Chattanooga Professional Baseball LLC et al v. National Casualty Company et al, No. 2:2020cv01312 - Document 39 (D. Ariz. 2020)
Court Description: ORDER granting 27 Motion to Dismiss for Failure to State a Claim. The Clerk of Court is directed to terminate the case. See document for complete details. Signed by Judge Douglas L Rayes on 11/13/2020. (RMV)
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Chattanooga Professional Baseball LLC et al v. National Casualty Company et al Doc. 39 Case 2:20-cv-01312-DLR Document 39 Filed 11/13/20 Page 1 of 7 1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Chattanooga Professional Baseball LLC, et al., 10 Plaintiffs, No. CV-20-01312-PHX-DLR ORDER 11 12 13 v. National Casualty Company, et al., Defendants. 14 15 16 Before the Court is Defendants’ motion to dismiss, which is fully briefed. (Docs. 17 27, 30, 33.) For the following reasons, Defendants’ motion is granted.1 18 I. Background 19 Plaintiffs are twenty-four entities associated with or providing services for nineteen 20 Minor League Baseball (“MiLB”) teams in California, Idaho, Indiana, Maryland, Oregon, 21 South Carolina, Tennessee, Texas, Virginia, and West Virginia. (Doc. 23 at 3.) Plaintiffs 22 each held substantially identical commercial first-party property and casualty insurance 23 policies (the “Policies”) provided by Defendants. (Docs. 23-1-23-12.) In 2020, MiLB 24 experienced its first-ever cessation since its establishment, which Plaintiffs allege was 25 caused by “continuing concerns for the health and safety of players, employees, and fans 26 related to the SARS-CoV-2 virus; action and inaction by federal and state governments 27 The parties’ requests for oral argument are denied because the issues are adequately briefed and oral argument will not help the Court resolve the motion. See Fed. R. Civ. P. 78(b); LRCiv. 7.2(f); Lake at Las Vegas Investors Grp., Inc. v. Pac. Malibu Dev., 933 F.2d 724, 729 (9th Cir. 1991). 28 1 Dockets.Justia.com Case 2:20-cv-01312-DLR Document 39 Filed 11/13/20 Page 2 of 7 1 related to controlling the spread of the virus; and Major League Baseball (“MLB”) not 2 supplying players to their affiliated minor league teams.” (Id. at 4.) Following cessation, 3 Plaintiffs submitted claims for coverage under the Policies to Defendants, but Defendants 4 have allegedly denied their claims or intend to do so.2 (Id. at 6.) On July 2, 2020, Plaintiffs 5 filed suit against Defendants in this Court. (Doc. 1.) The operative amended complaint, 6 filed on August 21, 2020, brings claims for breach of contract, anticipatory breach of 7 contract, and declaratory judgment. (Doc. 23.) On September 11, 2020, Defendants filed 8 a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). The motion is now ripe. 9 II. Legal Standard 10 A. Fed. R. Civ. P. 12(b)(6) 11 To survive dismissal for failure to state a claim pursuant to Federal Rule of Civil 12 Procedure 12(b)(6), a complaint must contain factual allegations sufficient to “raise a right 13 to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 14 (2007). The task when ruling on a motion to dismiss “is to evaluate whether the claims 15 alleged [plausibly] can be asserted as a matter of law.” See Adams v. Johnson, 355 F.3d 16 1179, 1183 (9th Cir. 2004); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). When 17 analyzing the sufficiency of a complaint, the well-pled factual allegations are taken as true 18 and construed in the light most favorable to the plaintiff. Cousins v. Lockyer, 568 F.3d 19 1063, 1067 (9th Cir. 2009). However, legal conclusions couched as factual allegations are 20 not entitled to the assumption of truth, Iqbal, 556 U.S. at 680, and therefore are insufficient 21 to defeat a motion to dismiss for failure to state a claim, In re Cutera Sec. Litig., 610 F.3d 22 1103, 1108 (9th Cir. 2008). 23 B. Choice of Law 24 “In a diversity case, the district court must apply the choice-of-law rules of the state 25 in which it sits.” Abogados v. AT&T, Inc., 223 F.3d 932, 934 (9th Cir. 2000). Applying 26 Arizona choice-of-law rules, when addressing a claim based on an insurance policy, the 27 Plaintiffs explain that they fall into “two categories—the “Breach Plaintiffs or the “Anticipatory-Breach Plaintiffs—depending on the steps their respective Insurers have taken to avoid honoring their contractual commitments.” (Doc. 23 at 7.) 2 28 -2- Case 2:20-cv-01312-DLR Document 39 Filed 11/13/20 Page 3 of 7 1 Court applies the law of the “state which the parties understood was to be the principal 2 location of the insured risk during the term of the policy[.]” Beckler v. State Farm Mut. 3 Auto. Ins. Co., 987 P.2d 768, 772 (Ariz. Ct. App. 1999) (emphasis in original). Here, it is 4 undisputed that the insured risk for each Plaintiff rests in the state where each team 5 resides—California, Idaho, Indiana, Maryland, Oregon, South Carolina, Tennessee, Texas, 6 Virginia, or West Virginia. 7 III. Discussion 8 Defendants assert that each of the amended complaint’s counts should be dismissed 9 as a matter of law because Plaintiffs are not entitled to recover from Defendants from their 10 COVID-related losses because the Policies include a virus exclusion provision that 11 expressly excludes coverage for losses caused by a virus. The virus exclusion, which 12 applies to all coverage under the Policies, generally reads, “[w]e will not pay for loss or 13 damage caused by or resulting from any virus, bacterium or other microorganism.” (Doc. 14 23-1 at 58.) Under the law of each of the ten states in which the MiLB teams reside, the 15 Court construes insurance contracts according to their plain and ordinary meaning.3 16 Plaintiffs do not dispute that the virus exclusion’s meaning—that policy coverage does not 17 include losses stemming from or related to a virus—is clear and unambiguous. Rather, 18 they contend that the exclusion’s existence should not result in a dismissal of their 19 complaint because (1) whether the losses were caused by the virus is a question of fact that 20 cannot be decided at this juncture and (2) Defendants are estopped from applying the 21 exclusion. The Court will address Plaintiffs’ arguments, in turn. 22 A. Factual Dispute 23 Plaintiffs’ argument that a factual dispute exists as to the cause of their loss is not 24 3 25 26 27 28 Tustin Field Gas & Good, Inc. v. Mid-Century Ins. Co., 219 Cal. Rptr.3d 909, 914 (Cal. Ct. App. 2017); Clark v. Prudential Prop. & Cas. Ins. Co., 66 P.3d 242, 245 (Idaho 2003); Erie Indem. Co. for Subscribers at Erie Ins. Exch. v. Estate of Harris by Harris, 99 N.E.3d 625, 630 (Ind. 2018); Kurland v. ACE Am. Ins. Co., CV No. JKB-15-2668, 2017 WL 354254, at *2 (D. Md. Jan. 23, 2017); Groshong v. Mutual of Enumclaw Ins. Co., 985 P.2d 1284, 1289 (Or. 1999); Whitlock v. Stewart Title Guar. Co.,732 S.E.2d 626, 628 (S.C. 2012); Garrison v. Bickford, 377 S.W.3d 659, 664 (Tenn. 2012); Aggreko, L.L.C. v. Chartis Specialty Ins. Co., 942 F.3d 682, 688 (5th Cir. 2019); Erie Ins. Exch. v. EPC MD 15, LLC, 822 S.E.2d 351, 355 (Va. 2019); W. Virginia Fire & Cas. Co. v. Stanley, 602 S.E.2d 483, 489 (W. Va. 2004). -3- Case 2:20-cv-01312-DLR Document 39 Filed 11/13/20 Page 4 of 7 1 plausible. Plaintiffs’ amended complaint explicitly attributes their losses to the virus, 2 stating, “[t]he nature of the virus including its continuing damaging and invisible presence 3 and the measures required to mitigate its spread constitute an actual and imminent threat 4 and direct physical loss or damage to the ballparks (as well as the areas surrounding them) 5 and has contributed to cancellations of the Teams’ MiLB games” and “[a]s a result of the 6 virus, attendant disease, resulting pandemic governmental responses, and MLB not 7 supplying players, the Teams have been deprived of their primary source of revenue[.]” 8 (Doc. 23 at ¶ ¶ 58, 71.) 9 unclear whether their losses were caused by the government’s orders in response to the 10 Plaintiffs’ attempt to create a question of fact by arguing it is virus or the virus itself, (Doc. 30 at 6), is unavailing. 11 The amended complaint alleges that the government orders in question were issued 12 as a direct result of the virus. It states, “[t]he nature of the virus has caused authorities 13 around the country to issue stay-in-place orders to protect persons and property. . . Indeed, 14 authorities in each of the Teams’ respective states have issued such orders.” (Doc. 23 at ¶ 15 45.) Plaintiffs’ amended complaint does not allege any fact supporting an alternative 16 theory for the issuance of the government orders. There is no allegation in the complaint 17 that absent the pandemic, the government would have been prompted to issue stay-at-home 18 orders or otherwise inhibit access to the ballparks. 19 arguments have been consistently rejected. See Diesel Barbershop, LLC v. State Farm 20 Lloyds, No. 5:20-CV-461-DAE, 2020 WL 4724305, at * 6 (W.D. Tex. Aug. 13, 2010) 21 (“While the Orders technically forced the Properties to close[,] the Orders only came about 22 sequentially as a result of the COVID-19 virus. . . Thus, it was the presence of COVID-19 23 . . . that was the primary root cause of Plaintiffs’ business temporarily closing.”); Franklin 24 EWC, Inc. v. The Hartford Finn. Servs. Grp., Inc., No. 20-cv-04434 JSC, 2020 WL 25 5642483, at *2 (N.D. Cal. Sept. 22, 2020) (“[U]nder Plaintiffs’ theory, the loss is created 26 by the Closure Orders rather than the virus, and therefore the Virus Exclusion does not 27 apply. Nonsense.”). 28 Similar COVID-19 causation Turning to MLB’s failure to provide players, even if Plaintiffs’ losses were caused -4- Case 2:20-cv-01312-DLR Document 39 Filed 11/13/20 Page 5 of 7 1 by such failure—and the virus did not cause such failure—the Policies include an exclusion 2 for losses stemming from the “[s]uspension, lapse or cancellation” of a contract. (Doc. 23- 3 1 at 44.) Again, Plaintiffs do not argue that the exclusion is ambiguous, but rather that it 4 is inapplicable because they have not alleged that a suspension, lapse or cancellation of a 5 contract between MLB and MiLB occurred when MLB failed to provide players to MiLB. 6 Not so. Plaintiffs state in their amended complaint that MLB is contractually obligated to 7 supply Plaintiffs’ teams with players but failed to do so. (Doc. 23 at ¶¶ 69-70.) Any effort 8 to ignore the contractual nature of MLB and MiLB’s relationship is disingenuous. In sum, 9 the Court rejects Plaintiffs’ first argument against the applicability of the virus exclusion. 10 B. Estoppel 11 Plaintiffs next argue dismissal is inappropriate because they have adequately alleged 12 that Defendants are estopped from enforcing the virus exclusion. Particularly, they contend 13 that regulatory estoppel prevents enforcement of the provision because Defendants were 14 only able to gain regulatory approval for the virus exclusion in 2006 by making 15 misrepresentations4 to the state insurance commissions. However, regulatory estoppel is a 16 New Jersey state law defense, espoused in Morton Inter. v. Gen. Acc. Ins. Co. of Am., 629 17 A. 2d 831 (N.J. 1993), which no state whose laws apply has adopted. See SnyderGeneral 18 Corp. v. General Am. Ins. Co., 928 F. Supp. 674, 682 (N.D. Tex. 1996) (collecting cases) 19 (explaining that regulatory estoppel “has been rejected by virtually every other state and 20 federal court to address the issue.”). Plaintiffs suggest that, even if no relevant state has 21 adopted regulatory estoppel,5 lack of current recognition is of no import, because the states 22 would recognize it if given the opportunity, each state nevertheless recognizes general 23 equitable estoppel, and, regardless, federal common law governs their estoppel defense. 24 Plaintiffs’ arguments are unpersuasive. First, contrary to Plaintiffs’ assertions, 25 26 27 28 4 Plaintiffs assert that Defendants falsely represented to regulatory commissions, when securing approval, that the exclusion was merely a clarification of current policy in order to avoid premium reductions when, in fact, the exclusion reduced prior coverage. 5 Plaintiffs argue West Virginia has recognized regulatory estoppel, citing to Joy Tech., Inc. v. Liberty Mut. Ins. Co., 421 S.E. 2d 493 (W. Va. 1992), a case which does not discuss estoppel. -5- Case 2:20-cv-01312-DLR Document 39 Filed 11/13/20 Page 6 of 7 1 courts in Texas and Indiana have already refused to follow Morton’s guidance when given 2 the opportunity, declining to apply regulatory estoppel when facing an unambiguous 3 insurance provision. Id.; Cincinnati Ins. Co. v. Flanders Elect. Motor Serv., Inc., 40 F.3d 4 146, 153 (7th Cir. 1994). Second, general equitable estoppel is “not available to bring 5 within the coverage of a policy risks not covered by its terms, or risks expressly excluded 6 therefrom.” Reno Contracting, Inc. v. Crum & Forster Specialty Ins. Co., 359 F. Supp. 3d 7 944, 952 (S.D. Cal. 2019); see also Spring Vegetable Co. v. Hartford Cas. Ins. Co., 801 F. 8 Supp. 385, 392 (D. Or. 1992) (“estoppel cannot be invoked by an insured to create 9 insurance coverage where none exists under the policy.”). Rather, “[t]he doctrine of 10 estoppel prevents the insurer from denying coverage based on printed provisions in the 11 policy that conflict with representations by the insurer or its agents on which the policy 12 holder reasonably relied.” Shoup v. Union Sec. Life Ins. Co., 124 P.3d 1028 (Idaho 2005).6 13 Plaintiffs, here, make the estoppel defense in attempt to bring virus-related losses within 14 the coverage of the Policies, even though such risks are expressly excluded. Plaintiffs have 15 not alleged that Defendants made representations to them that the virus exclusion did not 16 apply, or that their coverage otherwise differed from that represented in the printed 17 materials. Plaintiffs’ estoppel theory—that Defendants should not be able to apply the 18 virus exclusion because it allegedly came into being following misrepresentations made by 19 Defendants to state commissions to avoid premium reductions—is not one that is 20 cognizable under general equitable estoppel. Third, federal common law does not govern 21 Plaintiffs’ estoppel defense. “[A]bsent some congressional authorization to formulate 22 substantive rules of decision, federal common law exists only in such narrow areas as those 23 concerned with the rights and obligations of the United States, interstate and international 24 disputes implications the conflicting rights of States or our relations with foreign nations, 25 and admiralty cases.” Tex. Indus., Inc. v. Radcliff Materials, Inc., 461 U.S. 630, 641 26 27 28 6 See also Emmco Ins. v. Pashas, 224 N.E.2d 314, 318 (Ind. App. 1967); St. Paul Mercury Ins. Co. v. Am. Bank Holdings, Inc., 819 F.3d 728, 739 (4th Cir. 2016); Mayes v. Paxton, 437 S.E.2d 66, 68 (S.C. 1993); Henry v. S. Fire & Cas. Co., 330 S.W.2d 18, 31 (Tenn. Ct. App.1958); Mitchell v. State Farm Lloyds, No. 05-08-00184-CV, 2009 WL 596611, at *3 (Tex. Ct. App. Mar. 10, 2009); Harris v. Criterion Ins. Co., 281 S.E.2d 878, 881 (Va. 1981); Potesta v. U.S. Fid. & Guar. Co., 504 S.E.2d 135, 150 (W. Va. 1998). -6- Case 2:20-cv-01312-DLR Document 39 Filed 11/13/20 Page 7 of 7 1 (1981). The rare circumstances in which federal common law exists are absent here. In 2 sum, Plaintiffs’ estoppel defense fails as a matter of law 3 4 5 6 7 Plaintiffs have advanced no additional arguments against the applicability of the virus exclusion. Accordingly, dismissal of Plaintiffs’ complaint is appropriate. IT IS ORDERED that Defendants’ motion to dismiss (Doc. 27) is GRANTED. The Clerk of Court is directed to terminate the case. Dated this 13th day of November, 2020. 8 9 10 11 12 Douglas L. Rayes United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7-
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