Food For Thought Caterers, Corp. v. The Hartford Financial Services Group, Inc.

Background

Food For Thought Caterers Corp. brought a contract action against Sentinel Insurance Company, Ltd. to recover business losses connected to government restrictions imposed during the COVID-19 pandemic. Food For Thought alleged that it suspended its catering operations beginning in March 2020 to comply with orders issued by the Governor of New York and the Mayor of New York City. Sentinel denied Food For Thought’s insurance claim on April 23, 2020.

The business owner’s policy covered business-income losses caused by the necessary suspension of operations when the suspension resulted from “direct physical loss of or physical damage to” property. It also covered certain extra expenses based on that same requirement. A separate civil-authority provision covered business-income losses when access to the insured premises was specifically prohibited by a civil-authority order resulting directly from a covered cause of loss to property in the immediate area.

Food For Thought asserted six claims: two for business-income coverage, two for extra-expense coverage, and two for civil-authority coverage. Sentinel moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim.

Business-Income and Extra-Expense Coverage

Applying New York law, the court concluded that the policy required direct physical loss or physical damage, not merely loss of use. Food For Thought alleged that it could not use its premises because of COVID-19 and the related government orders, but it did not allege facts showing that the premises had suffered the required physical loss or damage.

The court relied on New York authority holding that business-interruption coverage requiring physical damage does not cover a business’s loss of use without physical damage. It rejected Food For Thought’s argument that the likely presence of COVID-19 on the premises satisfied the requirement. The court found that the allegation was speculative and that contamination that can be eliminated through routine cleaning and disinfecting does not constitute direct physical loss under the policy.

Because the extra-expense provision also required direct physical loss or physical damage, the court found that Food For Thought had not alleged facts triggering that coverage either. The court dismissed Counts One and Two, the business-income claims, and Counts Five and Six, the extra-expense claims.

Civil-Authority Coverage

The court identified two relevant policy requirements for civil-authority coverage: a civil-authority order had to specifically prohibit access to Food For Thought’s premises, and the order had to result directly from a covered cause of loss involving property in the immediate area.

The court held that the alleged government orders did not specifically prohibit access. The orders required a complete reduction of the in-person workforce and restricted nonessential business activity, but they did not deny all access to the property. The court distinguished a situation in which damage to a neighboring property causes authorities to block access to the insured premises.

The court also found that Food For Thought had not plausibly alleged physical damage to nearby property. The general statements in government orders that the virus was causing property loss and damage did not substitute for specific facts showing damage to property in the immediate area. The court therefore dismissed Counts Three and Four, the civil-authority claims.

Disposition

The court granted Sentinel’s motion to dismiss. Because Food For Thought had already amended its complaint and had not requested another opportunity to amend, the Clerk was directed to enter judgment dismissing the case, close the case, and close all pending motions. The opinion does not state that the dismissal was with or without prejudice.