Case: 21-40382 Document: 00516156667 Page: 1 Date Filed: 01/06/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
January 6, 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
Before Stewart, Haynes, and Graves, Circuit Judges.
Per Curiam:*
Appellant Aggie Investments, L.L.C. owns and operates a tea and
spice store 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
*
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opinion should not be published and is not precedent except under the limited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: 00516156667 Page: 2 Date Filed: 01/06/2022
No. 21-40382
insurance policy which covers losses “caused by direct physical loss of or
damage to property at the described premises.” The insurer, Appellee
Continental Casualty Company, 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.
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 and suffered a reduction in sales
and loss of business income.
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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
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 reduced capacity in its stores.
Throughout the pandemic, moreover, Aggie Investments had ownership of,
access to, and ability to use the entirety of its property.
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Aggie Investments 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
Indem. 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).
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
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“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 in-store capacity without any tangible alteration to 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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