S Orthopaedic Spclt v. State Farm Fire ( 2023 )

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
2
Case: 22-30340 Document: 00516698795 Page: 3 Date Filed: 04/03/2023
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
3
Case: 22-30340 Document: 00516698795 Page: 4 Date Filed: 04/03/2023
No. 22-30340
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.
4
Case: 22-30340 Document: 00516698795 Page: 5 Date Filed: 04/03/2023
No. 22-30340
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.
5
Case: 22-30340 Document: 00516698795 Page: 6 Date Filed: 04/03/2023
No. 22-30340
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.’”).
6
Case: 22-30340 Document: 00516698795 Page: 7 Date Filed: 04/03/2023
No. 22-30340
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.
7