Court Opinion

ID: 6113040
Source: CourtListenerOpinion
Date Created: 2022-01-27 01:00:30.749138+00
Date Added: 2024-06-11T07:53:43.094951
License: Public Domain

Case: 21-40382     Document: 00516181087         Page: 1     Date Filed: 01/26/2022

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

                                                                            FILED
                                                                      January 26, 2022
                                  No. 21-40382                         Lyle W. Cayce
                                                                            Clerk

   Aggie Investments, L.L.C.,

                                                           Plaintiff—Appellant,

                                       versus

   Continental Casualty Company,

                                                           Defendant—Appellee.

                  Appeal from the United States District Court
                       for the Eastern District of Texas
                            USDC No. 4:21-CV-13

                    ON PETITION FOR REHEARING

   Before Stewart, Haynes, and Graves, Circuit Judges.
   Per Curiam:*
          IT IS ORDERED that the petition for rehearing is DENIED. The
   prior opinion in this case, filed January 6, 2022, is WITHDRAWN, and the
   following opinion is SUBSTITUTED:

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 21-40382         Document: 00516181087         Page: 2   Date Filed: 01/26/2022

                                      No. 21-40382

                                  *        *         *
          Appellant Aggie Investments, L.L.C. owns and operates a tea and
   spice gift shop in McKinney, Texas. Like many businesses, Aggie
   Investments suffered a loss in revenue during the COVID-19 pandemic when
   Texas civil authorities placed limitations on the operations of nonessential
   businesses. Aggie Investments then sought coverage from its commercial
   property insurance policy which covers losses “caused by direct physical loss
   of or damage to property at the described premises.” The insurer, Appellee
   Continental Casualty Co., denied the claim and in response, Aggie
   Investments sued. The district court dismissed Aggie Investments’ claim
   because Aggie Investments did not allege a direct physical loss of property—
   which the district court defined as a tangible alteration to property. Because
   we agree “physical loss of property” means a tangible alteration or
   deprivation of property, we AFFIRM.
                              I. BACKGROUND
          Continental sold a commercial property insurance policy to Aggie
   Investments. The policy provides coverage for the loss of business income in
   the Business Income and Extra Expense (BI/EE) endorsement. That
   provision states:
          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 the
          described premises. The loss or damage must be caused by or
          result from a Covered Cause of Loss.
          “Period of restoration” means the period of time beginning with the
   date of the loss or damage and ending when the property at the described
   premises is repaired, rebuilt, or replaced, or when business resumes at a new
   location.

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Case: 21-40382      Document: 00516181087            Page: 3    Date Filed: 01/26/2022

                                      No. 21-40382

          In March 2020, the COVID-19 pandemic caused authorities to issue
   orders to address the ongoing threat from the virus. The city of McKinney
   issued a shelter-in-place order. The city was also subject to an executive order
   from the Governor which limited capacity for in-store retail services to 25%.
   Aggie Investments complied with the orders, closed its shop, and suffered a
   reduction in sales and loss of business income.
          Aggie Investments submitted a claim for coverage under the BI/EE
   provision. Continental denied the claim. Aggie Investments sued Continental
   for breach of contract in state court in Collins County, Texas. Continental
   then removed the case to the Eastern District of Texas. Aggie Investments
   filed an amended complaint and Continental moved to dismiss. The district
   court granted the motion because Aggie Investments failed to allege a
   tangible alteration to its commercial property. Aggie Investments timely
   appeals.
                                II. DISCUSSION
          A “direct physical loss of property” as stated in the BI/EE provision
   requires a tangible alteration or deprivation of property. Aggie Investments,
   having failed to allege such a loss, is thus not covered by the policy. We
   conclude the district court properly granted Continental’s motion to dismiss.
          A district court’s order granting a motion to dismiss is reviewed de
   novo. See IberiaBank Corp. v. Ill. Union Ins. Co., 953 F.3d 339, 345 (5th Cir.
   2020). We accept the well-pleaded facts as true and determine whether the
   plaintiff has stated a claim that is plausible on its face. See id. In a case where
   the plaintiff seeks insurance coverage, if the insurance policy “precludes
   recovery under its very terms, dismissal is proper.” Id. (citation omitted).
          In Terry Black’s Barbecue, L.L.C. v. State Automobile Mutual Insurance
   Co., we held that, under Texas law, a “direct physical loss of property” in a
   similar commercial property policy means a tangible alteration or deprivation

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Case: 21-40382      Document: 00516181087           Page: 4     Date Filed: 01/26/2022

                                     No. 21-40382

   of property. See No. 21-50078, slip op. at 11 (5th Cir. Jan. 5, 2022). Like in
   that case, Aggie Investments has not alleged a covered loss because it only
   complains of loss of revenue due to the closing of its shop. Throughout the
   pandemic, moreover, Aggie Investments had ownership of and access to its
   property even if it could not open its shop for normal business operations.
          Because Aggie Investments was required to close its business entirely,
   it attempts to distinguish its case from Terry Black’s where the restaurants
   were only prevented from providing dine-in services. This distinction,
   however, makes no difference. Whether a business is directed to cease one
   kind of service or all of its services, that order is not a tangible alteration or
   deprivation of property. Nothing tangible happened to Aggie Investments’
   property. It is therefore not entitled to coverage.
          Aggie Investments also argues “direct physical loss of property” can
   reasonably be interpreted to cover a “loss of use of property.” Aggie
   Investments thus asserts the BI/EE provision is ambiguous and we must
   adopt its interpretation. We, however, explicitly rejected this argument in
   Terry Black’s Barbecue and here, conclude Aggie Investments’ proffered
   interpretation is unreasonable.
          Before adopting one interpretation of an insurance contract over
   another, the court must first determine there is more than one reasonable
   interpretation of the policy language, i.e., that it is ambiguous. See RSUI
   Indemnity Co. v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015) (“[I]f both
   constructions present reasonable interpretations of the policy’s language, we
   must conclude that the policy is ambiguous.” (citations omitted)). The
   language is only ambiguous “if, after applying the rules of construction, it
   remains subject to two or more reasonable interpretations.” Id. at 119
   (emphasis added) (internal quotation marks and citation omitted).

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Case: 21-40382      Document: 00516181087            Page: 5    Date Filed: 01/26/2022

                                      No. 21-40382

          Physical loss of property cannot reasonably be interpreted to mean
   loss of use for several reasons. Initially, that interpretation would render the
   adjective “physical” meaningless. By including “physical,” the policy
   necessarily contemplates a loss that is nonphysical (and thus excluded). See
   U.S. Metals, Inc. v. Liberty Mut. Grp., Inc., 490 S.W.3d 20, 24 (Tex. 2015). A
   loss of use, as Aggie Investments states, would not necessarily be a physical
   (or tangible) loss. “Loss of use” is also at odds with the BI/EE provision’s
   “period of restoration.” The period of restoration contemplates the loss
   suffered to require a period of time for “rebuilding, repair, or replacement.”
   Because Aggie Investments’ interpretation would cover a loss that does not
   require rebuilding, repair, or replacement, its interpretation gives no meaning
   to the provision’s “period of restoration.” And finally, we note the policy
   uses the phrase “loss of use” in its exclusion for consequential losses which
   shows the policy contemplates a distinction between “loss of property” and
   “loss of use.” As a result, we find no ambiguity in the BI/EE provision’s
   “direct physical loss of property.” 1
                              III. CONCLUSION
          In sum, we conclude the BI/EE provision’s “direct physical loss of
   property” unambiguously requires a tangible alteration or deprivation of
   property. Because Aggie Investments only alleges that civil authority orders
   limited its business operations without any tangible alteration or deprivation
   of its property, its losses do not qualify for coverage under the BI/EE
   provision.
          We accordingly AFFIRM.

          1
           We also deny Aggie Investments’ motion to certify the question to the Texas
   Supreme Court.

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