488 F.Supp.3d 904
N.D. Cal.2020Background:
- Plaintiffs Franklin EWC, Inc. and owner Kathy Franklin operate a European Wax Center franchise in Fresno insured under a Spectrum Business Owner’s Policy issued by Sentinel (policy term June 8, 2019–June 8, 2020).
- California COVID-19 public-health orders on March 19, 2020 forced EWC Fresno to close; Plaintiffs submitted a business-interruption claim that Sentinel denied on April 8, 2020.
- The Policy provides coverage for "direct physical loss of or physical damage" caused by a "Covered Cause of Loss," but includes a broad Virus Exclusion precluding loss caused directly or indirectly by a virus.
- Plaintiffs seek coverage under (a) the policy’s Civil Authority provision (orders prohibiting access), and (b) a limited virus exception that provides up to $50,000 coverage where virus loss results from specified causes of loss.
- Defendants moved to dismiss; the court considered policy language, pleadings, and argument and concluded the Virus Exclusion bars coverage as a matter of law; other contract- and tort-based claims were dismissed with leave to amend except unjust enrichment and injunctive relief.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Policy’s Virus Exclusion bars coverage for COVID-19-related business losses | The Closure Orders and resulting loss are independent from the virus; plaintiffs allege physical loss/damage from virus and/or loss from civil-authority orders | The alleged losses were caused directly or indirectly by the virus, which the Virus Exclusion unambiguously bars | Virus Exclusion applies; dismissal on this issue granted |
| Whether Civil Authority coverage applies despite the Virus Exclusion | Civil Authority provision covers loss when access is prohibited by order of civil authority as direct result of a Covered Cause of Loss (plaintiffs say orders are the covered cause) | The orders were issued as a direct result of COVID-19 (an excluded cause); Civil Authority extends coverage only when orders result from a Covered Cause of Loss to property in the immediate area | Civil Authority claim fails because orders stem from the excluded virus; no coverage |
| Whether the Policy’s Limited Virus exception provides coverage | The limited virus exception should provide coverage or the limitation is absurd/unenforceable | Exception applies only where virus resulted from listed specified causes (e.g., fire); plaintiffs failed to allege any such specified cause | Plaintiffs failed to plead applicability; limited-virus exception does not provide coverage |
| Whether plaintiffs have Article III standing to sue Hartford Financial Services Group (HFSG) | Policy references “The Hartford” and bears Hartford branding; plaintiffs infer HFSG drafted/sold/serviced policy so HFSG is liable | HFSG is a separate holding/regional brand; HFSG had no contract with plaintiffs and submitted evidence it did not handle the claim | Plaintiffs lack standing and have not pleaded facts tying HFSG to their injury; claims against HFSG dismissed |
Key Cases Cited
- State Farm Fire & Cas. Co. v. Martin, 872 F.2d 319 (9th Cir.) (insurer bears burden to prove applicability of an exclusion)
- Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1 (Cal.) (plain contractual language governs interpretation)
- Roug v. Ohio Sec. Ins. Co., 182 Cal. App. 3d 1030 (Cal. Ct. App.) (insurance policies construed from their language)
- AIU Ins. Co. v. Superior Court, 51 Cal.3d 807 (Cal.) (coverage clauses generally interpreted broadly to protect reasonable expectations)
- Nat'l Ins. Underwriters v. Carter, 17 Cal.3d 380 (Cal.) (insurer may limit coverage and such limits are enforceable)
- Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151 (9th Cir.) (quasi-contract claims precluded when enforceable contract defines parties' rights)
- Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097 (9th Cir.) (heightened pleading standards for fraud claims)
- Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566 (Cal.) (non-insurer defendants not party to insurance agreements cannot be held to implied duties under the policy)
- Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (U.S.) (Article III standing: injury must be concrete and particularized)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (U.S.) (standing requires concrete, particularized, actual or imminent injury)
- Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152 (9th Cir.) (on motions to dismiss, courts draw all reasonable inferences in plaintiff's favor)