Rialto Pockets, Inc. v. Beazley Underwriting Limited, 21-55196

Plaintiffs are 24 affiliated businesses (23 gentlemen’s clubs and a retail store) that seek business‑income coverage under a single insurance policy issued by Beazley to a nonparty affiliate.
Plaintiffs allege their businesses were closed by California and local COVID‑19 governmental orders and that their Time Element losses were caused directly by those orders.
The policy’s Time Element coverage applies only to losses directly resulting from direct physical loss or physical damage to insured property during the policy period.
Beazley denied coverage; plaintiffs sued for breach of the policy; the district court granted Beazley’s motion to dismiss under Rule 12(b)(6).
The Ninth Circuit reviewed the dismissal de novo and concluded plaintiffs’ theory of coverage is foreclosed by California intermediate appellate precedent.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether losses caused by COVID‑19 governmental closure orders constitute direct physical loss or physical damage triggering Time Element coverage	Losses directly resulted from or were caused by the governmental orders and thus are covered	Policy requires direct physical loss or damage to property; closure orders alone do not satisfy that requirement	Not covered; loss of use from orders without physical impact is not direct physical loss
Whether alleged presence of the virus on premises counts as physical damage and is causally connected to suspension of operations	Virus presence could be a physical impact that causes suspension	Even if virus was present, plaintiffs’ allegations show lack of causal connection because sterilization would not have prevented losses driven by the Orders	Even assuming virus presence, no causal link to the suspension; Orders, not physical damage, caused losses
Whether other policy provisions or exclusions expand coverage	Other provisions that define amounts payable or exclusions can be used to support coverage	Coverage must be established by the policy’s coverage provisions before exclusions or definitional provisions are applied	Court rejects attempts to expand coverage via other provisions; coverage analysis must begin with operative coverage language

Inns by the Sea v. California Mut. Ins. Co., 286 Cal. Rptr. 3d 576 (Cal. Ct. App. 2021) (held losses from COVID‑19 governmental orders not covered absent physical damage)
Mudpie, Inc. v. Travelers Cas. Ins. Co., 15 F.4th 885 (9th Cir. 2021) (standard of review for 12(b)(6) dismissal)
Ryman v. Sears, Roebuck & Co., 505 F.3d 993 (9th Cir. 2007) (federal courts follow state intermediate appellate decisions absent convincing evidence the state supreme court would decide differently)