Park Avenue Oral and Facial Surgery v. The Hartford Financial Services Group

Background

Park Avenue Oral and Facial Surgery, P.C. operated two dental offices on Park Avenue in New York City. It purchased an insurance policy from Sentinel Insurance Company, Limited, covering the period from February 12, 2020, through February 12, 2021. The policy stated that Sentinel would pay for business-income losses caused by the necessary suspension of operations during a restoration period, but only when the suspension resulted from “direct physical loss of or physical damage” to covered property. The policy also included coverage for certain business-income losses when access to the premises was prohibited by a civil-authority order resulting from a covered cause of loss.

After New York issued executive orders relating to COVID-19 in March 2020, the practice closed except for a small amount of emergency work. The practice alleged that COVID-19 particles could make its offices, dental instruments, and other property unsafe, particularly because dental procedures can aerosolize respiratory particles. It also alleged that two dental professionals in the practice contracted COVID-19, although it did not specify when those infections occurred. The practice claimed that it lost business income and sought coverage under the policy, but the defendants denied coverage.

The practice sued Sentinel, The Hartford Financial Services Group, Inc., and Hartford Underwriters Insurance Co. Its amended complaint asserted breach-of-contract claims based on the alleged failure to provide coverage and claims seeking a declaration about the policy’s meaning. The defendants moved to dismiss the amended complaint.

Legal standard

The court applied the standard for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). At this stage, well-pleaded factual allegations are treated as true and reasonable inferences are drawn for the plaintiff, but legal conclusions are not accepted as facts. A complaint must contain enough factual matter to make a claim legally plausible.

Under New York law, the court explained, a breach-of-contract claim requires a contract, the plaintiff’s performance, the defendant’s failure to perform, and damages. A court may dismiss a contract claim at the motion-to-dismiss stage when the contract terms are unambiguous. Contract language is ambiguous only if it could reasonably have more than one meaning when viewed in the context of the entire agreement.

Analysis

The court held that the policy phrase “direct physical loss of or physical damage to property” was plain and unambiguous. It therefore did not consider the practice’s arguments about legislative and executive determinations concerning COVID-19 or alleged insurance-industry practices involving disease-causing agents.

Applying New York law, the court concluded that business-interruption coverage requiring physical loss or damage generally requires tangible harm to the property itself. The practice alleged that its property was unsafe and that it lost the use of its offices because of the pandemic and the public-health response. It did not allege that its dental offices or instruments were physically lost or physically damaged. The court therefore found that the alleged loss of use and resulting business losses did not satisfy the policy’s requirement of direct physical loss or physical damage.

Disposition

The court granted the defendants’ motion to dismiss. It requested that the Clerk of Court close the pending motion at docket number 13 and terminate the action. The opinion does not state that the dismissal was with or without prejudice.

Judge Vernon S. Broderick signed the opinion and order.