Court Opinion

ID: 9387268
Source: CourtListenerOpinion
Date Created: 2023-04-17 15:00:30.94234+00
Date Added: 2024-06-11T17:18:12.647751
License: Public Domain

22-322
     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 DATABASE (WITH THE NOTATION
     “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A
     COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

 1          At a stated term of the United States Court of Appeals for the Second Circuit, held
 2   at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
 3   York, on the 17th day of April, two thousand twenty-three.
 4
 5           PRESENT:          RAYMOND J. LOHIER, JR.,
 6                             MYRNA PÉREZ,
 7                             ALISON J. NATHAN,
 8                                      Circuit Judges.
 9           ------------------------------------------------------------------
10           CONNECTICUT CHILDREN’S MEDICAL CENTER,
11           CONNECTICUT CHILDREN’S SPECIALTY GROUP,
12           INC.,
13
14                             Plaintiffs-Appellants,
15
16                      v.                                                        No. 22-322
17
18           CONTINENTAL CASUALTY COMPANY, CNA
19           FINANCIAL CORPORATION,
20
21                             Defendants-Appellees.
22           ------------------------------------------------------------------
23
24
25
 1         FOR PLAINTIFFS-APPELLANTS:                   R. CORNELIUS DANAHER, JR.
 2                                                      (Thomas J. Plumridge, on the
 3                                                      brief), DanaherLagnese, PC,
 4                                                      Hartford, CT
 5
 6         FOR DEFENDANTS-APPELLEES:                    KANNON K. SHANMUGAM (Brian
 7                                                      M. Lipshutz, on the brief), Paul,
 8                                                      Weiss, Rifkind, Wharton &
 9                                                      Garrison LLP, Washington, DC
10                                                      (H. Christopher Boehning, Paul
11                                                      Weiss, Rifkind, Wharton &
12                                                      Garrison LLP, New York, NY,
13                                                      Kevin F. Buckley, Mound Cotton
14                                                      Wollan & Greengrass LLP, New
15                                                      York, NY, on the brief)
16
17         Appeal from a judgment of the United States District Court for the District

18   of Connecticut (Jeffrey Alker Meyer, Judge).

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

20   AND DECREED that the judgment of the District Court is AFFIRMED.

21         Plaintiffs-Appellants Connecticut Children’s Medical Center and

22   Connecticut Children’s Specialty Group, Inc. appeal from a January 21, 2022

23   judgment of the United States District Court for the District of Connecticut

24   (Meyer, J.) dismissing their complaint for failure to state a claim under Federal

25   Rule of Civil Procedure 12(b)(6). We assume the parties’ familiarity with the

26   underlying facts and the record of prior proceedings, to which we refer only as

27   necessary to explain our decision to affirm.

                                              2
 1         Like many hospitals around the country, Plaintiffs-Appellants continued

 2   to provide essential healthcare services during the COVID-19 pandemic but

 3   suspended elective procedures and other non-essential healthcare services due to

 4   the “imminent risk of transmission of the [COVID-19] virus.” App’x 17; see

 5   App’x 96. Meanwhile, they “clean[ed], steriliz[ed], and reconfigur[ed] [their

 6   properties] so as to mitigate damages posed by the presence of SARS-CoV-2.”

 7   App’x 17. Plaintiffs-Appellants sought but did not receive coverage against

 8   resulting business losses and expenses under their “all-risk” insurance policy

 9   issued by Defendants-Appellees Continental Casualty Company and CNA

10   Financial Corporation. Plaintiffs-Appellants then sued Defendants-Appellees,

11   seeking declaratory relief and damages for breach of contract and breach of the

12   covenant of good faith and fair dealing under Connecticut law. The District

13   Court granted Defendants-Appellees’ motion to dismiss, concluding that

14   Plaintiffs-Appellants failed to “allege[] facts to plausibly show a ‘direct physical

15   loss or damage’ to their property,” as required for coverage under the insurance

16   policy’s business interruption provision and extra expense provision. App’x 96.

17   The District Court also faulted Plaintiffs-Appellants for failing to “cite any

18   particular order that required them to evacuate or decontaminate any of their

19   locations,” as required for coverage under the insurance policy’s disease

                                               3
 1   contamination provision. App’x 107 (emphasis in original).

 2         I.     Direct Physical Loss

 3         Plaintiffs-Appellants argue that they are entitled to coverage under the

 4   insurance policy’s business interruption and extra expense provisions because

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

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

 7   even if an alteration to tangible property was required, the COVID-19 virus

 8   “transformed [their properties] into potential viral incubators that were

 9   imminently dangerous to human beings.” Pls.-Appellants’ Br. 19–24.

10         These arguments are foreclosed by the Connecticut Supreme Court’s

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

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

13   appeal. The plaintiffs in Connecticut Dermatology raised virtually identical

14   arguments for coverage under a materially identical insurance policy. Rejecting

15   the plaintiffs’ interpretation of the policy as “not reasonable,” id. at 63, the

16   Connecticut Supreme Court held that “the plain meaning of the term ‘direct

17   physical loss of . . . [p]roperty’ does not include the suspension of business

18   operations on a physically unaltered property in order to prevent the

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

                                                4
 1   unambiguously means that there must be some physical, tangible alteration to or

 2   deprivation of the property that renders it physically unusable or inaccessible.”

 3   Id.; see also Hartford Fire Ins. Co. v. Moda, LLC, 346 Conn. 64, 72 (2023)

 4   (companion case reiterating Connecticut Dermatology’s holding). We therefore

 5   reject Plaintiffs-Appellants’ argument that their suspension of operations alone

 6   constitutes a “direct physical loss.”

 7         Plaintiffs-Appellants alternatively argue that their property was, in fact,

 8   “physically altered by the direct physical presence of the virus on surfaces or the

 9   air.” App’x 17. But the Connecticut Supreme Court rejected this theory of

10   coverage in Connecticut Dermatology as well, reasoning that the pandemic “did

11   not create a situation in which the properties would pose an imminent danger to

12   anyone who entered them,” but “[r]ather, any danger would be created by

13   people who gathered within the buildings.” 346 Conn. at 57. In particular, the

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

15   that their properties were actually contaminated by the coronavirus, we find

16   persuasive the cases that have held that the virus is not the type of physical

17   contaminant that creates the risk of a direct physical loss because, once a

18   contaminated surface is cleaned or simply left alone for a few days, it no longer

19   poses any physical threat to occupants.” Id. at 59. Moreover, the insured parties

                                              5
 1   in Moda did claim that their property was contaminated, and the Connecticut

 2   Supreme Court held that “[c]ontamination with the SARS-CoV-2 virus, even if it

 3   could be proved, is not sufficient to establish that the [covered property was]

 4   physically lost or damaged within the meaning of the [insurance] policy.” 346

 5   Conn. at 74.

 6         In sum, bound by the Connecticut Supreme Court’s holding on the

 7   meaning of the phrase “direct physical loss” under Connecticut law in this

 8   context, we agree with the District Court that Plaintiffs-Appellants failed to

 9   plausibly allege a “direct physical loss or damage” to their property. Therefore,

10   they failed to plausibly allege coverage under the policy’s business interruption

11   provision and extra expense provision.

12         II.      Disease Contamination Coverage

13         The insurance policy at issue also provided “disease contamination

14   coverage” for “necessary and reasonable costs incurred” by Plaintiffs-Appellants

15   “as a result of an evacuation or decontamination order at a location by . . . [a]

16   governmental authority because of the discovery or suspicion of a communicable

17   disease or the threat of the spread of a communicable disease.” App’x 84. The

18   policy defines “location” as “[t]he area within legal boundaries of the premises

19   . . . in which the Insured has an interest.” App’x 73. In their complaint,

                                               6
 1   Plaintiffs-Appellants described government responses to the pandemic only at a

 2   general level and failed to allege that any specific government order required

 3   them to evacuate or decontaminate their properties. In addition, the state

 4   executive orders referenced in the complaint are not orders that required

 5   Plaintiffs-Appellants to evacuate or decontaminate their properties. We

 6   therefore agree with the District Court that Plaintiffs-Appellants failed to state a

 7   claim with respect to Defendants-Appellees’ denial of disease contamination

 8   coverage.

 9         We have considered Plaintiffs-Appellants’ remaining arguments and

10   conclude that they are without merit. The judgment of the District Court is

11   AFFIRMED. 1

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

     1On appeal, Plaintiffs-Appellants moved to certify two questions regarding the scope
     and meaning of “direct physical loss” to the Connecticut Supreme Court. See ECF Nos.
     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.
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