Litigation & Disputes Bulletin: Q3 2021
In This Issue:
- Indiana Supreme Court Rejects Blanket Rule Against Discounts in Compulsory, Closed-Market Share Buyback
- The District Court Refuses to Throw Out Experts Under Daubert Motions, Citing Differences in Admissibility and Scrutiny Under Cross-Examination
- In COVID-19 Business Interruption Case, Court Finds Plaintiffs Did Not Argue Physical Loss and Virus Exemption Applies
- In COVID-19 Business Interruption Case, Court Finds Business Adequately Alleges It Suffered a Physical Loss
- In COVID-19 Business Interruption Case, Court Grants Defendant’s Motion to Dismiss Plaintiff’s Claim for COVID-19-Related Losses
Indiana Supreme Court Rejects Blanket Rule Against Discounts in Compulsory, Closed-Market Share Buyback
Hartman v. BigInch Fabricators & Construction Holding Co., Inc., Indiana Supreme Court, Case No. 20S-PL-618 (Jan. 28, 2021) (Hartman II)
In 2020, the Indiana Court of Appeals overturned the trial court and found for the selling shareholder when it decided discounts were inappropriate in any compulsory, closed-market sale. The court did not think it mattered that there was a shareholder agreement that specified a buyout based on certain valuation terms, which a third-party appraiser interpreted as fair market value. In a recent decision, the state Supreme Court vacated the appeals court’s decision, finding a blanket rule disallowing minority and marketability discounts in closed-market transactions regardless of the shareholder agreement would violate the freedom to contract principle. Here, the agreement unambiguously allowed for discounts, the high court said.
‘Appraised market value.’ The plaintiff was one of the founders of a closely held company. He also held a minority interest in the company. In 2006, all the shareholders agreed to a contract that included a buyback clause. Under the clause, the company was required to buy back a shareholder’s interest if he or she were involuntarily terminated by the company. The buyback clause specified the company would buy out the shareholder at “appraised market value” as determined by a third-party valuation company in accordance with generally accepted accounting principles.
In 2018, the plaintiff was terminated without cause. To determine the value of his interest, the company retained an outside valuation firm. The appraiser applied the fair market value standard of value and discounted the plaintiff’s shares for lack of control and lack of marketability.
The plaintiff asked the trial court for a declaratory judgment that discounts were inapplicable because the shareholder agreement here did not “contemplate a fair market value standard.” Ruling on the parties’ motions for summary judgment, the trial essentially found that the term “market value” as used in the agreement was synonymous with fair market value. According to the trial court, the word “appraised” was an adjective modifying “market value.” The trial court ruled for the company.
The Court of Appeals reversed, finding, under controlling case law, discounts were inappropriate because the transaction involved a compulsory sale. Discounts could not apply to any closed-market sales, the appeals court decided. The Court of Appeals agreed with the terminated shareholder that one case in particular, Wenzel v. Hopper & Galliher, P.C., was controlling.
In Wenzel, the Court of Appeals rejected discounts in the context of a law firm’s purchase of a departing partner’s interest. This case arose under a statute. The court found that “fair value” did not equate with “fair market value.” See 779 N.E.2d 20 (Ind. Ct. App. 2002) (available at BVLaw).
Among other things, the court in Wenzel described minority and marketability discounts as “open market concepts.” A minority discount adjusts for lack of control over the corporation based on the notion that a minority interest does not have the same value to a third party as a majority holding. A marketability discount adjusts for lack of liquidity as to the stock because of a limited number of purchasers for the stock.
The Wenzel court said applying a minority discount was inappropriate in a compulsory buyout because “a sale to a majority shareholder or to the corporation simply consolidates or increases the interest of those already in control.” The discount “would result in a windfall to the transferee.” A marketability discount was inappropriate because there was a ready-made market for the shares.
In the instant case, the Court of Appeals found cases following Wenzel have affirmed that discounts are not applicable in compelled transactions to a controlling party. Further, the court rejected the company’s argument that Wenzel and related cases were not applicable to this case because they involved a fair value determination under the statute, whereas the instant case necessitated a value determination in accordance with the shareholder agreement.
A digest of the Court of Appeals opinion in Hartman v. BigInch Fabricators & Construction Holding Co., Inc., 2020 Ind. App. LEXIS 183 (May 5, 2020), and the court’s opinion are available to BVLaw subscribers.
Parties’ freedom to contract. The company petitioned for transfer of the case to the state Supreme Court. The petition was granted, and the Court of Appeals decision was vacated.
The direction of the Supreme Court’s opinion becomes clear in the opening paragraphs. The court said, notwithstanding policy concerns that may preclude the use of discounts in certain circumstances, “we hold that the parties’ freedom to contract may permit these discounts, even for shares in a closed-market transaction.” The court went on to say, that, “under the plain language of this shareholder agreement—which calls for the ‘appraised market value’ of the shares—the discounts apply.”
The Supreme Court agreed with the company that Wenzel was distinguishable from the instant case because it concerned the interpretation of a statute, not a contract. The Wenzel court performed a statutory interpretation to determine the meaning of the term “fair value,” the high court noted. The statutory purpose was to ensure the shareholders would be compensated fairly. In contrast, the high court noted, here, the valuation term comes from a contract that requires the determination of the shares’ “appraised market value,” not “fair value.”
The agreement’s valuation term “unambiguously allows the discounts to apply,” the Supreme Court said. It noted that the operative term was “appraised market value,” a term the agreement did not define. However, the company, throughout the litigation, argued “market value” was synonymous with “fair market value” and the term “appraised” simply indicated who would value the stock.
In contrast, the selling shareholder (plaintiff) argued “appraised market value” and “fair market value” were not synonymous terms; the trial court improperly “injected” the fair market value standard into the agreement.
The high court disagreed with the plaintiff, finding the term “‘market value’ plainly and unambiguously refers to the shares’ ‘fair market value.’” Further, the term “‘appraised’ merely describes how to determine the shares’ market value,” the Supreme Court concluded.
The court went on to say that, while the parties agreed to a compulsory, closed-market sale, not an arm’s-length transaction, the agreement’s “plain and unambiguous language” also provides the shares be valued “as if they were sold on the open market.”
No court applying Indiana law has held that discounts are always inapplicable to a closed-market sale, “only that the discounts cannot be applied in certain situations,” the high court noted.
Here, the Supreme Court said, even if the valuation term “were somehow ambiguous, we would find ‘fair market value’ to be the appropriate standard.”
“[W]e must honor the parties’ freedom to contract and look to the terms they chose to govern the buyback of [the plaintiff’s] shares,” the court said. It noted the company does not receive a windfall from the use of discounts “because, by definition, a windfall is unexpected.” In contrast, here the parties to the company’s shareholder agreement years ago agreed to be bound by the terms of the agreement.
The high court further noted that the selling shareholder benefited from the agreement. There was a ready market for his shares as the company was obligated to buy them. Further, under generally accepted accounting principles, the use of discounts is accepted practice when determining the shares’ fair market value. The plaintiff had a right under the contract to obtain an additional appraisal from a third-party appraiser but did not do so, the state Supreme Court pointed out.
The court affirmed the trial court’s granting summary judgment for the company. There was no blanket rule against applying discounts in a compulsory, closed-end transaction. Here, under the parties’ shareholder agreement, discounts were applicable in determining the fair market value of the plaintiff’s minority interest.
The District Court Refuses to Throw Out Experts Under Daubert Motions, Citing Differences in Admissibility and Scrutiny Under Cross-Examination
Innovation Ventures, L.L.C. v. Custom Nutrition Labs., L.L.C., 2021 U.S. Dist. LEXIS 28254; 2021 WL 598545 (Feb. 16, 2021)
Summary. This case involves a consideration of motions by both the plaintiff and the defendant to exclude the testimony of the other party’s expert witness on the basis of Daubert and the Federal Rules of Evidence. Plaintiff’s expert offered testimony on how to calculate lost profits based on plaintiff’s market share. Defendant’s expert offered testimony as to weaknesses in plaintiff’s calculations and opinions on damages. Both motions were filed on the basis of Daubert and the Federal Rules of evidence. The court denied both of these cross motions.
Case digest. This case deals with two pretrial motions regarding a plaintiff’s claim that it suffered economic damages as a result of defendant’s breach of the parties’ previous settlement agreement regarding the defendant’s breach.
Background. Pretrial, the plaintiff filed a motion to exclude the testimony of the defendant’s expert witness regarding weaknesses on calculations and opinions on damages in the testimony of the plaintiff’s expert witness. The defendant filed a cross-motion to exclude the testimony of the plaintiff’s expert witness as to how to calculate lost profits based on the plaintiff’s market share. Both parties cited the Daubert case and the Federal Rules of Evidence as the bases for exclusion. “As such, the Court’s analysis and conclusions here about whether, under Daubert, the opinions offered by Crawford and Pflaum could be admitted remains applicable.”
Legal standard. The court notes that, under the Daubert case, it has a “gatekeeping role” to “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” (Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579, 589, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993)). The Kumho Tire case expanded Daubert to include testimony involving technical or specialized knowledge. The court also noted that a district court “has ‘considerable leeway in deciding … how to go about determining whether particular expert testimony is reliable.’” It also noted that rejection of expert testimony is the exception rather than the rule. Daubert noted that “[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.”
Defendants’ motion to exclude the plaintiff’s expert testimony by Rodney Crawford. Plaintiff explains that their expert, Crawford: “(1) determined the total Choline Family-containing bottles NSL sold; (2) computed [the plaintiff’s] lost sales by multiplying the violative sales by [the plaintiff’s] five-year average, 85% product-category; and (3) multiplied [the plaintiff’s] lost sales by its average per-bottle profit.”
The defendant asserts that Crawford is not “qualified” because his report is “mere arithmetic.” The court notes that the Federal Rules of Evidence 702 only requires that the expert witness “be qualified by ‘knowledge, skill, experience, training or education.’” The court points out that Crawford “holds numerous licenses and certifications relating to fraud, financial forensics, and business valuation.” And Crawford has participated as a consultant or expert in several hundred matters involving forensic accounting investigations and/or claims of economic damages in commercial disputes. As such, Crawford has the qualifications to be an expert witness.
On appeal, the 6th Circuit Court held that Innovation (the plaintiff) could use market share to prove its damages. “As such, on remand, Plaintiff is permitted to present market-share based calculations of lost profits as a theory of damages, while Defendants may offer ‘rebuttal evidence concerning the weaknesses of this specific calculation.’”
As to whether Crawford’s testimony will help the trier of fact understand the issue of damages and how the defendant’s violative acts affected the plaintiff’s profits, the court says that it will assist the triers of fact in understanding the issue of damages.
There is also the question of whether Crawford’s opinions have “reliable factual support.” “Expert testimony may be deemed reliable so long as the witness’s premises have a reliable foundation, rather than being based on unsupported speculation.” In a Daubert motion, district courts are merely required to assess whether the expert testimony “rests upon a reliable foundation, as opposed to, say, unsupported speculation.” Use of a method for quantifying lost profits based on market share is an acceptable method in this case. Daubert, nor any other case, does not require that the best method be used, according to the court. Further, though the party with the burden of proof (the plaintiff in this case) is responsible to prove the “but for” causation, that proof is not up to a single witness, i.e., Crawford in this case, and is not, therefore, a basis for exclusion. The defendant’s reliance on two cases purporting to show that the Crawford report and testimony must show the but-for causation is misplaced.
In summary regarding Crawford, the court says that “[a]ll of these purported weaknesses in Crawford’s analysis and conclusions can be considered by the jury in deciding how much weight to give his testimony, and whether it chooses to accept it or not.” Therefore, “[d]efendants have failed to establish that Plaintiff’s expert witness on damages should be excluded under Federal Rule of Evidence 702 and the Daubert factors.” The court denies the motion to exclude Crawford’s testimony.
Plaintiff’s motion to exclude defendants’ expert testimony of Dr. Christopher Pflaum. Defendants’ expert, Dr. Christopher Pflaum, concludes in his deposition testimony and in his expert report that the plaintiff’s Five-Hour Energy product and the defendants’ generic energy shots—manufactured for retailers as “house brands”—do not actually compete with one another in the same economic market. The defendant’s theory is that the plaintiff did not have any damages from the breach. The plaintiff asserts that the defendant’s report is based on unscientific and unreliable data, that Pflaum did not prepare his own report, and, finally, that Pflaum’s opinions rely on inadmissible evidence.
The court determined that Pflaum has the qualifications and experience necessary to qualify him as an expert in this case. The remaining question, then, before the court, is whether Pflaum’s testimony is sufficiently reliable under Daubert and Federal Rules of Evidence 702. The question, then, is “under Daubert and Sixth Circuit case law … whether Pflaum ‘performed his analysis according to a reliable method … and reliably applied that method to the facts of this case.’” Case law in the 6th Circuit says expert testimony is “reliable for the purposes of assessing admissibility even if the analysis relies on factually erroneous premises so long as the principles of the analysis itself were correctly applied.” The court says that the issues the plaintiff raised in this case are “best clarified under cross-examination and resolved by the trier of fact.” The court further decided that Pflaum had sufficient input into the preparation of the report for it to be a showing of his work and is admissible under that test.
Pflaum also made an assertion that the fact that the plaintiff was under investigation by the FDA has an impact on consumer preference and market share. The plaintiff argued that such information, based on press articles in the public domain, is inadmissible. The court ruled such evidence is admissible because it is the type of evidence that an expert in this field would reasonably rely on, and, since the Federal Rules of Evidence 702 relax the hearsay rule for expert witnesses, it would be allowed in this case. For the reasons stated above, the court also denied the motion to exclude the testimony of Pflaum.
In summary, the court throughout the opinion makes the point clear that there is a distinction between admissibility of expert testimony and acceptance of that testimony. It is left to the trier of fact, and the skill of the cross-examiner, to determine whether to accept such evidence, but to exclude it, in this case, based on the facts, the court would be stepping over the line. As a gatekeeper, as noted by the court, exclusion is the exception rather than the rule.
In COVID-19 Business Interruption Case, Court Finds Plaintiffs Did Not Argue Physical Loss and Virus Exemption Applies
Real Hosp., LLC v. Travelers Cas. Ins. Co. of Am., 2020 U.S. Dist. LEXIS 208599; F. Supp. 3d __; 2020 WL 6503405 (Nov. 4, 2020)
In this business interruption case resulting from mandatory shutdowns to control COVID-19, the court granted a motion to dismiss claims of plaintiffs; plaintiffs did not argue that they sustained a physical loss and coverage would have been denied nevertheless by the virus exemption.
COVID-19-related damages cases are making their way through state and federal courts. Plaintiffs typically are businesses that have suffered economic losses because of various mandatory shutdowns. They file claims with their insurance agency, which frequently denies coverage for business interruption losses. However, more often than not, courts have sided with the defendant insurance company and dismissed the plaintiff’s case or ruled against the business owner. In the instant case, the court granted a motion to dismiss claims of plaintiffs; plaintiffs did not argue that they sustained a physical loss and coverage would have been denied nevertheless by the virus exemption.
Plaintiff is a corporation doing business in Hattiesburg, Miss. Plaintiff’s business is a family-style restaurant. Travelers issued to plaintiff an “all risk” commercial property insurance policy, which covers loss or damage to the covered premises resulting from all risks other than those expressly excluded. There is a business owners coverage part of the policy.
Relevant Policy Provisions:
The policy has a section titled “Businessowners Property Coverage Special Form.” “This Special Form contains the following provisions, some of which Plaintiff includes in the Complaint, others of which the Court finds essential to the analysis of Plaintiff’s ability to state a claim.” The policy covers a building, building personal property, and business income.
The key provision to the business income loss provisions states that “[w]e 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.”
Further, the policy contains an endorsement titled “Exclusion of Loss Due to Virus or Bacteria,” which reads, in relevant part: “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness, or disease.”
Motion to Dismiss:
Defendant moves to dismiss the complaints of the plaintiff since plaintiff failed to state a claim for coverage under the business income/extra expense provision. Plaintiff has not alleged any facts showing a physical loss of property or any physical damage to property that would trigger the business income/extra expense coverage. Plaintiff’s claim would also be expressly excluded by the “Virus Exclusion.”
In response, plaintiff first asks that the court certify to the Mississippi Supreme Court the question of what the business income coverage provision means. Plaintiff further argues that the virus exclusion does not clearly and unambiguously exclude coverage.
This case also applies Federal Rule 12(b)(6), which requires that “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” As is normal, the court applies the law of the forum state, which in this case is Mississippi.
Under Mississippi law, “when the words of an insurance policy are plain and unambiguous, the court will afford them their plain, ordinary meaning and will apply them as written.” Plaintiff is asking for a declaratory judgment that business income and extra expense coverage applies as alleged in the complaint. “Travelers moves to dismiss on the grounds that the Complaint does not allege a physical loss of property or any physical damage to property as is required for coverage under the Business Income/Extra Expense coverage provision.” Plaintiff argues that direct physical loss does not require tangible damage or alteration to property. The court allows that, in order for business income coverage to apply, the property in question must be either lost or damaged. “[R]eading the Policy as a whole, the Court finds that Plaintiff’s Complaint fails to state a claim because it does not allege that any insured property was damaged or that Plaintiff was permanently dispossessed of any insured property … [and] Plaintiff’s contention that ‘loss of property’ reasonably includes loss of usability is not sustainable.”
The court also decides that the virus exclusion “clearly and unequivocally” exempts any loss or damage from a virus. The court thus grants the motion to dismiss the plaintiff’s claims.
In COVID-19 Business Interruption Case, Court Finds Business Adequately Alleges It Suffered a Physical Loss
Studio 417 v. Cincinnati Ins. Co., 2020 U.S. Dist. LEXIS 147600 (Aug. 12, 2020)
In a business interruption case resulting from mandatory shutdowns to control COVID-19, court finds plaintiffs (hair salons and restaurants) adequately allege, inter alia, that they suffered a physical loss due to COVID-19 shutdown orders. In sum, defendant’s motion to dismiss will be denied in its entirety. The court emphasizes that plaintiffs have merely pled enough facts to proceed with discovery. Defendants motion to dismiss is denied.
COVID-19-related damages cases are making their way through state and federal courts. Plaintiffs typically are businesses that have suffered economic losses because of various mandatory shutdowns. They file claims with their insurance agency, which frequently denies coverage for business interruption losses. However, more often than not, courts have sided with the defendant insurance company and dismissed the plaintiff’s case or ruled against the business owner. In the instant case, the plaintiffs operated hair salons or restaurants in Missouri and Kansas. The plaintiffs purchased all-risk insurance policies from the defendant. The policies cover all risks except for risks that are expressly and specifically excluded.
“The Policies provide that Defendant would pay for ‘direct “loss” unless the “loss” is excluded or limited’ therein. A ‘Covered Cause of Loss’ is defined to mean accidental [direct] physical loss or accidental [direct] physical damage.” The policies also do not have any exclusions for losses caused by viruses. The court agreed that the plaintiffs adequately allege that they suffered a physical loss. “In sum, Defendant’s motion to dismiss will be denied in its entirety. The Court emphasizes that Plaintiffs have merely pled enough facts to proceed with discovery.”
Plaintiffs own salons or restaurants in Missouri and Kansas. All of the plaintiffs (this is a class action suit) purchased all-risk insurance policies from the defendant in this case. “All risk policies cover all risks of loss except for risks that are expressly and specifically excluded.” The policies provide that defendant would pay for “direct ‘loss’ unless the ‘loss’ is excluded or limited” therein. A “Covered Cause of Loss” “is defined to mean accidental [direct] physical loss or accidental [direct] physical damage.” The policies do not have any exclusion for losses from viruses. The policies do provide coverage for losses of business income.
Loss due to “Civil Authority” is also provided. This coverage applies to the actual loss of business income sustained and necessary extra expense sustained:
“[C]aused by action of civil authority that prohibits access to” the Covered Property when a Covered Cause of Loss causes direct damage to property other than the Covered Property, the civil authority prohibits access to the area immediately surrounding the damaged property, and “the action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage[.]”
“Plaintiffs allege that the presence of COVID-19 and the Closure Orders caused a direct physical loss or direct physical damage to their premises ‘by denying use of and damaging the covered property, and by causing a necessary suspension of operations during a period of restoration.’” Defendant denied the claims.
Relevant Policy Provisions:
Defendant filed a motion to dismiss in response to the claims of the plaintiffs, stating that the policies provide coverage “only for income losses tied to physical damage to property, not for economic loss caused by governmental or other efforts to protect the public from disease … the same direct physical loss requirement applies to all the coverages for which Plaintiffs sue.”
The standard follows Rule 12(b)(6), which provides that a defendant may move to dismiss for “failure to state a claim upon which relief can be granted.” Because the case is based on diversity, state law controls the construction of the policies. In this case, Missouri law controls to construe the contracts as written. “Insurance policies are to be given a reasonable construction and interpreted so as to afford coverage rather than to defeat coverage.”
Arguments and Decision:
Defendant argues that plaintiffs have not adequately pled a “physical loss” as required by the policies. “According to Defendant, the requirement of a tangible physical loss applies to—and precludes—each type of coverage sought in this case.” Plaintiffs argue that COVID-19 is a physical substance and lives on physical surfaces and also is emitted into the air. The court finds that the plaintiffs have adequately stated a claim for direct physical loss. “Other courts have similarly recognized that even absent physical alteration, a physical loss may occur when the property is uninhabitable or unusable for its intended purpose.” “Plaintiffs here have plausibly alleged that COVID-19 particles attached to and damaged their property, which made their premises unsafe and unusable. This is enough to survive a motion to dismiss.” Per the court, plaintiffs also adequately stated claims for civil authority and ingress and egress coverages.
In COVID-19 Business Interruption Case, Court Grants Defendant’s Motion to Dismiss Plaintiff’s Claim for COVID-19-Related Losses
Graspa Consulting v. United Nat’l Ins. Co., 2020 U.S. Dist. LEXIS 215976 (Nov. 17, 2020)
In a business interruption case, the defendant was granted a motion to dismiss. Plaintiff was unable to show that there was physical damage to their restaurants’ premises and there was a broadly worded exclusion for any loss resulting from a virus. Court followed case law that damage must be “actual” in Florida.
COVID-19-related damages cases are making their way through state and federal courts. Plaintiffs typically are businesses that have suffered economic losses because of various mandatory shutdowns. They file claims with their insurance agency, which frequently denies coverage for business interruption losses. However, more often than not, courts have sided with the defendant insurance company and dismissed the plaintiff’s case or ruled against the business owner. In the instant case, the plaintiff operates restaurants in Florida and challenges the insurance company’s rejection of its claims under a commercial insurance policy the company issued that covered in part business interruption damages. The court agreed with the insurer that the policy, which required an allegation of and evidence of physical loss, did not provide coverage for the loss caused by COVID-19 because no physical damage was alleged or shown to be caused by COVID-19.
The plaintiff owned restaurants in Florida. The defendant insurance company, United National Insurance Co., issued a policy to insure plaintiff’s properties. The policy provided protection against losses and other expenses that might result from an involuntary interruption in business operations.
In March 2020, Florida Governor Ron DeSantis issued several executive orders that restricted the public’s access to the restaurant industry. Although these orders were lifted in the months to follow, local governments issued additional orders that restricted access to all nonessential business operations in response to the COVID-19 pandemic. As a result, plaintiff suffered significant losses and other expenses that now threaten the future of its business.
Defendant denied plaintiff’s claim because plaintiff did not meet one of the prerequisites for coverage: allegations and evidence of physical loss or damage to the insured property. Defendant also takes the position that there is no coverage under the insurance policy because it contains a broadly worded exclusion for any loss resulting from a virus or a pollutant.
Plaintiff therefore filed this action on June 11, 2020, in Florida state court for breach of contract, seeking compensatory damages, prejudgment interest, court costs, and fees, which was removed to Federal Court on Aug. 20, 2020.
Applicable Legal Principles:
This breach of contract case was determined under Federal Rule of Civil Procedure 12(b)(6), stating that “a court may dismiss a claim for failure to state a claim upon which relief can be granted.” “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.’” “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Although it must accept well-pled facts as true, the court is not required to accept a plaintiff’s legal conclusions. The court also reasoned that “[t]he Eleventh Circuit has endorsed ‘a “two-pronged approach” in applying these principles: 1) eliminate any allegations in the complaint that are merely legal conclusions; and 2) where there are well-pleaded factual allegations, “assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.”’”
Additionally, the court applied Florida law.
Direct Physical Loss and Virus Benefit Hurdles:
Plaintiff did not allege that it suffered any direct physical loss as a result of the closures, and defendant claims that this is a requirement under the policy. Further, defendant claims that the policy contains broad exclusions for viruses and other pollutants that apply to the COVID-19 pandemic.
General Principles of Florida Law and Application:
Since the properties are located in Florida, Florida law must also be considered. “Under Florida law, an insurance policy is treated like a contract, and therefore ordinary contract principles govern the interpretation and construction of such a policy.” In addition, “[u]nder Florida law, insurance contracts are construed according to their plain meaning.” Defendants argue that losses due to a suspension of operations must be caused by direct physical loss or damage to property at the premises. Plaintiff’s response is that, while the policy never defines the meaning of the terms “direct physical loss or damage,” there is no evidence that these terms should require a physical alteration to seek coverage. Instead, plaintiff asserts that defendant could have made these terms clear in the policy but that defendant failed to do so. In summary, “we have already considered the Eleventh Circuit’s view on this question and, most importantly, Florida’s appellate courts. And they are both in agreement that the harm suffered must be actual when interpreting the meaning of these terms in an insurance policy.” The magistrate judge recommends that the motion to dismiss be granted.
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