Opinion
No. CV-20-511-R
2021-03-11
GOODWILL INDUSTRIES OF CENTRAL OKLAHOMA, INC., d/b/a Goodwill Career Pathways Institute, Plaintiff, v. PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant.
J. Revell Parrish, Michael Burrage, Reggie N. Whitten, Whitten Burrage, Oklahoma City, OK, Jim T. Priest, Rubenstein & Pitts PLLC, Edmond, OK, for Plaintiff. Joy Tate, Phil R. Richards, Richards & Connor, Tulsa, OK, Jeffrey A. Zachman, Dentons US LLP, Atlanta, GA, Richard L. Fenton, Dentons US LLP, Chicago, IL, for Defendant.
J. Revell Parrish, Michael Burrage, Reggie N. Whitten, Whitten Burrage, Oklahoma City, OK, Jim T. Priest, Rubenstein & Pitts PLLC, Edmond, OK, for Plaintiff.
Joy Tate, Phil R. Richards, Richards & Connor, Tulsa, OK, Jeffrey A. Zachman, Dentons US LLP, Atlanta, GA, Richard L. Fenton, Dentons US LLP, Chicago, IL, for Defendant.
ORDER
DAVID L. RUSSELL, UNITED STATES DISTRICT JUDGE Before the Court is Plaintiff Goodwill Industries of Central Oklahoma, Inc.’s ("Goodwill") Motion to Alter or Amend Judgment. Doc. No. 26. Defendant Philadelphia Indemnity Insurance Company ("PIIC") filed a Response in Opposition. Doc. No. 27. Goodwill then filed a Reply, Doc. No. 28, and PIIC filed a sur-Reply. Doc. No. 31.
This dispute arises from Goodwill's closure of its central Oklahoma locations after the Governor of Oklahoma issued an Executive Order declaring a state of emergency due to rising cases of the novel coronavirus ("COVID-19") on March 15, 2020. Doc. No. 1-1, p. 6.
Goodwill purchased a Commercial Lines policy underwritten by PIIC ("the Policy"), providing "Business Income" coverage [ ] for "the actual loss of Business Income [ ] sustain[ed] due to the necessary ‘suspension’ of [ ] ‘operations’ during the ‘period of restoration.’ " Doc. No. 1-1, p. 2; Doc. No. 1-4, p. 169. The Policy, which ran "from May 1, 2019, to May 1, 2020," only covers " ‘suspension[s]’ [ ] caused by direct physical loss of or damage to property." Doc. No. 1-4, p. 169; Doc. No. 1-1, p. 2. Any coverage is conditioned on Goodwill suffering a "direct physical loss of or damage to property" operated by Goodwill throughout central Oklahoma. Doc. No. 1-1, pp. 2–3.
Importantly, the Policy included an endorsement that excludes coverage for "loss due to virus or bacteria." Doc. No. 1-4, p. 26. The endorsement is titled "Exclusion of Loss Due to Virus or Bacteria" ("Virus Endorsement"), and it "applies to all coverage under all forms and endorsements ... including ... damage to buildings or personal property and ... business income, extra expense, or action of civil authority." Doc. No. 1-1, p. 100. It states that "[PIIC] 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." Doc. No. 1-1, p. 100.
After state-wide orders prompted Goodwill to close its doors, Goodwill sought a declaratory judgment in state court on May 6, 2020 that "[it] sustained a ‘direct physical loss’ and/or ‘risk of direct physical loss’ " from the mandated closures. Doc. No. 1-1. On June 1, 2020, PIIC removed the action to this Court. Doc. No. 1. PIIC then moved to dismiss the claims against it on the grounds that Goodwill failed to allege a "direct physical loss" under the Policy and because the Virus Endorsement precluded coverage. Doc. No. 8.
On November 9, 2020, the Court granted PIIC's motion to dismiss in its entirety for two reasons. Doc. No. 24. First, the Court explained that "[a]lleging a direct physical loss unambiguously requires a showing of tangible damage." Doc No. 24, p. 8. Further, because Goodwill did not allege any tangible damage to its property, it failed to state a claim of a "direct physical loss" under the Policy. Id. Second, the Court explained that "[e]ven if [it] applied a more expansive definition of direct physical loss, [ ] its claim [was] still subject to dismissal because the Virus Endorsement expressly excludes coverage." Id.
On December 7, 2020, Goodwill filed a "Motion to Alter or Amend" Judgment pursuant to Fed. R. Civ. P. 59(e). Doc. No. 26. In its Motion, Goodwill argues that the Court erred when it granted PIIC's motion to dismiss because i) it evaluated the plain meaning of "direct physical loss" without accounting for the modifier "risk of direct physical loss"; ii) it did not adopt Goodwill's construction of direct physical loss when Goodwill offered a reasonable construction of the phrase; and iii) amendment of the Complaint would not be futile. Doc. No. 26, pp. 4, 6, 8.
Parties may file a motion to alter or amend a judgment under Fed. R. Civ. P. 59(e). " Rule 59(e) derives from a common-law court's plenary power to revise its judgment during a single term of court, before anyone could appeal." Banister v. Davis , ––– U.S. ––––, 140 S. Ct. 1698, 1709, 207 L.Ed.2d 58 (2020). "The Rule gives a district court the chance ‘to rectify its own mistakes in the period immediately following’ its decision." Id. at 1703 (quoting White v. N.H. Dep't of Emp. Sec. , 455 U.S. 445, 450, 102 S.Ct. 1162, 71 L.Ed.2d 325 (1982) ). The time for filing a Rule 59(e) motion "is short—28 days from entry of the judgment, with no possibility of an extension." Id. ; see also Fed. R. Civ. P. 59(e) ; Fed. R. Civ. P. 6(b)(2).
A Rule 59(e) motion may be granted when the movant presents one of the following circumstances: "(1) an intervening change in the controlling law, (2) new evidence previously unavailable, and (3) the need to correct clear error or prevent manifest injustice." Servants of the Paraclete v. Does , 204 F.3d 1005, 1012 (10th Cir. 2000) (citation omitted). In the Tenth Circuit, "a motion for reconsideration is appropriate where the court has misapprehended the facts, a party's position, or the controlling law." Id. However, a motion to reconsider "is not appropriate to revisit issues already addressed or advance arguments that could have been raised in prior briefing." Ferluga v. Eickhoff , 236 F.R.D. 546, 549 (D. Kan. 2006) (citing Servants of the Paraclete , 204 F.3d at 1012 ); see also Banister , 140 S. Ct. at 1703 ("[C]ourts will not address new arguments or evidence that the moving party could have raised before the decision issued.").
Goodwill argues that under Servants of the Paraclete , the Court should amend its prior judgment to correct clear error and prevent manifest injustice. Doc. No. 26, p. 4. To begin with, Goodwill urges the Court that it erred in its interpretation of the Policy language when it interpreted "direct physical loss," rather than "risks of direct physical loss." Doc. No. 26, pp. 4–5 (emphasis in original). Goodwill reasons that the threat of the spread of the virus, which was "the entire purpose of the Governor's Executive order ...", should qualify as a "risk of direct physical loss." Id. at 5.
Goodwill argues it "is entitled to coverage if the "loss or damage" is caused by or result[s] from Covered Cause of Loss." Doc. No. 26, p. 4. However, Goodwill overlooks the fact that prior to describing what qualifies as a "Covered Loss," the Business Income Coverage Form states that the " ‘suspension’ must be caused by direct physical loss of or damage to property ...". Doc. No. 1-4, at 169. Accordingly, while "risks of direct physical loss" define what property qualifies as a "covered loss," loss of business due to the "necessary suspension of your operations" is only covered if the period of suspension is caused by "direct physical loss." Id. (emphasis added). Thus, as PIIC explains, and as the Court held in its previous Order, "the Business Income, Extra Expense, and Civil Authority Coverages [...] specifically require the insured to establish direct physical loss or damage to property—not merely a ‘risk of physical loss or damage.’ " Doc. No. 27, pp. 5–6 (citing Doc. No. 1–4, pp. 169–170). Therefore, the Court did not err when it interpreted "direct physical loss" rather than "risks of direct physical loss."
Next, Goodwill argues that the Court erred in its interpretation of "direct physical loss" because it did not "construe the ambiguous term most favorably toward Goodwill and most strictly against PIIC." Doc. No. 26, pp. 6. However, the Court previously explained that "[a]lleging a direct physical loss unambiguously requires a showing of tangible damage. Goodwill failed to allege it suffered any tangible damage, and therefore, its claim is subject to dismissal." Doc. No. 24, p. 8 (emphasis added).
Goodwill cites a recent decision from a state court in North Carolina, which explains that when two proffered definitions are reasonable, the phrase is at least ambiguous, and the Court should therefore utilize the "reasonable definition which favors coverage." Doc. No. 26, pp. 6–7 (citing North State Deli, LLC v. The Cincinnati Insurance Company , Case No. 20-CVS-02569 (N.C. Super. Ct. Oct. 9, 2020)). However, the Court is bound by the laws of interpretation of the state of Oklahoma, not North Carolina.
As the Court explained in its previous Order, in Oklahoma,
[t]he interpretation of an insurance contract and whether it is ambiguous is determined by the Court as a matter of law. Serra v. Estate of Broughton , 364 P.3d 637, 641 (Okla. 2015). The Court shall not "force[ ] or constrain[ ] interpretations to create [... or] construe ambiguities. Max True Plastering v. U.S. Fid. & Guar. Co. , 912 P.2d 861, 869 (Okla. 1996).
Doc. No. 24, pp. 4–5.
Additionally, Goodwill relies on an Oklahoma trial court summary judgment opinion for its proposition that Goodwill properly pled a "direct physical loss" under the policy. Choctaw Nation of Oklahoma v. Lexington Ins. Co., et al. , Case No. CV-20-42, Order (Okla. Dist. Ct., Bryan Cnty. Feb. 15, 2021), available at Doc. No. 34-1. However, in Choctaw Nation , the trial court explained the distinction in Goodwill's policy and Choctaw Nation's policy. Id. The court explained that
the Goodwill court noted numerous other provisions in the [ Goodwill Policy] that are absent from [Choctaw Nation's] Policy. The Goodwill policy required "actual loss" due to a "suspension" of "operation," but such words and requirements are absent from [Choctaw Nation's] Policy. See Goodwill Indus. of Cent. Oklahoma, Inc. , No. CV-20-511-R, at *1–2. Meanwhile, [Choctaw Nation's] Policy provides coverage for "imminent loss." See supra at 8. To interpret these policies the same would render those different words, definitions, and provisions meaningless, which this Court will not do.
Choctaw Nation , Case No. CV-20-42, at 10. Accordingly, as the court explained, Choctaw Nation's policy used "different words, definitions, and provisions" than Goodwill's Policy. Id. Therefore, Goodwill's reliance on Choctaw Nation is misplaced.
As PIIC notes, "the phrase ‘direct physical loss’ is not ambiguous simply because it is not defined in the Policy." Doc. No. 27, p. 6 (citing Cranfill v. Aetna Life Ins. Co. , 49 P.3d 703, 706 (Okla. 2002) ). While Goodwill argues that a "direct physical loss" encompasses more than "an actual, or material, deprivation of Plaintiff's property," the majority of district courts across the country disagree. See generally Doc. No. 24, p. 7. Accordingly, the Court did not err when it chose to apply the plain language of "direct physical loss" rather than to "force[ ] or constrain [an] interpretation[ ] to create [...] ambiguit[y]." Max True Plastering v. Unites States Fid. & Guar. Co. , 912 P.2d 861, 869 (Okla. 1996). Thus, because an ambiguity did not exist, the Court need not defer to Goodwill's interpretation.
A majority of district courts have found a "direct physical loss" to require some form of tangible damage to property. See, e.g. DAB Dental PLLC v. Main Street America Protection Ins. Co. , No. 20-CA-5504 (Fla. Cir. Civ. Div. Nov. 10, 2020); Goodwill Indus. of Central Okla., Inc. v. Phila. Indem. Ins. Co. , 499 F.Supp.3d 1093 (W.D. Okla. 2020) ; Water Sports Kauai, Inc. v. Fireman's Fund Ins. Co. , 499 F.Supp.3d 670 (N.D. Cal. 2020) ; Real Hospitality, LLC v. Travelers Cas. Ins. Co. of Am. , 499 F.Supp.3d 288 (S.D. Miss. 2020) ; Raymond H. Nahmad DDS PA v. Hartford Cas. Ins. Co. , 499 F.Supp.3d 1178 (S.D. Fla. 2020) ; Travelers Cas. Ins. Co. v. Geragos and Geragos , 495 F.Supp.3d 848 (C.D. Cal. 2020) ; Seifert v. IMT Ins. Co. , 495 F.Supp.3d 747 (D. Minn. 2020) ; Harvest Moon Distributors, LLC v. Southern-Owners Ins. Co. , 493 F.Supp.3d 1179 (M.D. Fla. 2020) ; Vandelay Hosp. Group LP v. Cincinnati Ins. Co. , 2020 WL 5946863 (N.D. Tex. Oct. 7, 2020) ; Henry's Louisiana Grill, Inc. v. Allied Ins. Co. , 495 F.Supp.3d 1289 (N.D. Ga. 2020) ; Mark's Engine Co. No. 28 Restaurant LLC v. The Travelers Indemn. Co. , 492 F.Supp.3d 1051 (C.D. Cal. 2020) ; Infinity Exhibits, Inc. v. Certain Underwriters at Lloyd's London , 489 F.Supp.3d 1303, 1304-1305 (M.D. Fla. 2020) ; Mudpie, Inc. v. Travelers Cas. Ins. Co. of America , 487 F.Supp.3d 834 (N.D. Cal. 2020) ; Pappy's Barber Shops, Inc. v. Farmers Grp., Inc. , 487 F.Supp.3d 937 (S.D. Cal. 2020) ; Plan Check Downtown III, LLC v. Amguard Ins. Co. , 485 F. Supp. 3d 1225 (C.D. Cal., 2020) ; Turek Enterprises, Inc. v. State Farm Mut. Auto. Ins. Co. , 484 F. Supp. 3d 492 (E.D. Mich. 2020) ; 10E, LLC v. Travelers Indemnity Co. , 483 F. Supp. 3d 828 (C.D. Cal. 2020) ; Diesel Barbershop, LLC, et al. v. State Farm Lloyds , 479 F. Supp. 3d 353 (W.D. Tex. 2020) ; Rose's 1, LLC v. Erie Ins. Exch. , 2020 WL 4589206 (D.C. Super. Aug. 06, 2020) ; The Inns by the Sea v. California Mut. Ins. Co. , Case No. 20-CV-001274 (Cal. Super. Ct., Monterey Cnty. Aug. 6, 2020); Gavrilides Mgm't Co., LLC v. Mich. Ins. Co. , 2020 WL 4561979 (Mich. Cir. Ct. July 21, 2020).
Lastly, Goodwill argues that it "should be provided an opportunity to amend its Complaint to set forth facts establishing a "tangible loss" and alternatively, that "the Court's [previous] Order implies that if these facts were supplied (i.e., facts showing there was not consideration for the [virus] endorsement), Goodwill's claim would not be dismissed." Doc. No. 26, pp. 8–9. However, the Court disagrees.
Goodwill did not properly file a motion for leave to amend. Fed. R. Civ. P. 15(a) gives parties a right to amend pleadings once as a matter of course at any time before a responsive pleading is served. Accordingly, Goodwill could have amended the Complaint as of right after it received the motion to dismiss and before the Court ruled on it. See, e.g., Glenn v. First Nat. Bank in Grand Junction , 868 F.2d 368, 370 (10th Cir. 1989). However, once the Court granted PIIC's motion to dismiss, Goodwill was required to obtain leave of court or written consent from PIIC to amend the Complaint. Fed. R. Civ. P. 15(a)(2). The Tenth Circuit has explained that
[a]fter a motion to dismiss has been granted, plaintiffs must first reopen the case pursuant to a motion under Rule 59(e) or Rule 60(b) and then file a motion under Rule 15, and properly apply to the court for leave to amend by means of a motion which in turn complies with Rule 7. In that event, in accordance with Rule 15, "leave shall be freely given when justice so requires."
Glenn , 868 F.2d at 371 (internal citations omitted) (emphasis added). Instead of properly following the procedure laid out in Rule 15(a), in its Reply brief, Goodwill requests that the Court provide an opportunity for it to amend its Complaint. Doc. No. 28, p. 2. Further, though " Rule 59(e) permits a court to alter or amend a judgment, [ ] it ‘may not be used to relitigate old matters, or to raise arguments or present evidence that could have been raised prior to the entry of judgment.’ " Exxon Shipping Co. v. Baker , 554 U.S. 471, 485, n.5, 128 S.Ct. 2605, 171 L.Ed.2d 570 (2008) (citing 11 C. Wright & A. Miller, Federal Practice and Procedure § 2810.1, pp. 127–128 (2d ed. 1995) (footnotes omitted)). Goodwill did not follow the proper procedure for seeking leave to amend because it did not seek leave prior to the Court's ruling on PIIC's motion to dismiss and it argued for leave within a motion to reconsider rather than by filing a motion seeking leave to amend as outlined in Rule 15(a).
Goodwill first requests leave to amend in its initial Rule 59(e) motion, Doc. No. 26, p. 1, but first provides its proposed amended Complaint in its Reply brief. Doc. No. 28, pp. 8–9.
Even though courts freely grant leave to amend "when justice so requires," Fed. R. Civ. P. 15(a)(2), leave to amend may not be granted when the party opposing the motion shows "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment." Foman v. Davis , 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) ; see also Castanon v. Cathey , 976 F.3d 1136, 1145 (10th Cir. 2020) (explaining limitations on the general notion that amendment should be freely given); Durham v. Xerox Corp. , 18 F.3d 836, 840 (10th Cir. 1994) ("[U]nexplained delay alone justifie[d] the district court's discretionary decision" to deny leave to amend.). "A proposed amendment to a complaint is futile if it would be subject to dismissal for any reason, including that the amendment would not survive a motion for summary judgment or a motion to dismiss." Weinstein v. U.S. Air Force , 468 F. Supp. 2d 1366, 1374 (D.N.M. 2006) (citing Watson ex rel. Watson v. Beckel , 242 F.3d 1237, 1239–40 (10th Cir. 2001) ; Gohier v. Enright , 186 F.3d 1216, 1218 (10th Cir. 1999) ).
Here, amending Goodwill's Complaint would be futile because it would not survive a motion to dismiss.
As explained above, the Court found that a "direct physical loss" unambiguously requires alleging some tangible damage to property, and Goodwill did not allege anything other than business closures due to government orders. Doc. No. 24, p. 6. Plaintiff's proposed amended complaint is no different. It alleges that
closure orders [...] prohibited Goodwill from accessing its property in response to dangerous physical conditions that constitute a Covered Cause of Loss.
[...]
23. [...] Goodwill's property was tangibly damaged because it was likely customers, employees, mail delivery persons, and/or other visitors to the insured property prior to Goodwill's closure were infected with COVID-19.
24. Goodwill's property was also tangibly damaged because it sustained tangible losses of revenue as a result of the civil authority mandated closure order.
25. As a result of the likely presence of COVID-19 on or around Goodwill's properties, Goodwill was deprived of the use of its property.
26. Goodwill was required to suspend its business operations to further prevent physical damages to the premises by the presence or proliferation of COVID-19 and the physical harm it could cause persons present on or near Goodwill's properties as COVID-19 is physically transmitted by air and surfaces that remain infections (sic) for an extended time.
Doc. No. 28-1, ¶¶ 20, 23–26.
Simply adding words such as "tangible" or "physical" does not change the nature of Goodwill's claims. Just as this Court explained in its previous Order, Goodwill is alleging that the closure orders rendered its locations unusable. Doc. No. 24, p. 8. Goodwill does not allege that any of its properties’ structures were physically altered or damaged. Rather, the basis of Goodwill's claim is that it suffered economic loss caused by government orders issued in response to COVID-19. Such allegations are insufficient to state a direct physical loss. See, e.g., Turek Enterprises, Inc. v. State Farm Mut. Auto. Ins. Co. , 484 F.Supp.3d 492 (E.D. Mich. 2020) (economic loss did not establish coverage under policy requiring direct physical loss). Accordingly, granting Goodwill leave to amend its allegations of a direct physical loss would be futile because it still cannot plead a direct physical loss under the Policy.
Alternatively, Goodwill argues it should be permitted to amend its Complaint in regard to the Virus Endorsement as well. Specifically, Goodwill seeks to plead that
Of the 113 federal district courts to consider a motion to dismiss by an insurer with a virus endorsement in the policy, 108 granted the motion. See Outcome on Merits-Based Motions to Dismiss , Covid Coverage Litigation Tracker, available at https://cclt.law.upenn.edu/judicial-rulings, accessed March 11, 2021 (tracking district court rulings from July 15, 2020 to March 1, 2021).
no consideration was provided to Goodwill in exchange for the addition of this endorsement. The endorsement was not part of the original Policy. By adding this endorsement, Philadelphia limited Goodwill's coverage with no benefit conferred upon Goodwill in exchange.
Doc. No. 28-1, ¶ 14.
The parties do not dispute that Goodwill obtained the Policy, No. PHPK1972850, underwritten by PIIC "for a policy period from May 1, 2019 to May 1, 2020." Id. ¶ 5. Further, it is undisputed that the Virus Endorsement was included in the Policy. Goodwill apparently seeks to argue that the Virus Endorsement was not part of "the original Policy." Doc. No. 28-1, ¶ 14. Perhaps at one point in the relationship between Goodwill and PIIC, Goodwill was insured under a policy without a Virus Endorsement. However, "Oklahoma courts have ... held that ‘the renewal of an insurance policy is a new contract.’ " Dalpaos-Lawrence v. Guideone Am. Ins. Co. , 243 F. App'x 358, 363 (10th Cir. 2007) (citing Wynn v. Avemco Ins. Co. , 963 P.2d 572, 574 (Okla. 1998) ). Here, PIIC and Goodwill renewed the Policy between the parties for the period of May 1, 2019 to May 1, 2020. Doc. No. 28-1, ¶ 5. Once the Policy was renewed, a new contract between the parties was formed. This new contract clearly included the Virus Endorsement. Doc. No. 1-1, p. 32. As this Court stated previously, the "plain, unambiguous meaning of the Virus [Endorsement] ... [ ] negates coverage." Doc. No. 24, p. 10 (citing Turek , 484 F.Supp.3d at 504 ). For this reason, granting leave to amend the Complaint would be futile.
In conclusion, the Court did not err in its interpretation of "direct physical loss" and amendment of the Complaint would be futile. Therefore, Goodwill's motion to alter or amend judgment pursuant to Rule 59(e) is hereby DENIED.
IT IS SO ORDERED on this 11th day of March, 2021.