Founder Institute Incorporated v. Hartford Fire Insurance Company

Background

Founder Institute sought coverage for losses of business income allegedly caused by shelter-in-place orders. The opinion states that Founder also asserted civil-authority coverage. The defendants moved to dismiss.

Sentinel’s motion

The court granted Sentinel’s motion to dismiss for failure to state a claim under Rule 12(b)(6), which tests whether a complaint adequately alleges a legally valid claim. The court assumed for purposes of the ruling that the business-income loss would otherwise be covered by the insurance policy. It nevertheless concluded that the policy’s virus exclusion applied because the claimed loss was caused directly or indirectly by the presence, spread, or activity of a virus.

Founder argued that its loss resulted from respiratory droplets on surfaces, rather than from the virus itself. The court rejected that distinction, reasoning that the shelter-in-place orders sought to prevent COVID-19 from spreading and that the different description concerned the same excluded risk. The court also stated that the civil-authority coverage theory failed for the reasons discussed in a cited prior related proceeding.

Because all of Founder’s claims against Sentinel depended on coverage, the court dismissed them. The court granted Founder leave to amend, stating that any amended complaint had to be filed within 14 days of the ruling.

Hartford Fire Insurance Company’s motion

The court granted Hartford Fire Insurance Company’s motion to dismiss for lack of standing under Rule 12(b)(1), which concerns whether the court has authority to hear a claim. The court found that Hartford Fire Insurance Company was not a party to the insurance contract and had no obligations under it.

The court acknowledged that there may be an argument for treating the issue as a merits question rather than a standing question because the standing inquiry and the merits substantially overlapped. The court nevertheless followed the approach it said courts typically use for defendants that are not parties to contracts. It added that, even if Founder adequately alleged standing, the claims would be dismissed under Rule 12(b)(6) for the same reason. The dismissal as to Hartford Fire Insurance Company was without leave to amend.

Disposition

The court granted both motions to dismiss. Claims against Sentinel were dismissed with leave to amend, while claims against Hartford Fire Insurance Company were dismissed without leave to amend. Any response to an amended complaint was due 14 days after the amended complaint was filed.