604 F.Supp.3d 34
D. Conn.2022Background:
- Rencana LLC d/b/a Core Reform Pilates sued Sentinel for a declaratory judgment seeking business-interruption, extra-expense, and civil-authority coverage for COVID-19–related shutdowns under a Sentinel commercial property policy.
- The Policy provides Business Income, Extra Expense, and Civil Authority coverages but includes a bold endorsement titled "LIMITED FUNGI, BACTERIA OR VIRUS COVERAGE" that excludes loss "caused directly or indirectly by . . . virus."
- Rencana alleged COVID-19 caused "direct physical loss or damage" to its premises, forced civil-authority closures, and required operational/physical alterations and cleaning; Sentinel denied the claim and moved to dismiss under Rule 12(b)(6).
- The court applied California law, treated the Policy as incorporated into the complaint, and evaluated whether the Virus Exclusion is enforceable and applicable.
- The court held the Virus Exclusion is conspicuous, unambiguous, and covers losses caused directly or indirectly by the coronavirus (including those resulting from civil-authority orders), and therefore precluded coverage.
- The Second Amended Complaint was dismissed with prejudice and the case closed.
Issues:
| Issue | Rencana's Argument | Sentinel's Argument | Held |
|---|---|---|---|
| Whether the Virus Exclusion is enforceable and bars coverage | Exclusion ambiguous, not intended to cover a pandemic; should not apply to closures from civil-authority orders | Exclusion is conspicuous, clear, and excludes loss caused directly or indirectly by any virus | Exclusion is conspicuous and unambiguous; it bars Rencana’s claims |
| Whether Rencana pleaded "direct physical loss or physical damage" to property | COVID-19 contaminated premises, made them unusable, and required physical alterations/cleaning — thus physical loss/damage | Insurer: COVID-19 does not cause the kind of physical damage the policy requires; closures are not property damage | Court did not decide on the merits because the Virus Exclusion is dispositive; noted many California cases reject COVID as "physical damage" |
| Whether Civil Authority coverage applies (orders prohibiting access) | Orders specifically prohibited access due to COVID-19 presence and thus trigger Civil Authority coverage | Orders were issued to prevent viral spread, not because of physical damage to nearby property; Civil Authority coverage not triggered | Court found civil-authority issue unnecessary to decide due to the dispositive Virus Exclusion; observed precedent generally rejects coverage under such orders |
| Doctrines and discovery (reasonable expectations, regulatory estoppel, need for discovery) | Policy terms should be construed in light of reasonable expectations and regulator conduct; request for discovery into drafting/physical-loss facts | Policy language is clear; regulatory estoppel not recognized to override plain terms; extrinsic discovery unnecessary | Court rejected reasonable-expectations and regulatory-estoppel arguments; declined further discovery because exclusion unambiguous and dispositive |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for plausibility)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading standard for plausibility)
- Palmer v. Truck Ins. Exch., 21 Cal. 4th 1109 (policy language governs; ambiguity defined)
- Haynes v. Farmers Ins. Exch., 32 Cal. 4th 1198 (exclusions must be conspicuous, plain, and clear)
- Boxed Foods Co. v. Cal. Capital Ins. Co., 497 F. Supp. 3d 516 (policy text controls; virus exclusions preclude COVID losses)
- Franklin EWC, Inc. v. Hartford Fin. Servs. Grp., Inc., 488 F. Supp. 3d 904 (virus exclusion bars coverage for COVID-related claims)
- West Coast Hotel Mgmt., LLC v. Berkshire Hathaway Guard Ins. Cos., 498 F. Supp. 3d 1233 (virus exclusion unambiguous and dispositive)