Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 1 of 11
`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 1 Of 11
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`THOR EQUITIES, LLC,
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`USDC SDNY
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`DOCUMENT
`ELECTRONICALLY FILED
`DOC #:
`DATE FILED:
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`3/31/2021
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`20 Civ. 3380 (AT)
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`MEMORANDUM
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`AND ORDER
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`Plaintiff,
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`—against—
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`FACTORY MUTUAL INSURANCE
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`COMPANY,
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`Defendant.
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`ANALISA TORRES, District Judge:
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`This is an action for anticipatory breach of contract with respect to a commercial
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`property insurance policy issued by Defendant, Factory Mutual Insurance Company (“FM”),
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`to Plaintiff, Thor Equities, LLC (“Thor”). Thor seeks damages and a judgment declaring that
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`FM is required to pay Thor for losses arising from the COVID-19 pandemic. Comp1., ECF
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`No. l. The parties cross-move for partial judgment on the pleadings pursuant to Federal Rule
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`of Civil Procedure 12(c), seeking a ruling on whether two exclusions in the insurance policy
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`bar coverage of Thor’s losses. ECF Nos. 32, 38; Pl. Mem. at 2—3, ECF No. 34; Def. Mem. at
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`2—3, ECF No. 44. For the reasons stated below, the motions are DENIED.
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`BACKGROUNDl
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`Thor, a commercial landlord, rents properties across the cormtry to hundreds of
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`tenants, for use in a variety of businesses, including office space, retail stores, restaurants, and
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`bars. Comp]. 1] 13. On March 13, 2020, Thor purchased from FM an insurance policy that
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`provides up to $750 million in coverage for property damage and business interruption losses
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`1 The following facts are taken from the complaint and are presumed to be true for the purposes of considering the
`motion for judgment on the pleadings. Patel 1'. Conlemp. Classics ofBeverly Hills. 259 F.3d 123. 126 (2d Cir.
`200 1).
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`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 2 of 11
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`(the “Policy”). Policy, ECF No. 1-1; Compl. ¶¶ 3, 20, 24, 65. Coverage began on March 15,
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`2020. Policy at 2–3; Compl. ¶¶ 20–21.
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`Days later, state governments across the country adopted stay-at-home orders in response
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`to the COVID-19 pandemic. Compl. ¶¶ 15–17. As a result, many of Thor’s tenants had to close
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`shop and, unable to generate revenue, have requested abatements or other accommodations. Id.
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`¶ 18. Thor alleges that it has suffered significant business interruption as a result of the
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`pandemic. Id.
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`Additionally, Thor alleges that confirmed cases of COVID-19 at multiple properties have
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`required it to take action to secure and preserve those locations. Id. ¶ 19. When Thor
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`commenced this action, it estimated that it had already lost more than $20 million in rental
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`income alone. Id.
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`Broadly, the Policy provides for a maximum per-occurrence limit of liability of $750
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`million, with various sublimits and time limits. Id. ¶ 22; Policy at 12–15. The Policy defines an
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`occurrence as “the sum total of all loss or damage of the type insured, including any insured
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`[time element] loss, arising out of or caused by one discrete event of physical loss or damage.”
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`Compl. ¶ 23; Policy at 78.
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`The Policy contains various “[a]dditional [c]overages” under the property damage section
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`of the Policy as well as “[t]ime [e]lement” coverages, commonly known as business interruption
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`coverages, all of which potentially implicate Thor’s losses here. Compl. ¶¶ 24–52; Pl. Mem. at
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`1. The additional coverages section includes a “[communicable disease response]” provision and
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`the time element section includes an “[interruption by communicable disease]” provision (the
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`“Communicable Disease Provisions”), which together have a $1 million aggregate limit on
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`liability. Policy at 13, 15, 32, 64–65. The “time element” provisions cover, in part, losses from
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`the interruption of Thor’s business, including loss of rental income, loss caused by restriction of
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`2
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`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 3 of 11
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`access to Thor’s property due to an order issued by a civil or military authority, loss caused by
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`restriction of access to the entry or exit of property, and loss caused by physical loss or damage
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`at the property of suppliers or customers. Id. at 52, 58–60, 76. The Policy also contains various
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`exclusions, including: (1) a contamination exclusion (the “Contamination Exclusion”) and (2) a
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`loss of market or loss of use exclusion (the “Loss of Market or Loss of Use Exclusion”), which
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`both limit coverage on these bases. Id. at 20–21, 24. These exclusions are located under the
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`property damage section of the Policy. Id. at 19–21, 24.
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`Thor states that it gave FM “prompt notice of its claim for its coronavirus losses”
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`(without specifying the date and manner of such notice). Compl. ¶ 53. In an April 6, 2020
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`phone call, Thor’s counsel indicated to William Reed, FM’s New York claims manager, that
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`“Thor’s claim would greatly exceed the Policy’s $1 million sublimit for the communicable
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`disease coverages.” Id. In a “formal acknowledgement letter,” FM stated: “We understand this
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`loss is reported for a claim to be submitted under the Policy’s [additional coverages] for
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`[communicable disease response] and [interruption by communicable disease].” Id. ¶ 54. Thor
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`appears to interpret FM’s focus on the Communicable Disease Provisions as an indication that
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`FM will breach its obligation to cover Thor’s losses under other Policy provisions. Id. ¶ 55. In
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`this action for anticipatory breach of contract, Thor seeks a judgment declaring that FM must
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`cover Thor’s coronavirus-related losses to the full extent of the Policy. Id. ¶ 60.
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`At this juncture, however, the parties do not ask the Court to determine in general
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`whether the Policy covers Thor’s losses. Pl. Mem. at 2. Rather, the parties request that the
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`Court determine the applicability and scope of the Contamination Exclusion and the Loss of
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`Market or Loss of Use Exclusion. Id. at 2–3; Def. Mem. at 2–3, 9.
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`3
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`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 4 of 11
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`DISCUSSION
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`I.
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`Legal Standard
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`Under Federal Rule of Civil Procedure 12(c), “[a]fter the pleadings are closed—but early
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`enough not to delay trial—a party may move for judgment on the pleadings.” Fed. R. Civ. P.
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`12(c). In deciding a Rule 12(c) motion, a court applies the same standard as that applicable to a
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`motion under Rule 12(b)(6). Sheppard v. Beerman, 18 F.3d 147, 150 (2d Cir. 1994). In order to
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`survive a Rule 12(c) motion, therefore, “a complaint must contain sufficient factual matter,
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`accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
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`U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The court
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`must accept the allegations in the pleadings as true and draw all reasonable inferences in favor of
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`the non-movant. See ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).
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`In evaluating a Rule 12(c) motion, the court may consider only the complaint, documents
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`attached to the complaint, matters of which a court can take judicial notice, and documents that
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`the plaintiff knew about and relied upon in bringing suit. See Chambers v. Time Warner, Inc.,
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`282 F.3d 147, 153 (2d Cir. 2002). A claim will not be dismissed on a motion for judgment on
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`the pleadings unless the court is satisfied that the complaint cannot state any set of facts that
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`would entitle plaintiff to relief. Sheppard, 18 F.3d at 150.
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`II.
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`Choice of Law
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`Because this Court’s subject matter jurisdiction is grounded in diversity between the
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`parties, the Court must first determine the body of substantive law that applies to Plaintiff’s
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`claims. See Booking v. Gen. Star Mgmt. Co., 254 F.3d 414, 419 (2d Cir. 2001). “The . . . law to
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`be applied is determined by the choice of law principles of the forum state.” Kalb, Voorhis &
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`Co. v. Am. Fin. Corp., 8 F.3d 130, 132 (2d Cir. 1993). For contract claims, New York choice of
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`law rules require the Court to evaluate the “center of gravity,” with the purpose of establishing
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`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 5 of 11
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`which state has “the most significant relationship to the transaction and the parties.” Fieger v.
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`Pitney Bowes Credit Corp., 251 F.3d 386, 394 (2d Cir. 2001) (internal quotation marks and
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`citation omitted).
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`The parties do not directly address choice of law, but they apply New York law in their
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`briefs. Accordingly, the Court shall apply New York law here. Arch Ins. Co. v. Precision Stone,
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`Inc., 584 F.3d 33, 39 (2d Cir. 2009).
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`III.
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`Contract Interpretation Under New York Law
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`“Insurance policies are, in essence, creatures of contract, and, accordingly, subject to
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`principles of contract interpretation.” Zahler v. Twin City Fire Ins. Co., No. 04 Civ. 10299, 2006
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`WL 846352, at *4 (S.D.N.Y. Mar. 31, 2006). A fundamental principle under New York law is
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`that “contracts are construed in accord with the parties’ intent.” Greenfield v. Philles Records,
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`780 N.E.2d 166, 170 (N.Y. 2002). The best evidence of that intent is what the parties have
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`written in their agreement. Id. Therefore, a court must “give effect to the intent of the parties as
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`expressed in the clear language of the [insurance] contract,” Parks Real Est. Purchasing Grp. v.
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`St. Paul Fire & Marine Ins. Co., 472 F.3d 33, 42 (2d Cir. 2006), and interpret the contract
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`“according to common speech and consistent with the reasonable expectation of the average
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`insured,” Dean v. Tower Ins. Co. of New York, 979 N.E.2d 1143, 1145 (N.Y. 2012).
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`Under New York law, “a written agreement that is complete, clear, and unambiguous on
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`its face must be enforced according to the plain meaning of its terms.” Greenfield, 780 N.E.2d at
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`170; Vill. of Sylvan Beach v. Travelers Indem. Co., 55 F.3d 114, 115 (2d Cir. 1995). Contract
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`language is unambiguous if it has a “definite and precise meaning, unattended by danger of
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`misconception . . . and concerning which there is no reasonable basis for a difference of
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`opinion.” Metro. Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884, 889 (2d Cir. 1990) (internal
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`quotation marks, alteration, and citation omitted).
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`5
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`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 6 of 11
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`“Ambiguity in a contract arises when the contract, read as a whole, fails to disclose its
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`purpose and the parties’ intent, or where its terms are subject to more than one reasonable
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`interpretation.” Universal Am. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 37 N.E.3d
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`78, 81 (N.Y. 2015) (internal quotation marks and citations omitted). “[T]he test to determine
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`whether an insurance contract is ambiguous focuses on the reasonable expectations of the
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`average insured upon reading the policy and employing common speech.” Matter of Mostow v.
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`State Farm Ins. Cos., 668 N.E.2d 392, 395 (N.Y. 1996) (internal citations omitted). “However,
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`parties cannot create ambiguity from whole cloth where none exists, because provisions are not
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`ambiguous merely because the parties interpret them differently.” Universal Am. Corp., 37
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`N.E.3d at 81 (internal quotation marks and citations omitted).
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`“It is well established under New York law that a policyholder bears the burden of
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`showing that the insurance contract covers the loss.” Morgan Stanley Grp. Inc. v. N. England
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`Ins. Co., 225 F.3d 270, 276 (2d Cir. 2000). If the policyholder carries that burden, then the
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`“insurer bears the burden of proof [to show] that an exclusion in the policy applies to an
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`otherwise covered loss.” Id. at 276 n.1.
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`A. Contamination Exclusion
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`The parties dispute whether the Contamination Exclusion bars Thor’s claimed losses.
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`For the reasons below, the Court concludes the language of the exclusion is ambiguous, and
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`judgment on the pleadings inappropriate. U.S. Bank Nat’l Ass’n v. Triaxx Asset Mgmt. LLC, No.
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`16 Civ. 8507, 2017 WL 3610584, at *7 (S.D.N.Y. July 26, 2017).
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`The Policy contains the following Contamination Exclusion:
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`D. This Policy excludes the following unless directly resulting from other
`physical damage not excluded by this Policy:
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`1) contamination, and any cost due to contamination including the inability to
`use or occupy property or any cost of making property safe or suitable for use
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`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 7 of 11
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`or occupancy. If contamination due only to the actual not suspected presence
`of contaminant(s) directly results from other physical damage not excluded
`by this Policy, then only physical damage caused by such contamination may
`be insured. . . .
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`Policy at 24 (emphasis in original). Contamination is defined as:
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`any condition of property due to the actual or suspected presence of any foreign
`substance, impurity, pollutant, hazardous material, poison, toxin, pathogen or
`pathogenic organism, bacteria, virus, disease causing or illness causing agent,
`fungus, mold or mildew.
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`Id. at 76 (emphasis added). The parties agree that the inclusion of “virus” in the definition of
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`contamination covers COVID-19. Pl. Mem. at 16–17; Def. Mem. at 1.
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`Even though the parties dispute the meaning of the Contamination Exclusion, each claim
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`that the exclusion’s language is unambiguous. Pl. Mem. at 20; Def. Mem. at 5. Thor argues that
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`the Contamination Exclusion’s failure to mention any loss “due to contamination,” while
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`explicitly referencing “any cost due to contamination,” indicates that the exclusion does not bar
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`coverage for Thor’s business interruption losses. Pl. Mem. at 16–20 (emphasis added). By
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`contrast, FM contends that the Contamination Exclusion’s mention of “inability to use or occupy
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`property” unambiguously excludes losses due to contamination caused by COVID-19, including
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`Thor’s loss of rental income. Def. Mem. at 13.
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`This provision is susceptible to more than one interpretation, and potentially compatible
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`with either party’s interpretation. When “a written contract is ambiguous, a factual question is
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`presented as to the meaning of its provisions, requiring a factual determination as to the intent of
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`the parties in entering the contract.” ISC Holdings AG v. Nobel Biocare Invs. N.V., 351 Fed
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`App’x 480, 482 (2d Cir. 2009) (quoting 11 Samuel Williston & Richard A. Lord, A Treatise on
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`the Law of Contracts § 30:7 (4th ed. 1999)); see also U.S. Bank Nat’l Ass’n, 2017 WL 3610584,
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`at *7.
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`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 8 of 11
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`On the one hand, Plaintiff’s reading of the exclusion could tend to render certain aspects
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`of the exclusion meaningless. Rutgerswerke AG and Frendo S.p.A. v. Abex Corp., No. 93 Civ.
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`2914, 2002 WL 1203836, at *7 (S.D.N.Y. June 4, 2002) (“[U]nder New York law . . . a court
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`must interpret a contract so as to give effect to all of its clauses and to avoid an interpretation that
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`leaves part of a contract meaningless.”). Because the first two words of the exclusion—
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`“contamination, and”—must be given effect, the exclusion could reasonably be read to
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`encompass more than just “any costs due to contamination.” Cf. Svensson v. Securian Life Ins.
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`Co., 706 F. Supp. 2d 521, 534 (S.D.N.Y. Mar. 31, 2010).
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`On the other hand, it similarly cannot be said that the exclusion unambiguously
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`forecloses recovery on Thor’s losses due to contamination, and thus the Court cannot conclude
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`that “there is no reasonable basis for a difference of opinion.” Metro. Life Ins. Co., 906 F.2d at
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`889. For instance, the Policy distinguishes between “cost” and “loss” elsewhere, but no such
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`distinction is present here. See, e.g., Policy at 31–34, 45, 56–66. Moreover, the plain meaning
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`of cost—“the amount paid or charged for something”—could plausibly refer to affirmative
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`outlays, like paying for temporary use of other property. Cost, Black’s Law Dictionary (11th ed.
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`2019); Pl. Mem. at 18–19 n.9.
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`Accordingly, because the Court finds that the Contamination Exclusion is ambiguous,
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`judgment on the pleadings as to the applicability of the exclusion is inappropriate at this stage of
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`the litigation, and the parties’ motions are DENIED.
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`Loss of Market or Loss of Use Exclusion
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`B.
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`Next, the parties dispute the applicability and scope of the Loss of Market or Loss of Use
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`Exclusion. Without a developed factual record, however, a decision on the parties’ motions is
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`inappropriate at this juncture.
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`The Loss of Market or Loss of Use Exclusion states:
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`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 9 of 11
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`3. In addition to the exclusions elsewhere in this Policy, the following exclusions
`apply unless otherwise stated:
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`A. This Policy excludes: . . .
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`3) loss of market or loss of use.
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`Policy at 20–21.
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`The Policy does not define “loss of use.” See generally Policy. But the absence of a
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`definition does not render the exclusion ambiguous. Lend Lease (U.S.) Constr. LMB Inc. v.
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`Zurich Am. Ins. Co., 22 N.Y.S.3d 24, 29 (N.Y. App. Div. 2015). Although “loss of market” and
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`“loss of use” should not be read entirely in isolation, the exclusion is disjunctive, and the Court
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`must strive to “give meaning to every sentence, clause, and word” of the exclusion. See Zurich
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`Am. Ins. Co. v. ABM Indus., Inc., 397 F.3d 158, 165 (2d Cir. 2005). Thus, by the plain meaning
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`of the text, “loss of market” and “loss of use” do not necessarily serve to exclude only changing
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`market conditions due to decreases in the business market or use of Thor’s properties. Pl. Reply
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`at 16–17, ECF No. 45.
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`Instead, in this context, “loss of use” could mean lack of access. New York courts
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`commonly “refer to the dictionary to determine the plain and ordinary meaning of words to a
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`contract.” Fed. Ins. Co. v. Am. Home Assurance Co., 639 F.3d 557, 567 (2d Cir. 2011). Loss
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`includes “[t]he failure to maintain possession of a thing,” see Loss, Black’s Law Dictionary (11th
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`ed. 2019), and this definition reasonably includes “loss of access,” DeMoura v. Continental
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`Casualty Co., No. 20 Civ. 2912, 2021 WL 848840, at *6 (S.D.N.Y. Mar. 5, 2021).
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`Visconti Bus Service, LLC v. Utica National Insurance Group is also instructive on the
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`meaning of “loss of market or loss of use.” 2021 WL 609851, at *3 (N.Y. Sup. Ct. Feb. 12,
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`2021). That case addressed a similar exclusion in an insurance policy, which stated: “[W]e will
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`not pay for loss or damage caused by or resulting from . . . [d]elay, loss of use or loss of market.”
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`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 10 of 11
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`Id. (emphasis omitted). There, as here, a party sought coverage for “loss of use” resulting from a
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`governmental order. Id. at *5. The court likened “loss of use” to “loss of functionality,” and
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`found that coverage for such losses was barred by the exclusion. Id. at *13; see also Roundabout
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`Theatre Co., Inc. v. Continental Cas. Co., 751 N.Y.S.2d 4, 9 (N.Y. App. Div. 2002) (finding loss
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`of use to encompass loss of access).
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`Furthermore, there is the weight of authority in this district, which has interpreted
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`governmental shutdown orders to cause a “loss of use” of property. Although many of those
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`courts faced a different question2—and one that the parties have indicated is not at issue here—
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`those cases have held that governmental shutdown orders as a result of the COVID-19 pandemic
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`implicate the “loss of use” of property. See Food for Thought Caterers Corp., 2021 WL 860345,
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`at *4 (finding that COVID-19 restrictions are a “loss of use,” but not a “direct physical loss of”
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`property); Sharde Harvey DDS, PLLC, 2021 WL 1034259, at *6 (finding that “shutdown orders
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`clearly impair the function and value of property” (internal quotation marks omitted)). As such,
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`and contrary to Plaintiff’s argument, the Loss of Market or Loss of Use Exclusion does not
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`necessarily refer solely to changing market conditions due to decreases in the business market or
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`use of Thor’s properties.3
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`However, the Court concludes that a determination on whether the Loss of Market or
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`Loss of Use Exclusion encompasses Thor’s alleged losses would be inappropriate at this stage.
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`Indeed, the complaint does not mention the Loss of Market or Loss of Use Exclusion at all. Nor
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`2 In those cases, courts broadly determined whether COVID-19-related closures and losses constituted “direct
`physical loss” within the meaning of an insurance coverage policy. See, e.g., Sharde Harvey DDS, PLLC v. Sentinel
`Ins. Co., Ltd., No. 20 Civ. 3350, 2021 WL 1034259, at *6 (S.D.N.Y. Mar. 18, 2021); Food for Thought Caterers
`Corp. v. Sentinel Ins. Co., Ltd., No. 20 Civ. 3418, 2021 WL 860345, at *4 (S.D.N.Y. Mar. 6, 2021); DeMoura, 2021
`WL 848840, at *6.
`3 Nor does such an interpretation of the Loss of Market or Loss of Use Exclusion mean that the exclusion swallows
`most of the coverage provided by the Policy. Thomas J. Lipton, Inc. v. Liberty Mut. Ins. Co, 314 N.E.2d 37, 39
`(N.Y. 1974). Rather, as noted above, the exclusion applies, “unless otherwise stated” in the Policy. Thus, to the
`extent that other provisions of the Policy encompass “loss of use,” the exclusion is inapplicable.
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`Case 1:20-cv-03380-AT Document 63 Filed 03/31/21 Page 11 of 11
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`does it provide a precise explanation of the alleged losses at issue here. Although Thor has
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`represented in its pre-motion letter that the majority of its losses have been caused not by the
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`confirmed presence of coronavirus at its premises, but by orders of state and local authorities
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`issued in response to the coronavirus pandemic, see ECF No. 26, these representations are not
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`properly considered on a motion for judgment on the pleadings. See Chambers, 282 F.3d at 153.
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`Even if these representations could be considered, they would not suffice to establish an
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`adequate factual record for the Court to make a determination at this point in the litigation. See
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`In re World Trade Ctr. Disaster Site Litig., 456 F. Supp. 2d 520, 558 (S.D.N.Y. 2006).
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`Accordingly, the parties’ motions on the Loss of Market or Loss of Use Exclusion are
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`DENIED.
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`CONCLUSION
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`For the foregoing reasons, the parties’ motions are DENIED.
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`The Clerk of Court is directed to terminate the motions at ECF Nos. 32 and 38.
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`SO ORDERED.
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`Dated: March 31, 2021
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`New York, New York
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`11
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