turn. In its analysis, the Court applies Louisiana law as required by Erie/Klaxon
In re Katrina Canal Breaches Litig., 495 F.3d at 207 (quoting La. Ins. Guar. Assoc. v. Interstate Fire &
Cas. Co., 630 So.2d 759, 763 (La. 1994)).
Id. at 208 (quoting Cadwallader v. Allstate Ins. Co., 848 So.2d 577, 580 (La. 2003)).
Rec. Doc. 1-1.
See generally Rec. Doc. 12-2.
See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Sorrels Steel Co. v. Great Sw. Corp.,
906 F.2d 158, 167 (5th Cir 1990) (“A federal court sitting in diversity follows the choice of law rules of the
state in which it sits.”). “Under the Louisiana choice-of-law regime, the law of the state where the
Whether Muriel’s has Alleged Direct Physical Loss to the Covered Property
Muriel’s alleges that the Closure Orders and their effects on Muriel’s business, property,
and operations constitute a “direct physical loss” under the terms of the Policy. 109 In the instant
motion to dismiss, State Farm argues that Muriel’s allegations are “insufficient to establish the
required ‘accidental direct physical loss to’ Covered Property.” 110 In opposition, Muriel’s argues
that the alleged losses are covered by the Policy because the Policy covers “losses” as opposed to
The Policy states, in pertinent part:
We insure for accidental direct physical loss to Covered Property unless the loss
1. Excluded in SECTION I — EXCLUSIONS; or
2. Limited in the Property Subject To Limitations provision. 112
The Policy does not define “direct physical loss.” State Farm argues that direct physical
loss requires tangible damage. 113 In opposition, Muriel’s urges a broader interpretation of
physical loss that encompasses loss of use or access to the covered property. 114
In Trinity Industries, Inc. v. Insurance Co. of North America, the Fifth Circuit, applying
Louisiana law, found that “the language ‘physical loss or damage’ strongly implies that there was
insurance contract was issued and executed generally governs the interpretation of that contract.” Woodfield
v. Bowman, 193 F.3d 354, 360 (5th Cir.1999). Here, the Policy was issued and executed in Louisiana. Rec.
Doc. 12-3 at 93. In addition, the parties agree that Louisiana law governs the instant dispute. Rec. Doc. 122 at 4; Rec. Doc. 27 at 11.
Rec. Doc. 1-1 at 4.
Rec. Doc. 12-2 at 18.
Rec. Doc. 27 at 11–15.
Rec. Doc. 12-3 at 6 (emphasis added).
Rec. Doc. 12-2 at 18–24.
Rec. Doc. 27 at 12–15.
an initial satisfactory state that was changed by some external event into an unsatisfactory state—
for example, the car was undamaged before the collision dented the bumper.” 115 Similarly, in
Hartford Insurance Co. of Midwest v. Mississippi Valley Gas Co., the Fifth Circuit found that
“[t]he requirement that the loss be ‘physical,’ given the ordinary definition of that term, is widely
held to exclude alleged losses that are intangible or incorporeal and, thereby, to preclude any
claim against the property insurer when the insured merely suffers a detrimental economic impact
unaccompanied by a distinct, demonstrable, physical alteration of the property.” 116
In this case, Muriel’s does not allege any physical loss that manifested as a demonstrable
physical alteration of the premises. 117 Instead, Muriel’s relies on Studio 417, Inc. v. The
Cincinnati Insurance Co. to argue that “direct physical loss” does not require physical tangible
alteration. 118 In Studio 417, a district judge in the Western District of Missouri found that the
plaintiffs adequately alleged a “direct physical loss” under their insurance policy due to “the
presence of COVID-19 on premises.” 119
Of course, the Studio 417 decision is not binding upon this Court. Nevertheless, Studio
417 is easily distinguished from this case for two reasons. First, in Studio 417, the insurance
policy at issue provided coverage for “accidental physical loss or accidental physical damage.”120
916 F.2d 267, 270–71 (5th Cir. 1990).
181 F. App’x 465, 470 (5th Cir. 2006) (quoting 10A Couch on Ins. § 148:46) (applying Mississippi law);
see also Diesel Barbershop, LLC v. State Farm Lloyds, No. 5:20-CV-461-DAE, 2020 WL 4724305, at *5
(W.D. Tex. Aug. 13, 2020) (“It appears that within our Circuit, the loss needs to have been a distinct,
demonstrable physical alteration of the property.”) (internal quotation omitted).
See Rec. Doc. 1-1.
Rec. Doc. 27 at 13–14.
No. 20-CV-03127-SRB, 2020 WL 4692385, at *4 (W.D. Mo. Aug. 12, 2020).
Id. at *5 (emphasis in original).
The Studio 417 court applied the statutory interpretation canon against superfluity to give distinct
meanings to “physical loss” and “physical damage.” 121 Here, the Policy provides coverage only
for “physical loss,” thereby rendering the statutory canon against superfluity inapplicable. 122
Second, in Studio 417, the plaintiffs alleged that “COVID-19 is a physical substance” that
“attached to and deprived Plaintiffs of their property.” 123 The court relied on this allegation to
find that the plaintiffs alleged “a causal relationship between COVID-19 and their alleged
losses.” 124 By contrast, Muriel’s does not allege that COVID-19 physically infiltrated the
premises; rather, Muriel’s alleges that “[t]he shutdown orders issued by the City of New Orleans
and State of Louisiana, and their effects on [Muriel’s] business, property, and operations
constitute a direct physical loss to covered property.” 125 For these reasons, the Court finds the
reasoning in Studio 417 inapplicable here.
Alternatively, Muriel’s argues that it sufficiently alleges direct physical loss because
“[t]he insured property was uninhabitable” as a result of the Closure Orders. 126 Muriel’s relies on
In re Chinese Manufactured Drywall Products Liability Litigation to argue that loss of use of the
Rec. Doc. 12-3 at 6. The Court finds that Henderson Road Restaurant Systems, Inc. v. Zurich American
Insurance Co. is similarly distinguishable on this ground. Rec. Doc. 52. In Henderson, a district judge in
the Northern District of Ohio found that Policy language covering “direct physical loss of or damage to
property” covered alleged losses resulting from COVID-19-related shutdown orders. age to” property. 2021
WL 168422 at *11 (N.D. Ohio Jan. 19, 2021). The Henderson court relied on this language to distinguish
the scope of coverage from other policies that provided coverage only for “physical loss to property.” Id. at
Studio 417, 2020 WL 4692385, at *4.
Rec. Doc. 1-1 at 4; see also Rec. Doc. 27 at 21 (“Do Muriel’s losses result from the existence of a virus
on the property? No.”).
Rec. Doc. 27 at 12.
insured property constitutes a covered physical loss. 127 In Chinese Drywall, a federal district
judge in the Eastern District of Louisiana found that the plaintiffs had suffered “direct physical
loss” when Chinese-manufactured drywall rendered their homes “unusable and uninhabitable”
due to “damage to the electrical wiring, appliances, and devices, as well as the ever-present sulfur
Muriel’s also relies on Elegant Massage, LLC v. State Farm Mutual Automobile Insurance
Co., in which a federal district judge in the Eastern District of Virginia denied in part a motion to
dismiss filed by State Farm and allowed claims that were allegedly “identical to those stated here
by Muriel’s” to proceed. 129 In Elegant Massage, the plaintiff operated a business providing
therapeutic massages. 130 In response to the COVID-19 outbreak, the governor of Virginia issued
an Executive Order mandating “the closure of ‘recreational and entertainment businesses,’
including ‘spas’ and ‘massage parlors.’” 131 State Farm denied the plaintiff’s claim for loss of
business income and extra expense coverage. 132 The district court found that the plaintiff had
“submitted a good faith claim to the Defendants for a ‘direct physical loss’ covered by the policy”
because it was “plausible that Plaintiff’s [sic] experienced a direct physical loss when the property
was deemed uninhabitable, inaccessible, and dangerous to use by the Executive Orders . . . .” 133
Id. at 17 (citing In re Chinese Manufactured Drywall Products Liability Litig., 759 F. Supp. 2d 822, 832
(E.D. La. 2010) (Fallon, J.)).
759 F. Supp. 2d at 832–34.
Rec. Doc. 40; see also Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., No. 2:20-CV-265, 2020
WL 7249624 (E.D. Va. Dec. 9, 2020).
Id. at *1.
Id. at *2.
Id. at *10.
The instant case is distinguishable from the non-binding decisions in both Chinese
Drywall and Elegant Massage. In this case, the Closure Orders did not render Muriel’s “unusable
and uninhabitable.” Rather, the Closure Orders suspended restaurant dining operations but
allowed restaurants—including Muriel’s—to continue offering takeout and delivery services. 134
The Petition does not allege that Muriel’s was “uninhabitable” by restaurant employees, delivery
personnel, or even customers who could enter the restaurant to pick up takeout orders. 135
Moreover, when Muriel’s filed the Petition, it was permitted to operate at 50% capacity pursuant
to the City of New Orleans reopening plan. 136 Additionally, Muriel’s does not allege that COVID19 was physically present on the insured premises, 137 in contrast to the plaintiffs in Chinese
Drywall who alleged that the drywall was physically present in their homes and was “releasing
elemental sulfur gases throughout the homes.” 138 Therefore, the Court finds Chinese Drywall and
Elegant Massage inapposite here.
For these reasons, the Court finds that Muriel’s does not sufficiently allege direct physical
loss to the covered property.
Whether the Virus Exclusion Provision of the Policy Bars Coverage for Muriel’s
Rec. Doc. 1-1 at 16.
See generally id; see also, e.g. Michael Cetta, Inc. v. Admiral Indem. Co., No. 20 CIV. 4612 (JPC), 2020
WL 7321405, at *12 (S.D.N.Y. Dec. 11, 2020) (“The fact that Sparks could have continued to operate its
restaurant in some capacity is fatal to Sparks's claims for civil authority coverage.”); Malaube, LLC v.
Greenwich Ins. Co., No. 20-22615-CIV, 2020 WL 5051581, at *9 (S.D. Fla. Aug. 26, 2020) (“The
government permitted Plaintiff to continue its takeout and delivery services. While Plaintiff never makes
clear whether it undertook either of these options, the government never made the restaurant uninhabitable
or substantially unusable.”).
Rec. Doc. 1-1 at 4.
Rec. Doc. 27 at 21.
Chinese Drywall, 759 F. Supp. 2d at 832.
In the instant motion, State Farm argues that the Virus Exclusion provision of the Policy
bars insurance coverage for Muriel’s alleged losses. 139 In opposition, Muriel’s contends that the
Virus Exclusion does not bar coverage because it only covers “viral contamination,” which is
distinct from the COVID-19 pandemic. 140 Muriel’s also argues that COVID-19 is a pandemic
and the Policy does not exclude coverage for “Pandemic Events.” 141
Because the Court finds that Muriel’s does not adequately allege direct physical loss to
the covered property, it need not determine whether the Virus Exclusion precludes coverage in
this case. However, even if Muriel’s had alleged direct physical loss to the covered premises, the
Court finds that the plain language of the Virus Exclusion precludes Muriel’s claim for coverage.
The Virus Exclusion provision appears in the section of the Policy titled “Section I –
Exclusions.” 142 The section begins with an introductory anti-concurrent causation clause (“ACC
Clause”) that reads:
1. We do not insure under any coverage for any loss which would not have
occurred in the absence of one or more of the following excluded events. We do
not insure for such loss regardless of: (a) the cause of the excluded event; or (b)
other causes of the loss; or (c) whether other causes acted concurrently or in any
sequence with the excluded event to produce the loss; or (d) whether the event
occurs suddenly or gradually, involves isolated or widespread damage, arises from
natural or external forces, or occurs as a result of any combination of these: 143
The Policy then enumerates various exclusions, including the following Virus Exclusion:
j. Fungi, Virus or Bacteria
(2) Virus, bacteria or other microorganism that induces or is capable of inducing
Rec. Doc. 12-2 at 12–14.
Rec. Doc. 27 at 19–20.
Id. at 20–25.
Rec. Doc. 12-3 at 7.
physical distress, illness or disease; . . . . 144
With regard to insurance policy coverage and exclusions, the Louisiana Supreme Court
has stated, “[a]lthough the insured bears the burden of proving a policy of insurance affords
coverage for an incident, the insurer bears the burden of proving the applicability of an
exclusionary clause within a policy.” 145 “Policy exclusions must be clearly stated. Any ambiguity
in an insurance policy’s exclusions is construed to afford coverage.” 146
Here, the Court finds that the Virus Exclusion unambiguously excludes coverage for
losses resulting from COVID-19. The Centers for Disease Control and Prevention (“CDC”)
defines COVID-19 as “a new virus . . . ‘CO’ stands for corona, ‘VI’ for virus, and ‘D’ for
disease.” 147 Therefore, COVID-19 falls squarely within the language of the Virus Exclusion.
Notably, despite Muriel’s assertion that the Virus Exclusion requires “viral contamination,”148
the text of the Virus Exclusion includes nothing about a contamination requirement. 149
The Court finds Muriel’s multiple attempts to obfuscate the plain language of the Virus
Exclusion unpersuasive. First, Muriel’s contention that the cause of the alleged losses is the
Id. at 8.
Jones v. Estate of Santiago, 2003-1424, p. 12 (La. 4/14/04); 870 So. 2d 1002, 1010 (citing Doerr v. Mobil
Oil Corp., 2000-0947, p. 5 (La. 12/19/00); 774 So. 2d 119, 124, modified on other grounds on reh’g, 000947 (La. 3/16/01); 782 So. 2d 573)); see also Blackburn v. Nat. Union Fire Ins. Co. of Pittsburgh, 20002668, p. 6 (La. 4/3/01); 784 So. 2d 637, 641 (“The insurer bears the burden of proving the applicability of
an exclusionary clause within a policy”); La. Maint. Servs., Inc. v. Certain Underwriters at Lloyd’s of
London, 616 So. 2d 1250, 1252 (La. 1993) (“The insurer has the burden of proving that a loss comes within
a policy exclusion”); Russ, 10A Couch on Ins. § 148:52 (3d ed. 2010).
La. Maint. Servs., 616 So. 2d at 1252; see also Yount v. Maisano, 627 So. 2d 148, 151 (La. 1993) (“Any
ambiguity in an exclusion should be narrowly construed in favor of coverage”).
https://www.cdc.gov/coronavirus/2019-ncov/faq.html#Basics (last visited Mar. 5, 2021).
Rec. Doc. 27 at 20.
Rec. Doc. 12-3 at 8.
Closure Orders, rather than the virus itself, flies in the face of the ACC Clause. In Tuepker v.
State Farm Fire & Casualty Co., the Fifth Circuit found an identical ACC Clause in an insurance
policy issued by State Farm “unambiguous and enforceable.” 150 The Fifth Circuit explained the
meaning of the ACC Clause: “[E]xcluded losses—here, any loss which would not have occurred
in the absence of one or more of the excluded events—will not be covered even if a nonexcluded
event or peril acts ‘concurrently or in any sequence’ with the excluded event to cause the loss in
question.” 151 Similarly, in Spector v. USAA Casualty Insurance Co., this Court addressed a
nearly-identical ACC Clause in an insurance contract excluding coverage for flood damage. 152
There, the plaintiffs argued that damage caused by moisture and evaporation of floodwaters fell
outside of the scope of the flood damage exclusion. 153 This Court disagreed, finding that damage
caused by the moisture and evaporation of floodwaters was derivate of the flooding on the
plaintiffs’ property. As a result, this Court found that the flood damage exclusion precluded
coverage under the insurance contract. 154
Like in Spector, the Closure Orders issued by Mayor Cantrell and Governor Edwards are
derivative of the COVID-19 outbreak. 155 Stated differently, the Closure Orders were issued either
concurrently, or in sequence with, the spread of COVID-19 across the State of Louisiana.
507 F.3d 346, 355 (5th Cir. 2007) (applying Mississippi law).
Id. at 354.
No. CV 18-8806, 2019 WL 1493467, at *6 (E.D. La. Apr. 3, 2019) (Brown, C.J.).
Id. at 3.
Id. Notably, in Elegant Massage, the district court judge found that anti-concurrent causation clauses
were “not a recognized or settled doctrine in the Court’s jurisdiction.” Elegant Massage, 2020 WL 7249624,
at *11. By contrast, anti-concurrent causation clauses are clearly recognized by Louisiana law.
Rec. Doc. 1-1 at 10 (“WHEREAS, the worldwide outbreak of COVID-1 9 and the effects of its extreme
risk . . . .”); Id. at 13 (“WHEREAS, the United States has confirmed cases of individuals who have a severe
acute respiratory disease (‘COVID-19’) caused by a novel coronavirus (‘the virus’) . . . .”).
Therefore, the excluded event—COVID-19—remains part of the causal chain that resulted in
Muriel’s alleged losses and coverage is barred by the Virus Exclusion.
Second, the Court disagrees with Muriel’s argument that because the Policy does not
explicitly exclude “pandemics” or “communicable diseases,” the Policy provides coverage for
Muriel’s alleged losses. 156 Although the exclusionary language could have been more clear, “[t]he
fact that an exclusion could have been worded more explicitly does not necessarily make it
Third, the Court declines to rewrite the unambiguous Virus Exclusion as a
“Pollution/Contamination Exclusion,” as urged by Muriel’s. 158 In a somewhat convoluted
argument, Muriel’s contends that State Farm should be “equitably estopped” from arguing that
the Virus Exclusion is not a “Pollution/Contamination Exclusion” because of representations
made by “the industry” to the Louisiana Department of Insurance. 159 The Court will not examine
extrinsic evidence of the Policy at issue here because the Virus Exclusion is unambiguous and
Louisiana law does not permit the introduction of parol evidence under these circumstances. 160
Whether Muriel’s has Alleged that the Civil Authority Provision of the Policy Provides
Coverage for Muriel’s Alleged Losses
Muriel’s alleges that it is entitled to coverage under the “Civil Authority” coverage
Rec. Doc. 27 at 4.
In re Katrina Canal Breaches Litig., 495 F.3d at 210. In addition, the Court is unpersuaded by Muriel’s
claim that a pandemic is “an event, like civil unrest, terrorism, or war.” Rec. Doc. 27 at 21.
Id. at 18.
Id. at 26–27.
La. Civ. Code Ann. art. 2046; see also Condrey v. SunTrust Bank of Georgia, 429 F.3d 556, 563 (5th
Cir. 2005) (“Louisiana law bars parol evidence to evaluate contractual intent ‘[w]hen the words of
a contract are clear and explicit and lead to no absurd consequences.’”).
provision that appears in the Endorsement to the Policy. 161 In the instant motion, State Farm
argues that the Civil Authority provision is inapplicable to this case. 162 In opposition, Muriel’s
does not respond to State Farm’s argument but states that Muriel’s purchased extended coverage
via the Endorsement “includ[ing] coverage for Civil Authority actions that deprive it of access to
its business facility.” 163
The Civil Authority provision provides, in pertinent part:
When a Covered Cause of Loss causes damage to property other than property at
the described premises, we will pay for the actual “Loss of Income” you sustain
and necessary “Extra Expense” caused by action of civil authority that prohibits
access to the described premises, provided that both of the following apply:
1. Access to the area immediately surrounding the damaged property is prohibited
by civil authority as a result of the damage, and the described premises are within
that area but are not more than one mile from the damaged property; and
2. The action of civil authority is taken in response to dangerous physical
conditions resulting from the damage or continuation of the Covered Cause Of
Loss that caused the damage, or the action is taken to enable a civil authority to
have unimpeded access to the damaged property. 164
Under Louisiana law, to prove coverage under the Civil Authority provision,
the insured must establish a loss of business income:
(1) caused by an action of civil authority;
(2) the action of civil authority must prohibit access to the described premises of
(3) the action of civil authority prohibiting access to the described premises must
be caused by direct physical loss of or damage to property other than at the
described premises; and
(4) the loss or damage to property other than the described premises must be
caused by or result from a covered cause of loss as set forth in the policy. 165
Rec. Doc. 1-1 at 3.
Rec. Doc. 12-2 at 24.
Rec. Doc. 27 at 8.
Rec. Doc. 12-3 at 57.
Dickie Brennan & Co. v. Lexington Ins. Co., 636 F.3d 683, 685 (5th Cir. 2011) (citing Kean, Miller,
Importantly, coverage under the Civil Authority provision is circumscribed by the terms
of the Endorsement, which provides: “The coverage provided by this endorsement is subject to
the provisions of Section I – Property, except as provided below.” 166 Therefore, the Court’s
previous findings—namely that Muriel’s does not allege a direct physical loss and that the Virus
Exclusion bars coverage for the alleged losses—also preclude coverage under the Civil Authority
provision. Nevertheless, the Court alternatively finds that the Civil Authority coverage is
In Dickie Brennan & Co. v. Lexington Insurance Co., the Fifth Circuit, applying Louisiana
law, explained that “[t]he general rule is that civil authority coverage is intended to apply
to situations where access to an insured’s property is prevented or prohibited by an order of civil
authority issued as a direct result of physical damage to other premises in the proximity of the
insured’s property.” 167 There, operators of New Orleans restaurant Brennan’s brought suit against
their insurer when the insurer denied coverage for losses incurred during a mandatory evacuation
of New Orleans in anticipation of Hurricane Gustav. 168 The plaintiffs argued on appeal that the
damage Hurricane Gustav caused in the Caribbean qualified as “damage to property, other than
at the described premises” and was therefore sufficient to trigger coverage under the civil
authority provision of the insurance policy. 169 The Fifth Circuit disagreed, holding that there was
Hawthorne, D’Armond McCowan & Jarman, LLP v. Nat’l Fire Ins. Co., 2007 WL 2489711, at *3 (M.D.
La. Aug. 29, 2007)).
Rec. Doc. 12-3 at 56.
636 F.3d at 686–87 (internal quotation marks omitted).
Id. at 684.
no coverage under the civil authority provision of the policy because the plaintiffs “fail[ed] to
demonstrate the required nexus between the evacuation order and damage to property ‘other than
at the described premises.’” 170
Here, Muriel’s allegations establish that the Closure Orders were intended to prevent the
spread of COVID-19. 171 Like in Dickie Brennan, the Closure Orders were preventative and lack
the requisite nexus with prior property damage. Moreover, Muriel’s does not allege physical
damage to other property in the proximity of the insured premises as is required to invoke
coverage under the Civil Authority provision.
For these reasons, the Court finds that Muriel’s fails to allege that it is entitled to coverage
under the Civil Authority provision of the Endorsement to the Policy.
Whether Muriel’s Declaratory Judgment Claim Should be Dismissed
State Farm argues that Muriel’s claim for a judicial declaration as to its rights and State
Farm’s obligations under the Policy should be dismissed for the same reasons as the breach of
contract claim, namely that “there is no coverage for the claimed losses.” 172 Muriel’s does not
address this argument. 173
If Muriel’s breach of contract claim is dismissed, dismissal of the declaratory judgment
claim is appropriate in this case. In the Petition, Muriel’s seeks a judicial declaration as to its
rights and State Farm’s obligations under the Policy “stating the actions and orders of the State
of Louisiana and/or City of New Orleans, Parish of Orleans have rendered the Covered Property
Id. at 684–87.
Rec. Doc. 1-1 at 4.
Rec. Doc. 12-2 at 30.
See Rec. Doc. 27.
unfunctional and therefore constitute and/or have caused a direct physical loss that triggers and
affords civil authority coverage under the policy.” 174 For the reasons explained above, the Court
finds that Muriel’s fails to adequately state a claim for coverage under the Civil Authority
provision of the Policy.
Considering the foregoing reasons, the Court finds that Muriel’s has not set forth sufficient
allegations to state a claim for insurance coverage under the Policy for losses resulting from the
COVID-19 Closure Orders. Nevertheless, cognizant of the economic hardships resulting from the
COVID-19 virus and its ongoing effects, the Court grants Plaintiff leave to amend the Complaint
to address the deficiencies identified in this Order. State Farm is granted leave to file responsive
motions to Plaintiff’s amended complaint if necessary. Accordingly,
IT IS HEREBY ORDERED that Defendant State Farm Fire and Casualty Company’s
“Rule 12(b)(6) Motion to Dismiss Plaintiff’s Petition for Failure to State a Claim” 175 is DENIED
IT IS FURTHER ORDERED that Muriel’s is granted leave to amend the Complaint to
address the deficiencies identified in this Order by May 10, 2021.
Id. at 8.
Rec. Doc. 12.
IT IS FURTHER ORDERED that State Farm is granted leave to file responsive motions
to Muriel’s amended complaint if necessary.
NEW ORLEANS, LOUISIANA, this _____ day of April, 2021.
NANNETTE JOLIVETTE BROWN
UNITED STATES DISTRICT COURT
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