Court Opinion

ID: 6349299
Source: CourtListenerOpinion
Date Created: 2022-06-13 19:00:20.102402+00
Date Added: 2024-06-11T09:12:11.988902
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                File Name: 22a0234n.06

                                        Case No. 21-4148

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

                                                         )
HENDERSON ROAD RESTAURANT SYSTEMS,
                                                         )                   FILED
INC., DBA HYDE PARK GRILLE; COVENTRY                                   Jun 13, 2022
                                                         )
RESTAURANT SYSTEMS, INC., DBA HYDE                                 DEBORAH S. HUNT, Clerk
                                                         )
PARK      CHOP     HOUSE;    CHAGRIN
                                                         )
RESTAURANTS, LLC, DBA HYDE PARK PRIME
                                                         )       ON APPEAL FROM THE
STEAK HOUSE; JR PARK, LLC, DBA HYDE
                                                         )       UNITED STATES DISTRICT
PARK PRIME STEAK HOUSE; HP CAP, LLC,
                                                         )       COURT FOR THE NORTHERN
DBA HYDE PARK PRIME STEAK HOUSE;
                                                         )       DISTRICT OF OHIO
NSHP, LLC, DBA HYDE PARK PRIME STEAK
                                                         )
HOUSE; HPD RESTAURANT SYSTEMS, INC.,
                                                         )
DBA HYDE PARK PRIME STEAK HOUSE; 457
                                                         )
HIGH STREET DEVELOPMENT, LLC; RJ
                                                         )                           OPINION
MORELAND HILLS, LLC; CAP RESTAURANT
                                                         )
DEVELOPMENT,      LLC;    NORTHVILLE
                                                         )
DEVELOPMENT, LLC,
                                                         )
       Plaintiffs-Appellants,                            )
                                                         )
v.                                                       )
                                                         )
ZURICH AMERICAN INSURANCE COMPANY,                       )
       Defendant-Appellee.                               )

Before: BOGGS, COLE, and GRIFFIN, Circuit Judges.

       COLE, Circuit Judge. Plaintiffs own and operate restaurants in Ohio, Indiana, Florida,

Michigan, and Pennsylvania. After the governments of these states issued orders restricting the

in-person operations of restaurants to curb the spread of COVID-19, plaintiffs closed their Ohio

restaurants and suffered significant financial losses. Plaintiffs filed a claim with Zurich American
Case No. 21-4148, Henderson Road Restaurant Sys., Inc. et al. v. Zurich Am. Ins. Co.

Insurance Company under their commercial insurance policy to recover the lost business income

they attributed to these orders. Under this policy, Zurich would compensate plaintiffs for lost

business income if plaintiffs suffered “direct physical loss of or damage to” their covered

properties. According to Zurich, plaintiffs had not suffered physical loss or damage to their

property. For this reason, Zurich denied plaintiffs’ claims.

       Plaintiffs filed suit against Zurich, arguing these pandemic-related losses were

compensable under the policy and that Zurich denied their claim in bad faith. Zurich and plaintiffs

then filed cross-motions for summary judgment. The district court initially found that, under Ohio

law, “direct physical loss” to property also covered the loss of use of a property, as plaintiffs

alleged. But Zurich appealed, and we vacated the district court’s order and remanded for

reconsideration in light of our decision in Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398

(6th Cir. 2021). The district court ultimately found that Santo’s controlled, and, because plaintiffs

only alleged a loss of use of property rather than a loss of or damage to their property, summary

judgment in favor of Zurich Insurance was warranted. Plaintiffs timely appealed. We affirm.

                                        I. BACKGROUND

A. Factual Background

       Plaintiffs are business entities and affiliates of Hyde Park Restaurant Group that operate

restaurants in Ohio, Pennsylvania, Michigan, Indiana, and Florida These restaurants were covered

by Zurich American Insurance Company commercial property insurance Policy No. CPO

6220911-06 (the “policy”). Like other restaurants, plaintiffs’ operations were economically

affected by the COVID-19 pandemic. The stay-at-home orders implemented in the states where

plaintiffs operated their restaurants curtailed access to plaintiffs’ businesses and restricted in-

person activities at their facilities. Although there was no physical damage to plaintiffs’ properties,

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Case No. 21-4148, Henderson Road Restaurant Sys., Inc. et al. v. Zurich Am. Ins. Co.

and no cases of COVID-19 were traced back to plaintiffs’ restaurants, the orders nonetheless

caused plaintiffs financial harm.

       Plaintiffs submitted a claim for reimbursement to Zurich. The claim hinged on the policy’s

“Business Income” provision, which provides:

       We will pay for the actual loss of “business income” you sustain due to the
       necessary “suspension” of your “operations” during the “period of restoration”.
       The “suspension” must be caused by direct physical loss of or damage to property
       at “premises” at which a Limit of Insurance is shown on the Declarations for
       Business Income. The loss or damage must be directly caused by a “covered cause
       of loss”.

(Policy, R. 12-1, PageID 276.)

       In other words, unless a “loss” occurs, plaintiffs’ insurance will not cover lost business

income. Those words in bold have “special meaning” and are defined by the policy. (Id. at PageID

182.) Other words or phrases—like “direct physical loss of or damage to property”—are instead

“intended to have their ordinary or common meaning.” (Id.) The policy provides that any disputes

regarding these words are to be resolved using the most recent edition of Webster’s Unabridged

Dictionary. (Id.).

       Zurich denied plaintiffs’ claims because it contended that there “[did] not appear to be any

claim for direct physical loss of or damage to property at [plaintiffs’] premises.”

B. Procedural History

       Plaintiffs filed suit against Zurich. In Count I, plaintiffs alleged that Zurich breached its

contract with plaintiffs by failing to provide them with coverage. In Count II, they contended that

Zurich denied plaintiffs’ claim in bad faith. Finally in Count III, plaintiffs sought a declaratory

judgment as to plaintiffs’ rights under the policy. Zurich and plaintiffs cross-moved for summary

judgment on all three counts.

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Case No. 21-4148, Henderson Road Restaurant Sys., Inc. et al. v. Zurich Am. Ins. Co.

       The district court found that, under Ohio law, the policy was “ambiguous” and “susceptible

of more than one interpretation.” Henderson Rd. Rest. Sys., Inc. v. Zurich Am. Ins. Co., 513 F.

Supp. 3d 808, 820–22 (N.D. Ohio 2021) (“Henderson I”), vacated and remanded by In re Zurich

Am. Ins. Co., No. 21-0302, 2021 WL 4473398 (6th Cir. Sept. 29, 2021). Construing the policy

liberally, as Ohio law requires, the district court concluded that the policy could provide coverage

for plaintiffs’ lost business income. Henderson I, 513 F. Supp. 3d at 822. Accordingly, while the

district court did not find that Zurich had denied plaintiffs’ claim in bad faith, it did grant summary

judgment to plaintiffs on Counts I and III. Id. at 828.

       But the district court also recognized that Count I “involve[d] a controlling question of law

as to which there [was] substantial ground for difference of opinion,” and that “an immediate

appeal from [its] order may materially advance the ultimate termination of the litigation[.]” Id.

Thus, the district court certified the order for interlocutory appeal pursuant to 28 U.S.C. § 1292(b).

Id.

       We granted permission to appeal. In re Zurich Am. Ins. Co., 2021 WL 4473398, at *1. In

doing so, we recognized that the law had already been clarified in the time between Henderson I

and our order granting permission to appeal. Id. In Santo’s, we held that “‘a pandemic-triggered

government order, barring in-person dining at a restaurant’ does not qualify as ‘“direct physical

loss of or damage to” the property’ under Ohio law.” Id. at *1 (quoting Santo’s, 15 F.4th at 401).

Consequently, we vacated the district court’s order as to Counts I and III and remanded for further

proceedings. Id. at *2.

       After supplemental briefing and further review, the district court granted summary

judgment in favor of Zurich on Counts I and III. Henderson Rd. Rest. Sys., Inc. v. Zurich Am. Ins.

                                                 -4-
Case No. 21-4148, Henderson Road Restaurant Sys., Inc. et al. v. Zurich Am. Ins. Co.

Co., -- F. Supp. 3d. --, 2021 WL 5085283, at *1 (N.D. Ohio Nov. 2, 2021) (“Henderson II”).

Plaintiffs appeal.

                                          II. ANALYSIS

       We review an order granting summary judgment de novo, viewing the evidence and

drawing all reasonable inferences in favor of the non-moving party. Franklin Am. Mortg. Co. v.

Univ. Nat’l Bank of Lawrence, 910 F.3d 270, 275 (6th Cir. 2018); Matsushita Elec. Indus. Co. v.

Zenith Radio Corp., 475 U.S. 574, 586–87 (1986).

       Operating under diversity jurisdiction, we must apply “the law of the state’s highest court.”

Garden City Osteopathic Hosp. v. HBE Corp., 55 F.3d 1126, 1130 (6th Cir. 1995) (citing Erie

R.R. v. Tompkins, 304 U.S. 64, 78 (1938)). The parties agree that Ohio law applies. Under Ohio

law, when interpreting an insurance contract, courts apply the normal contract construction

principles that govern any other type of contract. St. Mary’s Foundry, Inc. v. Emps. Ins. Of

Wausau, 332 F.3d 989, 992 (6th Cir. 2003). Ohio courts “first determine whether contract terms

are ambiguous.” Id. If a term is “reasonably susceptible of more than one meaning,” then it is

ambiguous. Id. If the terms are not ambiguous, the court determines the meaning of the contract

by giving the terms within the contract “their plain and natural meaning.” Id.

       The Ohio Supreme Court has not yet opined on the question of what “direct physical loss

of or damage to property” means. We, however, recently examined nearly identical policy

language under Ohio law, specifically with regard to the COVID-19 pandemic. “Relying on

dictionaries, a leading treatise, and Ohio intermediate-appellate-court precedent,” we concluded

that the unambiguous policy language required a plaintiff to demonstrate “either destruction of the

property or the owner’s dispossession to show ‘loss’ and a direct physical alteration of the property

to show ‘damage.’” Dakota Girls, LLC v. Phila. Indem. Ins. Co., 17 F.4th 645, 649 (6th Cir. 2021)

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Case No. 21-4148, Henderson Road Restaurant Sys., Inc. et al. v. Zurich Am. Ins. Co.

(quoting Santo’s, 15 F.4th at 402–04). We concluded that loss of use alone does not meet this

requirement under Ohio law. Id.

         Because Santo’s controls, our inquiry should end here. But despite the overwhelming1 tide

of case law that stands against their argument, plaintiffs insist that their policy is distinguishable,

and the definition of “direct physical loss of or damage to” illustrated by Santo’s does not apply.

Specifically, unlike the policy in Santo’s, plaintiffs’ policy requires that disputes over language

are to be resolved by reference to Webster’s Unabridged Dictionary. Following Webster’s,

plaintiffs argue that they were “deprived . . . of their ability to use the Insured Premises for in-

person dining.” (Appellant Br. 13.) According to plaintiffs’, this means that they “lost” their

property because they lost “the right under the[ir] leases to ‘enjoy’ operating the Insured Premises

as fine dining establishments with in-person dining.” (Appellant Br. 14.)

         Webster’s defines property, relevantly, as “something that is or may be owned or

possessed: . . . a piece of real estate,” or “the exclusive right to possess, enjoy, and dispose of a

thing[.]” Property, Merriam-Webster’s Unabridged Dictionary (2022). “Loss” is defined as “the

act or fact of losing: failure to keep possession: deprivation[.]”                     Loss, Merriam-Webster’s

Unabridged Dictionary (2022). “Physical” is defined as “relating to natural or material things as

1
  See 10012 Holdings, Inc. v. Sentinel Ins. Co., 21 F.4th 216, 220–21 (2d. Cir. 2021) (concluding “direct physical loss”
requires physical damage, rather than mere loss of use, under New York law); Uncork & Create LLC v. Cincinnati
Ins. Co., 27 F.4th 926, 933 (4th Cir. 2022) (same, under West Virginia law); Terry Black’s Barbecue, L.L.C., v. State
Auto. Mut. Ins. Co., 22 F.4th 450, 456–57 (5th Cir. 2022) (same, under Texas law); Estes v. Cincinnati Ins. Co., 23
F.4th 695, 700 (6th Cir. 2022) (same, under Kentucky law); Brown Jug v. Cincinnati Ins. Co., 27 F.4th 398, 403 (6th
Cir. 2022) (same, under Michigan law); Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327, 333 (7th Cir.
2021) (same, under Illinois law); Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141, 1144 (8th Cir. 2021) (same,
under Iowa law); Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885, 890–92 (9th Cir. 2021) (same, under
California law); Goodwill Indus. of Cent. Okla., Inc. v. Phila. Indem. Ins. Co., 21 F.4th 704, 710–11 (10th Cir. 2021)
(same, under Oklahoma law); Gilreath Fam. & Cosm. Dentistry, Inc. v. Cincinnati Ins. Co., No. 21-11046, 2021 WL
3870697, at *2 (11th Cir. Aug. 31, 2021) (per curiam) (holding that neither the state’s shelter in place orders nor any
alleged COVID-19 particles in the air caused physical damage necessary to recover under the policy under Georgia
law); Verveine Corp., et al. v. Strathmore Ins. Co., et al., 184 N.E.3d 1266, 1277 (Mass. 2022) (same, under
Massachusetts law).

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Case No. 21-4148, Henderson Road Restaurant Sys., Inc. et al. v. Zurich Am. Ins. Co.

opposed to things mental, moral, spiritual, or imaginary.”          Physical, Merriam-Webster’s

Unabridged Dictionary (2022).

       These definitions do not differ materially from the Oxford English Dictionary definitions

relied on in Santo’s. There, we noted that

       “Direct” means “[e]ffected or existing without intermediation or intervening
       agency; immediate.” Oxford English Dictionary Online (3d ed. 2021). “Physical”
       means “natural; tangible, concrete.” Id. “Loss” means “[p]erdition, ruin,
       destruction; the condition or fact of being ‘lost,’ destroyed, or ruined,” or “being
       deprived of.” Id. And “property” means “any residential or other building (with or
       without associated land) or separately owned part of such building (as an apartment,
       etc.),” as well as “[s]omething belonging to a thing; an appurtenance; an adjunct.”
       Id.

Santo’s, 15 F.4th at 401. Regardless of whether “loss” means “deprivation” or “failing to keep

possession” or whether “property” includes leaseholds or buildings, this court has squarely

determined that “‘direct physical loss of’ property does not mean what [plaintiffs] say[] it means.

It refers to direct physical loss of property, not the inability to use property.” Id. at 405. The

Webster’s definitions do not compel a different conclusion.

       Plaintiffs contend that, because there are multiple definitions of the contested terms within

the dictionary, the contract is ambiguous. Multiple definitions alone do not render a contract

ambiguous. “In determining whether contractual language is ambiguous, the contract must be

construed as a whole.” Savedoff v. Access Grp., Inc., 524 F.3d 754, 763 (6th Cir. 2008) (quotation

omitted). Given that plaintiffs may only recover business income “lost” during the “period of

restoration,” it is worth exploring the definition of that term as well. The policy provides that

“‘[p]eriod of restoration’ means the period of time that begins when: . . . [t]he direct physical

loss or damage that causes ‘suspension’ of . . . ‘operations’ occurs[.]” (Policy, 12-1, PageID

202.) This period ends on the earlier of:

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Case No. 21-4148, Henderson Road Restaurant Sys., Inc. et al. v. Zurich Am. Ins. Co.

        a. The date when the location where the loss or damage occurred could have been
        physically capable of resuming the level of “operations” which existed prior to the
        loss or damage, if the location had been restored to the physical size, construction,
        configuration, location, and material specifications which would satisfy the
        minimum requirements necessary to obtain all required building permits,
        occupancy permits, operating licenses, or similar documents; or

        b. The date when a new permanent location is physically capable of resuming the
        level of “operations” which existed prior to the loss or damage, if you resume
        “operations” at a new permanent location.

(Id.)

        The “period of restoration” provision makes clear that the policy contemplates physical

damage or alteration to the property or premises, rather than a mere loss of use. While plaintiffs

argue that the lifting of a government restriction is the same as obtaining permits, licenses, or

registrations, this reading ignores the beginning of the sentence. The period of restoration ends

when a property is “physically capable” of resuming operations, if the existing location is

“restored” to a condition that allows it to legally operate. (Id.) The suspension of a government

order, without a demonstration of “loss” or “damage,” would not qualify.

        At no point were plaintiffs deprived of “the exclusive right to possess, enjoy, [or] dispose

of” their properties, nor did the orders in anyway affect their “possession” of the property—

whether that be defined as the physical buildings or their leaseholds. Property, Merriam-Webster’s

Unabridged Dictionary (2022). Plaintiffs admitted that they were permitted to operate their

restaurants, albeit in a limited capacity, throughout the duration of the orders. Plaintiffs also

acknowledge that their properties were not physically damaged because of the pandemic or the

government orders. Rather, they were deprived only of their ability to use the property as they

wished. While the exact definitions relied on in Santo’s may not apply to plaintiffs’ policy, its

underlying conclusion still does: “a loss of use simply is not the same as a physical loss.” Santo’s,

15 F.4th at 402.

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Case No. 21-4148, Henderson Road Restaurant Sys., Inc. et al. v. Zurich Am. Ins. Co.

                                     III. CONCLUSION

       For the foregoing reasons, we affirm.

                                               -9-