2 2

- 322 Conn. Child

. ’s Med. Ctr. v. Cont’l Cas. Co.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC D ATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held 1 at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New 2 York, on the 1 7 t h d ay of A p r i l , two thousand twenty

- three

. 3 4 PRESENT: RAYMOND J. LOHIER, JR. , 5 MYRNA PÉREZ
, 6 ALISON J. NATHAN , 7 Circuit Judges

. 8

------------------------------------------------------------------ 9 CONNECTICUT CHILDREN’S MEDICAL CENTER, 10 CONNECTICUT CHILDREN’S SPECIALTY GROUP, 11 INC. , 12 13 Plaintiff s

- Appellant s , 14 15

v. No. 2 2

- 322 16 17 CONTINENTAL CASUALTY COMPANY, CNA 18 FINANCIAL CORPORATION , 19 20 Defendant s

- Appellee s. 21

------------------------------------------------------------------ 22 23 24 252 FOR PLAINTIFF S

- APPELLANT S : R. C ORNELIUS D ANAHER , J R

. 1 (Thomas J. Plumridge, on the 2 brief ), DanaherLagnese, PC, 3 Hartford, CT 4 5 FOR DEFENDANT S

- APPELLEE S : K ANNON K. S HANMUGAM (Brian 6 M. Lipshutz, on the brief ), Paul, 7 Weiss, Rifkind, Wharton & 8 Garrison LLP, Washington, DC 9 ( H. Christopher Boehning, Paul 10 Weiss, Rifkind, Wharton & 11 Garrison LLP, New York, NY, 12 Kevin F. Buckley, Mound Cotton 13 Wollan & Greengrass LLP, New 14 York, NY , on the brief ) 15 16 Appeal from a judgment of the United States District Court for the District 17

of Connecticut ( Jeffrey A lker Meyer , Judge ). 18

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, 19

AND DECREED that the judgment of the District Court is AFFIRMED

. 20

Plaintiffs

- Appellants Connecticut Children’s Medical Center and 21
Connecticut Children’s Specialty Group, Inc. appeal from a January 21 , 202 2 22
judgment of the United States D istrict Court for the District of Connecticut 23
( Meyer , J. ) dismissing their complaint for failure to state a claim under Federal 24
Rule of Civil Procedure 12(b)(6). We assume the parties’ familiarity with the 25
underlying facts and the record of prior proceedings, to which we refer only as 26
necessary to explain our de cision to affirm. 273 Like many hospitals around the country, Plaintiffs

- Appellants continued 1
to provide essential healthcare services during the COVID

- 19 pandemic but 2
suspended elective procedures and other non

- essential healthcare services due to 3

the “immin ent risk of transmission of the [COVID

- 19] virus

. ” App’x 17; see 4
App’x 96. Meanwhile, they “ clean [ed] , steriliz[ed] , and reconfigur[ed] [ their 5
properties ] so as to mitigate damages posed by the presence of SARS

- C o V

- 2.” 6
App’x 17. Plaintiffs

- Appellants s ought but did not receive coverage against 7
resulting business losses and expenses under the ir “all

- risk” insurance policy 8
issued by Defendants

- Appellees Continental Casualty Company and CNA 9
Financial Corp oration . Plaintiffs

- Appellants then sued Defendants

- Appellees , 10
seeking declaratory relief and damages for breach of contract and breach of the 11
covenant of good faith and fair dealing under Connecticut law

. The District 12
Court granted Defendants

- Appellees’ motion to dismiss, conclud ing that 13

Plaintiffs

- Appellants failed to “allege[] facts to plausibly show a ‘ direct physical 14
loss or damage’ to their property , ” as required for coverage under the insurance 15
policy’s business interruption provision and extra expense provision

. App’x 96

. 16

The District Court also faulted Plaintiffs

- Appellants for failing t o “cite any 17
particular order that required them to evacuate or decontaminate any of their 18

lo cations,” as required for coverage under the insurance policy ’s disease 194 contamination provision

. App’x 107 (emphasis in original). 1

I. Direct Physical Loss 2

Plaintiffs

- Appellants argue that they are entitled to coverage under the 3
insurance policy’s business interruption and extra expense provisions because 4

the term “direct physical loss” does not require tangible alteration of property

. 5
They contend that “loss of use” can qualify as “direct physical loss,” and that , 6

even if an alteration to tangible property was required, the COVID

- 19 virus 7
“transformed [the ir properties ] into potential viral incubators that were 8
imminently dangerous to human beings.” Pls.

- Appellants’ Br. 19

– 24. 9

The se arguments are foreclosed by the C onnecticut Supreme Court’s 10

decision in Connecticut Dermatology Group, PC v. Twin City Fire Insurance 11

Co mpany , 346 Conn. 33 (2023), which was issued during the pendency of this 12
appeal

. T he plaintiffs in Connecticut Dermatology raised virtually identical 13
arguments for coverage under a materially identical insurance policy. Rejecting 14
the plaintiffs’ interpretation of the policy as “not reasonable , ” id. at 63, the 15
Connecticut Supreme Court held that “the plain meaning of the term ‘direc t 16
physical loss of .

. . [p]roperty’ does not include the suspension of business 17
operations on a physically unaltered property in order to prevent the 18

transmission of the coronavirus , ” id. at 51 . Rather, “the phrase .

. . clearly and 195 unambiguously means that there must be some physical, tangible alteration to or 1
deprivation of the property that renders it physically unusable or inaccessible.” 2

Id. ; see also Hartford Fire Ins. Co. v. Moda, LLC , 346 Conn. 64, 72 (2023) 3
(companion case re iterating Connecticut Dermatology ’s holding). We therefore 4
reject Plaintiffs

- Appellants’ argument that their suspension of operations alone 5

constitute s a “direct physical loss.” 6

Plaintiffs

- Appellants alternatively argue that their property was, in fact , 7
“physically altered by the direct physical presence of the virus on surfaces or the 8

air. ” App’x 17

. But the Connecticut Supreme Court rejected this theory of 9

coverage in Connecticut Dermatology as well , reasoning that the pandemic “did 10
not create a situation in which the properties would pose an imminent danger to 11
anyone who entered them ,” but “ [r]ather, any danger would be created by 12
people who gathered within the buildings .” 346 Conn. at 57 . In particular, the 13

Conn ecticut Supreme Court explained that “even if the plaintiffs had claimed 14

that the ir properties were actually contaminated by the coronavirus, we find 15
persuasive the cases that have held that t he virus is not the type of physical 16

contaminant that creates th e risk of a direct physical loss because, once a 17
contaminated surface is cleaned or simply left alone for a few days, it no longer 18
poses any physical threat to occupants.” Id. at 59. Moreover, the insured parties 196 in Moda did claim that their property was contaminated, and the Connecticut 1
Supreme Court held that “[c] ontamination with the SARS

- CoV

- 2 virus, even if it 2
could be proved, is not sufficient to establish that the [covered property was] 3
physically lost or damaged within the meaning of the [insuranc e] policy.” 346 4

Conn. at 74. 5

In sum, bound by the Connecticut Supreme Court’s holding on the 6
meaning of the phrase “direct physical loss” under Connecticut law in this 7

context, we agree with the District Court that Plaintiffs

- Appellants failed to 8
plausibly allege a “direct physical loss or damage” to their property. Therefore, 9
they failed to plausibly allege coverage under the policy’s business interruption 10
provision and extra expense provision. 11

II. Disease Contamination Coverage 12

The insurance policy at issue also provided “disease contamination 13
coverage” for “necessary and reasonable costs incurred ” by Plaintiffs

- Appellants 14

“as a result of an evacuation or decontamination order a t a location by

. . . [a] 15
governmental authority because of the discovery or suspicion of a communicable 16
disease or the threat of the spread of a communicable disease

. ” App’x 84. The 17
policy defines “location” as “[t]he area within legal boundaries of the premises 18

. . . in which the I nsured ha s an interest.” App’x 73. In their complaint, 197 Plaintiffs

- Appellants described government responses to the p andemic only at a 1
general level and failed to allege that any specific government order required 2

them to evacuate or decontaminate th eir properties

. In addition, the state 3
executive orders referenced in the complaint are not orders that required 4

Plaintiffs

- Appellants to evacuate or decontaminate their properties. We 5

therefore agree with the District Court that Plaintiffs

- Appellants failed to state a 6

c laim with respect to Defendants

- Appellees’ denial of disease contamination 7

coverage. 8

We have considered Plaintiffs

- Appellants’ remaining arguments and 9
conclude that they are without merit. T he judgment of the District Court is 10

AFFIRMED

. 1 11

FOR THE COURT : 12 Catherine O ’ Hagan Wolfe, Clerk of Court 13

1 On appeal, Plaintiffs

- Appellants moved to certify two questions regarding the scope and meaning of “direct physical loss” to the Connecticut Supreme Court. See ECF No s

. 23 , 83

. In light of the Connecticut Supreme Court’s intervening decision in Connecticut Dermatology , which answered both of their proposed questions, we deny the motion to certify.