Court Opinion

ID: 9384497
Source: CourtListenerOpinion
Date Created: 2023-04-04 00:00:27.748599+00
Date Added: 2024-06-11T17:17:53.807236
License: Public Domain

Case: 22-30340     Document: 00516698795         Page: 1    Date Filed: 04/03/2023

           United States Court of Appeals
                for the Fifth Circuit                                  United States Court of Appeals
                                                                                Fifth Circuit

                                ____________                                  FILED
                                                                           April 3, 2023
                                 No. 22-30340
                                                                         Lyle W. Cayce
                                ____________                                  Clerk

   Southern Orthopaedic Specialists, L.L.C.,

                                                           Plaintiff—Appellant,

                                      versus

   State Farm Fire & Casualty Company,

                                            Defendant—Appellee.
                  ______________________________

                  Appeal from the United States District Court
                     for the Eastern District of Louisiana
                            USDC No. 2:21-CV-861
                  ______________________________

   Before King, Jones, and Duncan, Circuit Judges.
   Per Curiam:
         Appellant Southern Orthopaedic Specialists, L.L.C. (“Southern
   Orthopaedic”) sued its insurer, State Farm Fire & Casualty Company
   (“State Farm”), to recover business interruption losses caused by covid-
   related shutdowns. It also claims that State Farm negligently misrepresented
   the scope of the policy’s coverage. The district court dismissed these claims
   as foreclosed by the policy and Louisiana law. We affirm.
Case: 22-30340      Document: 00516698795           Page: 2   Date Filed: 04/03/2023

                                     No. 22-30340

                                         I.
          Southern Orthopaedic is a medical practice with three Louisiana
   locations. Its insurance policy provides that State Farm will “pay for
   accidental direct physical loss to th[e] Covered Property . . . caused by any
   loss as described under Section I – Covered Causes of Loss.” The policy
   defines “Covered Causes of Loss” as “accidental direct physical loss to
   Covered Property” unless the loss is specifically excluded or limited.
          A policy endorsement covers business interruption losses and related
   expenses. It provides coverage for Southern Orthopaedic’s loss of income
   “due to the necessary ‘suspension’ of [its] ‘operations’ during the ‘period
   of restoration.’” But “[t]he ‘suspension’ must be caused by accidental direct
   physical loss to property” and “[t]he loss must be caused by a Covered Cause
   of Loss.”
          Finally, the endorsement includes a “Civil Authority” provision.
   This covers loss of income “caused by action of civil authority that prohibits
   access to the described premises” when “a Covered Cause of Loss causes
   damage to property other than property at the described premises.”
          In 2020, in response to the covid pandemic, Louisiana officials issued
   public health orders that shuttered Southern Orthopaedic and forced it to
   postpone in-person treatment. As a result, Southern Orthopaedic suffered
   significant losses and incurred additional expenses cleaning and
   decontaminating its facilities.
          After State Farm denied coverage under the policy, Southern
   Orthopaedic sued in state court to recover its business interruption losses
   and, in turn, State Farm removed based on diversity jurisdiction. Southern
   Orthopaedic later amended its complaint to add a claim for negligent
   misrepresentation. It alleged that the Property Insurance Association of
   Louisiana (“PIAL”), on behalf of its members like State Farm, covertly
   extended a preexisting coverage exclusion for contamination to encompass

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                                     No. 22-30340

   pandemics, thus narrowing coverage without having to reduce rates.
   Southern Orthopaedic alleged that State Farm knew about PIAL’s actions
   yet failed to inform its policyholders about the change in coverage.
          The district court granted State Farm’s motion to dismiss for failure
   to state a claim. It held that Southern Orthopaedic had failed to allege
   “accidental direct physical loss” to property, as required under the policy. It
   also found that coverage was independently barred by an exclusion for virus-
   related damages. Finally, it held that the negligent misrepresentation claim
   failed because it was foreclosed by the policy’s plain language. Southern
   Orthopaedic timely appealed.
                                        II.
          We review a dismissal for failure to state a claim de novo, accepting all
   well-pleaded facts as true and viewing them in the light most favorable to the
   plaintiff. Edionwe v. Bailey, 860 F.3d 287, 291 (5th Cir. 2017). “To survive a
   motion to dismiss, a complaint must contain sufficient factual matter,
   accepted as true, to state a claim to relief that is plausible on its face.” Ibid.
   (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
          The interpretation of an insurance policy is a question of law that we
   likewise review de novo. Coleman E. Adler & Sons, L.L.C. v. Axis Surplus Ins.
   Co., 49 F.4th 894, 897 (5th Cir. 2022). “Dismissal is proper if an insurance
   contract precludes recovery.” Ibid. (citing IberiaBank Corp. v. Ill. Union Ins.
   Co., 953 F.3d 339, 346 (5th Cir. 2020)).
                                       III.
          First, we address whether the district court correctly concluded that
   the policy precludes recovery for Southern Orthopaedic. Applying binding
   Louisiana law, we agree that it does.
          “In Louisiana, insurance policies are construed using the general rules
   of contract interpretation in the Louisiana Civil Code.” PHI Grp., Inc. v.
   Zurich Am. Ins. Co., 58 F.4th 838, 841 (5th Cir. 2023). Words and phrases are

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   given their ordinary and generally prevailing meaning. Coleman E. Adler &
   Sons, 49 F.4th at 897; see also La. Civ. Code art. 2047. When the meaning
   of the policy is plain and does not yield absurd results, courts must enforce
   the policy as written. Gorman v. City of Opelousas, 2013-1734, p. 5 (La.
   7/1/14); 148 So. 3d 888, 892.
           Southern Orthopaedic argues that it can recover under both the
   endorsement’s business interruption provision and its civil authority
   provision. Both provisions require a “Covered Cause of Loss,” which in turn
   requires “accidental direct physical loss” to property. Accordingly, the
   dispositive question is whether covid particles cause “accidental direct
   physical loss” to property. In its complaint, Southern Orthopaedic cited
   numerous scientific studies as well as an expert report to show that the covid
   virus attaches to surfaces and can remain there, capable of causing infection,
   for weeks. It thus argues that covid can cause “accidental direct physical
   loss” because it “physically infect[s] and damage[s] interior spaces and
   objects.”
           Our court has previously rejected arguments like Southern
   Orthopaedic’s by venturing an “Erie guess” as to how the Louisiana
   Supreme Court would decide the question.1 Guesswork is no longer
   necessary. The Louisiana Supreme Court recently addressed whether covid
   contamination at a restaurant caused “direct physical loss of or damage to
   property” as required for coverage by an insurance policy, and—confirming
   our court’s previous intuition—the high court held that it did not. Cajun
   Conti LLC v. Certain Underwriters at Lloyd’s, London, 2022-01349 (La.
   3/17/23); --- So.3d ---. The court ruled that the policy’s “plain meaning”
           _____________________
           1
             See Q Clothier New Orleans, L.L.C. v. Twin City Fire Ins. Co., 29 F.4th 252, 260
   (5th Cir. 2022) (interpreting “physical loss of or damage to property” in an insurance
   policy to require “a tangible alteration to, injury to, or deprivation of property”); accord
   Coleman E. Adler & Sons, 49 F.4th at 897; PHI Grp., Inc., 58 F.4th at 842.

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   required the “property [to] sustain a physical, meaning tangible or corporeal,
   loss or damage. The loss or damage must also be direct, not indirect.” Id. at
   5. While the pandemic had forced the restaurant to close its indoor dining
   and undergo extensive cleaning, “[c]ovid-19 did not cause damage or loss
   that was physical in nature. [The restaurant] never repaired, rebuilt or
   replaced any property that was allegedly lost or damaged.” Id. at 1, 10 (quote
   at 10).
             Cajun Conti controls.2 The policy language here, while not word-for-
   word identical to the language in that case, is materially the same. If anything,
   the Cajun Conti policy was broader because it encompassed “damage” in
   addition to “loss.” But both policies require a “physical loss” to property
   that is “direct.” Following the Louisiana Supreme Court’s holding, that
   requires showing that the property sustained a direct, tangible alteration.
             Southern Orthopaedic’s pleadings fall short of that. They do not
   allege that covid caused “tangible or corporeal” property damage. Nor do
   they allege that the presence of covid particles required physically repairing
   or replacing any part of Southern Orthopaedics’s property. See Coleman E.
   Adler & Sons, 49 F.4th at 897 (affirming dismissal where the plaintiff “ha[d]
   not alleged that the coronavirus physically damaged or contaminated his
   property such that it needed to be repaired or replaced”). Nor do they claim
   that the presence of covid necessitated lasting alterations to the property.
   Without allegations of this nature, Southern Orthopaedic cannot meet the
   requirement of pleading an “accidental direct physical loss” under the

             _____________________
             2
             Because Cajun Conti is dispositive, we need not consider the parties’ dispute
   about whether the policy’s virus exclusion clause also applies to the endorsement and
   therefore independently bars coverage.

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   policy. While we are sympathetic to the economic challenges imposed by the
   pandemic, we cannot alter the terms of the policy.3
                                            IV.
           Southern Orthopaedic also brought a claim for negligent
   misrepresentation centered around the actions of PIAL, a private industry
   trade group which the law requires State Farm to join. See Prop. Ins. Ass’n of
   La. v. Theriot, 2009-1152, p. 1 (La. 3/16/10); 31 So. 3d 1012, 1013; La. Stat.
   Ann. § 22:1460. Southern Orthopaedic alleged that PIAL, acting on behalf
   of its members, made filings with the Louisiana Department of Insurance to
   “covertly alter” an existing policy exclusion for contamination in order to
   extend it to pandemics. State Farm allegedly knew about this but did not
   inform its policyholders, ultimately allowing it to shrink coverage without
   having to reduce its rates. Because Southern Orthopaedic relied on State
   Farm’s omission, it claims to have suffered damages.
           To establish negligent misrepresentation under Louisiana law, a
   plaintiff must prove “(1) a legal duty to supply correct information;
   (2) breach; and (3) damages resulting from justifiable reliance on the
   misrepresentation.” Abbott v. Equity Grp., Inc., 2 F.3d 613, 624 n.38 (5th Cir.
   1993). A party may breach its duty either through an affirmative
   misrepresentation or an omission. Sys. Eng’g & Sec., Inc. v. Sci. & Eng’g

           _____________________
           3
             Southern Orthopaedic alleged in the alternative that it suffered direct physical
   loss “due to the loss and functionality of its insured physical property for its intended
   purpose as a direct result of governmental actions and civil orders.” But Cajun Conti
   directly rejected the argument that “direct physical loss . . . encompasses the inability to
   use covered property.” Cajun Conti, 2022-01349, p. 5 (La. 3/17/23); see also Terry Black’s
   Barbecue, L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450, 458 (5th Cir. 2022) (applying
   Texas law) (“A ‘physical loss of property’ cannot mean something as broad as the ‘loss of
   use of property for its intended purpose.’”).

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   Ass’ns, Inc., 2006-0974, p. 4 (La. App. 4 Cir. 6/20/07); 962 So. 2d 1089,
   1092.
           Even accepting Southern Orthopaedic’s pleadings as true, as we must
   at this stage, the district court properly dismissed this claim because
   Southern Orthopaedic could not have justifiably relied on State Farm’s
   omission. “Louisiana courts have held that an insured’s reliance on an
   insurer’s alleged misrepresentation is not justifiable when the terms of the
   policy clearly reveal that the alleged misrepresentation was inaccurate.”
   Campo v. Allstate Ins. Co., 440 F. App’x 298, 301–02 (5th Cir. 2011)
   (unpublished) (citing cases). Here, the policy makes no secret of the fact that
   it contains a virus-related exclusion. Listed in the table of contents, the
   exclusion extends to “[v]irus, bacteria, or other microorganism that induces
   or is capable of inducing physical distress, illness or disease.” An insured
   cannot rely on the silence of its insurer over the text of the policy. See City
   Blueprint & Supply Co. v. Boggio, 2008-1093, p. 8 (La. App. 4 Cir. 12/17/08);
   3 So. 3d 62, 67 (no justifiable reliance where the policy contained “a
   straightforward, uncomplicated, exclusion” contrary to the alleged
   misrepresentation).
                                                                  AFFIRMED.

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