533 F.Supp.3d 299
E.D. Va.2021Background:
- Plaintiff L&L Logistics (California corp.) filed for Business Income, Extra Expense, and Civil Authority coverage after COVID‑19 shutdown orders curtailed its trucking operations; claim exceeded $150,000 and was denied by Evanston Insurance (Virginia‑based insurer).
- Policy provided Business Income/Extra Expense and Civil Authority coverage but limited recovery to losses caused by a "Covered Cause of Loss," defined under the Causes of Loss – Special Form as "direct physical loss" unless excluded.
- Two endorsements at issue: (1) an Exclusion of Loss Due to Virus or Bacteria (applies to all coverage) and (2) an Organic Pathogen exclusion (excludes loss "caused directly or indirectly" by organic pathogens, including viruses, regardless of other contributing causes).
- L&L alleged its losses were caused by COVID‑19 contamination and by California civil‑authority orders issued because of the virus; Evanston countered that the exclusions bar coverage even for indirect virus‑related losses.
- Court applied California law, found the exclusions unambiguous, concluded COVID‑19 is a virus excluded by both endorsements (including for Civil Authority coverage), and granted Evanston’s renewed Rule 12(b)(6) motion to dismiss with prejudice.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Virus and Organic Pathogen exclusions bar coverage for L&L’s Business Income/Extra Expense/Civil Authority claims | Losses resulted from civil‑authority orders, not the virus itself; coverage should respond | Exclusions expressly bar loss "caused by or resulting from" a virus and bar loss "caused directly or indirectly" by organic pathogens, so claims are excluded | Exclusions are plain and unambiguous; they bar L&L’s claims regardless of whether virus was direct or indirect cause |
| Whether exclusions apply to Civil Authority coverage | Civil Authority coverage addresses business‑income loss, not property damage, so exclusions shouldn’t defeat Civil Authority recovery | Virus exclusion explicitly applies to "all coverage," and organic‑pathogen exclusion removes viruses from "Covered Causes" that trigger Civil Authority coverage | Exclusions apply to Civil Authority coverage; Civil Authority can be excluded when actions arise from excluded causes |
| Whether policy language is ambiguous / contra proferentem should apply | ISO drafting history and insured’s reasonable expectations render exclusion ambiguous; construe against insurer | Policy text is clear; California law forbids extrinsic evidence when text is unambiguous | Court found no ambiguity and enforced plain terms; narrow‑construction against insurer unnecessary |
| Ripeness / need for discovery on "physical loss or damage" and causation | Factual issues (mechanism of damage, remediation costs, infectiousness) require discovery before dismissal | L&L’s FAC repeatedly alleges virus contamination caused or prompted orders; those allegations trigger the exclusions, so dismissal is proper now | Motion ripe; factual development unnecessary because FAC alleges virus‑caused losses that exclusions bar |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must plead plausible claim to survive Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (conclusory legal assertions insufficient on a motion to dismiss)
- Columbia v. Haley, 738 F.3d 107 (4th Cir. 2013) (Rule 12(b)(6) tests complaint sufficiency)
- Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 326 P.3d 253 (Cal. 2014) (interpretation of insurance policy is question of law)
- Ameren Int'l Corp. v. Ins. Co. of State of Pennsylvania, 242 P.3d 1020 (Cal. 2010) (contract interpretation focuses on parties’ mutual intent and plain text)
- MacKinnon v. Truck Ins. Exch., 73 P.3d 1205 (Cal. 2003) (exclusionary clauses construed narrowly against insurer)
- Waller v. Truck Ins. Exch., Inc., 900 P.2d 619 (Cal. 1995) (ambiguity must be shown in the context of the case)