Cup Foods Incorporated v. Travelers Companies, Inc., The

Background

Cup Foods Incorporated operates a retail business at the intersection of 38th Street East and Chicago Avenue South in Minneapolis. Travelers Casualty Insurance Company of America issued Cup Foods a commercial general liability policy covering January 18, 2020, through January 18, 2021. Cup Foods paid its premiums.

After Minneapolis Police Officer Derek Chauvin killed George Floyd in front of Cup Foods in May 2020, civil unrest occurred in Minneapolis. Between May 25 and June 8, 2020, the City of Minneapolis placed cement barriers at four locations around the intersection. Private individuals added other structures, barricades, and mementos. The barriers redirected vehicle traffic and public transit, but vehicles could still enter the intersection through a gate or an ad hoc barricade.

Cup Foods submitted six insurance claims in 2020. Its amended complaint alleged three breach-of-contract claims. Count I sought business-income coverage for losses allegedly caused by barriers, structures, mementos, and people around the intersection, which Cup Foods claimed resulted in lost parking, reduced sidewalk and bus-stop access, blocked access, and a partial suspension of its operations. Count II sought coverage under the policy’s civil-authority extension, based on the city’s placement of barricades and the resulting redirection of vehicle traffic and public transit. Travelers had not approved the claims or paid Cup Foods when the matter was initiated.

Motion to Dismiss Standard

The court applied the standard for a motion to dismiss for failure to state a claim. A complaint must allege facts that, if accepted as true, make a claim for relief plausible rather than merely speculative. The court could consider the insurance policy because the amended complaint referred to it, neither party disputed its authenticity, and the policy was necessarily embraced by the pleadings.

Count I: Business-Income Coverage

The policy’s business-income provision covered actual business-income losses caused by a necessary suspension of operations during a restoration period, but only when the suspension resulted from direct physical loss of or damage to property caused by a covered event.

The court applied Minnesota law. It explained that “direct physical loss” requires an insured property to be injured, though not necessarily destroyed. Minnesota law may recognize tangible and lasting changes as well as certain harms such as contamination. But the alleged injury must involve more than an inability to use property for its intended purpose; it must involve a distinct, demonstrable, and physical alteration.

The court rejected Cup Foods’ argument that the barriers, objects, and people around the intersection met that standard. The court found that the objects and people occupied physical space but did not physically alter Cup Foods or its premises. They could be moved or removed, and nothing about their placement permanently attached them to the property or required damage to Cup Foods before removal. The court also found no alleged physical alteration or contamination comparable to asbestos contamination or paint adhering to a building.

The court concluded that Cup Foods had not alleged facts showing the required physical alteration under the policy. Count I therefore failed to state a plausible claim, and the court granted Travelers’ motion as to Count I.

Count II: Civil-Authority Extension

The policy’s civil-authority extension covered business-income losses and necessary extra expenses caused by a civil authority’s action prohibiting access to Cup Foods. The action had to result from direct physical loss of or damage to nearby property caused by a covered event.

The court interpreted “prohibit” to require a complete prohibition of access, not merely reduced convenience or more difficult access. Cup Foods argued that the city’s barricades were enough to trigger coverage. Travelers argued that the city never prevented Cup Foods from accessing its own premises and had, at most, restricted vehicle travel and parking near the store.

The court held that Cup Foods’ allegations showed only that access was hindered. Cup Foods acknowledged that the barricades caused only a partial suspension of operations and that customers could still enter the intersection through gates or by using the sidewalk. Those facts did not show that the city forbade or prevented all access to Cup Foods. Count II therefore failed to state a plausible claim, and the court granted Travelers’ motion as to Count II.

Disposition

The court granted Travelers’ motion to dismiss. Counts I and II of the amended complaint were dismissed without prejudice. Count III was dismissed with prejudice under a stipulation of partial dismissal addressing Count III. The court directed that judgment be entered accordingly.