Torches on the Hudson, LLC v. The Sentinel Insurance Company, LTD.

Background

Torches on the Hudson, LLC, doing business as Blu Pointe, and Josco Inc. operated a fine-dining restaurant in Newburgh, New York. Their property-insurance policy with The Sentinel Insurance Company, Ltd. covered the period from June 2, 2019, through June 2, 2020. The plaintiffs alleged that COVID-19 was present on their property and that executive orders limited on-site dining, required takeout service for a period, and led to the cancellation of approximately 65 events. They alleged losing $1.7 million in revenue after March 16, 2020.

The plaintiffs submitted an insurance claim, which Sentinel denied on or about April 21, 2020. They then alleged that the denial breached the policy. The plaintiffs initially also asserted a claim for breach of the implied promise of good faith and fair dealing and proceeded against The Hartford Financial Services Group, Inc., but those matters had already been dismissed by stipulation. The motion addressed in this opinion was Sentinel’s motion to dismiss the First Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint states a legally sufficient claim.

Governing Law and Policy Interpretation

The policy did not specify the governing law, but the parties applied New York law in their briefing. The Court therefore applied New York law. Under that law, clear insurance-policy language is given its ordinary meaning, and the insured must show that the policy covers the claimed loss. The Court considered the policy and Sentinel’s claim-denial letter because they were attached to or incorporated into the complaint.

Business-Income and Extra-Expense Coverage

The policy required “direct physical loss of or physical damage to” covered property caused by a covered cause of loss for business-income and extra-expense coverage. The plaintiffs argued that actual COVID-19 contamination, steps taken to protect people and property, and the threat of imminent COVID-19-related harm satisfied that requirement.

The Court rejected those theories. Relying on New York precedent and other decisions applying New York law, it concluded that loss of use or reduced profitability did not satisfy a policy requirement for direct physical loss or physical damage. The Court also concluded that alleging the presence of COVID-19 was insufficient, including because the cited authority treated contamination removable through routine cleaning and disinfection as not constituting direct physical loss. The Court dismissed claims based on the business-income and extra-expense provisions.

Civil-Authority Coverage

The civil-authority provision covered actual business-income loss when access to the insured premises was specifically prohibited by a government order as a direct result of covered physical loss or damage to property in the immediate area.

The Court concluded that the plaintiffs did not plausibly allege either required condition. The executive orders, as described in the complaint, curtailed the restaurant’s preferred business model but did not specifically prohibit access to its property. The plaintiffs also did not plausibly allege that the orders resulted from direct physical loss of or damage to property in the immediate area. The Court dismissed the civil-authority coverage claim.

Extended Business-Income Coverage

The extended-business-income provision applied when a necessary suspension of operations produced a business-income loss payable under the policy. Because the plaintiffs had not alleged a loss payable under the basic business-income coverage, the Court concluded that they could not state a claim under the extended-business-income provision and dismissed that theory.

Other Coverage Provisions

The plaintiffs made conclusory references to four additional coverages but did not respond to Sentinel’s arguments concerning those provisions. The Court treated those theories as abandoned and dismissed them on that basis. The Court also stated that the theories would fail even if they had not been abandoned.

The Court found no alleged equipment-breakdown accident supporting expediting-expenses coverage, no identified dependent property or covered cause of loss supporting business income from dependent properties, and no identified specific request from Sentinel supporting claim-expenses coverage. The Court further explained that “Super Stretch for Business Services” was the title of an endorsement modifying the policy, not an independent grant of coverage that supported the plaintiffs’ claim.

Ruling

Judge Philip M. Halpern granted Sentinel’s motion to dismiss. The Court directed the Clerk to terminate the pending motion sequences and close the case. The opinion does not state that the dismissal was with or without prejudice.