Jujamcyn Theaters LLC v. Federal Insurance Company

Background

Jujamcyn Theaters LLC sued Federal Insurance Company and Pacific Indemnity Company over insurance coverage allegedly owed after COVID-19-related government orders closed its five theaters. Jujamcyn asserted breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory-judgment claims.

Federal’s all-risk property policy covered business-income, extra-expense, and civil-authority losses resulting from or directly caused by “direct physical loss or damage.” The policy did not contain an explicit exclusion for viruses, communicable diseases, or pandemics. Jujamcyn alleged that COVID-19 could remain on surfaces and in the air and therefore constituted direct physical loss or damage.

Pacific’s performance-disruption policy covered business-income losses and extra expenses caused by a covered occurrence. The parties agreed that the COVID-19 pandemic and the theater closures were a covered occurrence. The policy limited liability to $250,000 for “each loss.” Pacific paid Jujamcyn $250,000. Jujamcyn argued that each of its five theater closures was a separate loss, entitling it to five payments.

Motions and Legal Standard

Both sides moved for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure. The court applied the same standard used for a motion to dismiss for failure to state a claim: it accepted the nonmoving party’s allegations as true and considered whether the moving party was entitled to judgment as a matter of law based on the pleadings and appropriate judicially noticeable material. Jujamcyn also moved to strike several of Pacific’s affirmative defenses.

Federal Insurance Claims

The court granted Defendants’ motion for judgment on the pleadings in full as to the claims against Federal. Relying on Second Circuit precedent applying New York law, the court concluded that “direct physical loss” and “physical damage” require actual physical loss of or damage to insured property, not merely loss of use.

The court found that Jujamcyn had not alleged that COVID-19 droplets damaged its theaters in a way requiring repair or replacement. Instead, the complaint alleged that government orders caused the theater closures. The court therefore held that Jujamcyn could not sustain its breach-of-contract or declaratory-judgment claims against Federal.

The court also dismissed Jujamcyn’s claim against Federal for breach of the implied covenant of good faith and fair dealing. It found that the claim was based on the same alleged conduct and coverage dispute as the contract claim and was therefore duplicative. The court’s conclusion that COVID-19 did not constitute direct physical loss under the Federal policy also defeated the good-faith claim.

Pacific Insurance Contract Claim

The court denied both sides’ motions for judgment on the pleadings concerning the meaning of “loss” and the amount payable under Pacific’s policy. The court found the policy language ambiguous because “loss” was undefined and supported two reasonable interpretations.

Under Jujamcyn’s interpretation, each theater’s performance disruption and closure could constitute a separate loss, resulting in five payments of $250,000. Under Pacific’s interpretation, Jujamcyn, the sole listed insured, suffered one loss caused by the single COVID-19 occurrence and was entitled to only one $250,000 payment.

The court declined to resolve the ambiguity on the pleadings. It explained that ambiguous contracts generally present factual questions and that extrinsic evidence could help determine the parties’ intent. The court therefore left the breach-of-contract dispute under the Pacific policy unresolved.

Pacific Good-Faith and Declaratory-Judgment Claims

The court granted Pacific’s motion as to Jujamcyn’s claim for breach of the implied covenant of good faith and fair dealing. It found that the claim was entirely based on Pacific’s alleged failure to pay the full amount Jujamcyn believed was owed under the contract and was duplicative of the breach-of-contract claim.

The court also granted Pacific’s motion to dismiss the declaratory-judgment claim. It concluded that the requested declaration would resolve the same issues as the breach-of-contract claim and therefore would serve no separate purpose.

Motion to Strike Affirmative Defenses

The court denied Jujamcyn’s motion to strike Pacific’s eleventh, twelfth, thirteenth, fifteenth, and sixteenth affirmative defenses. Jujamcyn had argued that the defenses were implausible and had been waived. The court found that Jujamcyn had not shown that no facts or legal arguments could support the defenses or that keeping them would prejudice Jujamcyn. The court also rejected the waiver argument, noting Pacific had paid the amount it believed the policy required rather than issuing a claim denial.

Disposition

The court denied Jujamcyn’s motion for judgment on the pleadings. It granted in part and denied in part Defendants’ motion: the motion was granted in full as to the claims against Federal; granted as to the Pacific claims for breach of the implied covenant of good faith and fair dealing and declaratory judgment; and denied as to the Pacific breach-of-contract claim. The court also denied Jujamcyn’s motion to strike in full and directed entry of judgment in favor of Federal.