Abbey Hotel Acquisition, LLC et al v. National Surety Corporation
OPINION AND ORDER: re: 18 MOTION to Dismiss Complaint. filed by National Surety Corporation. The impact of COVID-19 on Plaintiffs businesses is deeply unfortunate. But in the face of the plain language of the contract, and the in surmountable weight of the case law, it is clear that Plaintiffs have not stated and cannot state a claim. For that reason, Defendant's motion to dismiss is GRANTED, and Plaintiffs' claim is dismissed with prejudice. So Ordered. (Signed by Judge Valerie E. Caproni on 10/1/2021) (js) Transmission to Orders and Judgments Clerk for processing.
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ABBEY HOTEL ACQUISITION, LLC, SETAI :
HOTEL ACQUISITION, LLC, SETAI RESORT :
AND RESIDENCE CONDOMINIUM
ASSOCIATION, INC, and SETAI VALET
NATIONAL SURETY CORPORATION,
OPINION & ORDER
VALERIE CAPRONI, United States District Judge:
The COVID-19 pandemic has upended the daily operations of businesses around the
country in ways few could have anticipated. Hotels, restaurants, and retailers, among many
others, have struggled to find their footing in the midst of changing scientific guidance and local
regulations. This is what has led Abbey Hotel Acquisition, LLC, Setai Hotel Acquisition LLC,
Setai Resort & Residence Condominium Association, Inc., and Setai Valet Services, LLC
(“Plaintiffs”) to bring this coverage action against their insurer, National Surety Corporation
(“Defendant”), seeking damages incurred as a result of the pandemic. Unprecedented times can
call for unprecedented remedies, but rewriting a contract is not an available remedy. Based on
the plain meaning of the insurance contract at issue, Defendant’s motion to dismiss is
On or about April 27, 2019, Plaintiffs entered into a contract with Defendant for
commercial property insurance coverage. Compl. ¶ 39, Dkt. 1. The policy, which covered the
period from April 27, 2019, through April 27, 2020, id. ¶ 41, promised payment “for direct
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physical loss or damage to [the] Property Insured,” as well as business income and extra
expenses “arising from direct physical loss or damage to property.” Id. ¶ 45(1)–(2). It also
covers “direct physical loss or damage . . . resulting from a covered communicable disease
event.” Id. ¶ 42. 1 The policy excludes “direct physical loss, damage, or expense caused by . . .
disease, sickness, any condition of health, bacteria, or virus.” Def. Mem. at 8, Dkt. 19.
By March 2020, the spread of COVID-19 had led the State of Florida to declare a state of
emergency and the County Mayor for Miami-Dade County to issue an order preventing hotels
from accepting new reservations or extending existing reservations. Compl. ¶ 34; Pl. Opp. at 5,
Dkt. 26. On July 13, 2020, Plaintiffs asked Defendant to cover Plaintiffs’ economic losses as a
result of the precipitous decline in Plaintiffs’ business; Defendant did not respond. Compl. ¶ 49.
Plaintiffs then commenced this action in January 2021 in Supreme Court, New York County.
See Not. of Removal ¶ 1, Dkt. 1. Defendant removed the case to federal court and moved to
dismiss the Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).
See Not. of Mot., Dkt. 18; Def. Mem. at 8.
Due to a misnumbering in the Complaint, this is located at the second Paragraph 42 in the Complaint.
Case 1:21-cv-03506-VEC Document 32 Filed 10/01/21 Page 3 of 6
Standard of Review
To survive a motion to dismiss for failure to state a claim upon which relief can be
granted, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In general, “a complaint does not need to
contain detailed or elaborate factual allegations, but only allegations sufficient to raise an
entitlement to relief above the speculative level.” Keiler v. Harlequin Enters. Ltd., 751 F.3d 64,
70 (2d Cir. 2014) (citation omitted). The Court accepts all factual allegations in the complaint as
true and draws all reasonable inferences in the light most favorable to the plaintiff. See Gibbons
v. Malone, 703 F.3d 595, 599 (2d Cir. 2013). The Court, is not, however, “bound to accept as
true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 555)).
In a dispute over insurance coverage, the burden is on the insured to prove that the
insurance policy at issue covers the stated claim. Hudson Ins. Co. v. Double D Mgmt. Co., 768
F. Supp. 1542, 1545 (M.D. Fla. 1991) (citations omitted). Therefore, Plaintiffs carry the burden
of alleging that the purported losses are covered under this policy. To meet their burden,
Plaintiffs must plead “(1) that the property harmed or damaged falls within the ‘insuring clause’
The contract at issue does not contain a choice-of-law provision. Pl. Opp. at 6–7. Because jurisdiction is
based on diversity of citizenship, the Court must apply the choice of law rules of New York, the forum state. Lazard
Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1538–39 (2d Cir. 1997) (citing Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496–97 (1941)). The parties “agree that there are no significant differences between Florida
law and New York law” on the issues raised by Defendant’s motion. Pl. Opp. at 6–7; Def. Mem. at 9 n.5.
Nonetheless, while there is no conflict between New York and Florida law, for the sake of completeness the Court
has applied New York’s “center of gravity” choice-of-law test, which looks to “the place of contracting, the places
of negotiation and performance, the location of the subject matter, and the domicile or place of business of the
contracting parties.” Lazard Freres, 108 F.3d at 1539 (citation omitted). The Court agrees with both parties that
these factors favor applying Florida law. Def. Mem. at 9 n.5; Pl. Opp. at 6–7.
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of the policy, and (2) the loss claimed falls within a second ‘covered perils’ provision contained
in each policy.” Homeowners Choice Prop. & Cas. v. Miguel Maspons et al., 211 So. 3d 1067,
1068 (Fla. Dist. Ct. App. 2017) (citation omitted).
The Complaint Fails to Allege “Direct Physical Loss or Damage” and Therefore
the Claimed Loss Does Not Fall Within the “Insuring Clause” of the Policy.
A. “Direct Physical Loss or Damage” Is Damage that Has a Tangible Effect on
the Covered Property.
“Under Florida law, insurance contracts are construed according to their plain meaning.”
Taurus Holdings, Inc. v. U.S. Fid. & Guar. Co., 913 So. 2d 528, 532 (Fla. 2005). Thus, the core
dispute is what constitutes “direct physical loss or damage,” Compl. ¶ 45(1), a phrase not defined
in the policy. Def. Mem. at 11. Even a cursory review of the English language, not to mention
the abundance of case law addressing this very question, reveals the obvious answer. “Direct
physical loss or damage” unambiguously requires tangible alteration to the covered property.
See, e.g., AE Mgmt., LLC v. Illinois Union Ins. Co., No. 20-CV-22925, 2021 WL 827192, at *3
(S.D. Fla. Mar. 4, 2021) (holding restaurants’ loss of use of premises did not satisfy insurance
policy requirement of “direct physical loss of or damage to property”); Café Int’l Holding Co.
LLC v. Westchester Surplus Lines Ins. Co., No. 20-CV-21641, 2021 WL 1803805, at *10 (S.D.
Fla. Mar. 4, 2021) (“‘direct physical loss of or damage to property’ requires ‘a distinct,
demonstrable, physical alteration of the property’ and does not include ‘losses that are intangible
or incorporeal.’”) (citing AE Mgmt., LLC, 2021 WL 827192, at *3); Island Hotel Props., Inc. v.
Fireman’s Fund Ins. Co., No. 20-CV-10056, 512 F. Supp. 3d 1323, 1326–27 (S.D. Fla. 2021)
(“Because ‘direct physical’ modifies both ‘loss’ and ‘damage,’ . . . any ‘interruption in business
must be caused by some physical problem with the covered property’ to be a covered loss.”)
(cleaned up); Edison Kennedy, LLC v. Scottsdale Ins. Co., No. 20-CV-1416, 510 F. Supp. 3d
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1116, 1122–23 (M.D. Fla. 2021) (listing cases); Mama Jo’s, Inc. v. Sparta Ins. Co., 823 F. App’x
868, 879 (11th Cir. 2020) (“under Florida law, an item or structure that merely needs to be
cleaned has not suffered a ‘loss’ which is both ‘direct’ and ‘physical.’”) (citation omitted).
Many courts have considered whether economic losses from business closings required
by COVID-19 constitute “direct physical loss or damage” and have repeatedly held that they do
not. See, e.g., Rococo Steak, LLC v. Aspen Specialty Ins. Co., No. 20-CV-2481, 515 F. Supp. 3d
1218, 1224 (M.D. Fla. 2021) (“a decrease in business due to COVID-19 is a purely economic
loss, not the kind of physical loss contemplated by insurance policies.”) (citation omitted); Island
Hotel Props., Inc., 512 F. Supp. 3d at 1328 (holding “direct physical loss of or damage to
property” does not encompass losses due to COVID-19); Graspa Consulting, Inc. v. United Nat’l
Ins. Co., No. 20-CV-23245, 2021 WL 1540907, at *5–*9 (S.D. Fla. Apr. 16, 2021) (same, and
noting a “tsunami of Florida caselaw” holding the same).
In short, there is simply no legal support for Plaintiffs’ contention that “direct physical
loss or damage” encompasses a loss of business caused by the spread of COVID-19 or by
governmental action designed to reduce such spread.
B. The Spread of COVID-19 Does Not Constitute A “Communicable Disease
Event” Under the Policy.
Plaintiffs argue further that the effects of COVID-19 on their businesses fall within the
“communicable disease event” provision of the contract because COVID-19 is a communicable
disease within the policy’s definition (“any disease, bacteria, or virus that may be transmitted
directly or indirectly from human or animal to a human.”). Pl. Opp. at 2–4, 13. Plaintiffs
contend that the language governing communicable disease event coverage is ambiguous and
that, under their interpretation, COVID-caused losses are covered. Id. at 10–11. The Court finds
no such ambiguity. As Plaintiffs admit, a “communicable disease event” is defined in the policy
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as “an event in which a public health authority has ordered that a location be evacuated,
decontaminated, or disinfected due to the outbreak of a communicable disease at such location.”
Id. at 4. Such an event would transpire if an outbreak of a disease required immediate
evacuation of hotel guests or resulted in a public health order requiring disinfection or
decontamination of the insured premises. See Def. Reply at 5–6, Dkt. 29. Plaintiffs have not
alleged that the Florida public health authorities required them to evacuate, decontaminate, or
disinfect their facilities; according to the Complaint, they were ordered only not to accept any
new reservations or to extend existing ones. Compl. ¶ 34.
Because Plaintiffs have not alleged that their claim falls within the “insuring clause” of
their policy, their Complaint founders on the first prong of the coverage analysis, and the Court
need not reach the second prong. Homeowners Choice Prop. & Cas., 211 So. 3d at 1068. 3
The impact of COVID-19 on Plaintiffs’ businesses is deeply unfortunate. But in the face
of the plain language of the contract, and the insurmountable weight of the case law, it is clear
that Plaintiffs have not stated and cannot state a claim. For that reason, Defendant’s motion to
dismiss is GRANTED, and Plaintiffs’ claim is dismissed with prejudice.
United States District Judge
Date: October 1, 2021
New York, NY
Because Plaintiffs fail to plead facts sufficient to establish coverage under the policy at issue, the Court
does not reach the question whether policy exclusions apply to their claim. See Def. Mem. at 18–19.
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