514 F.Supp.3d 1217
S.D. Cal.2021Background
- Plaintiffs are Unmasked Management and three Lucha Libre restaurant LPs insured under a Century‑National policy (7/14/19–7/14/20); Limited Partnership plaintiffs were added as named insureds in May 2020.
- The Policy's relevant provisions: Business Income (covers loss from necessary suspension if caused by “direct physical loss of or damage to” covered property), Extra Expense (only if Business Income applies), Civil Authority (covers loss when a civil authority prohibits access due to direct physical loss or damage to other property), and a Sue & Labor duty to protect covered property after a covered loss.
- California and San Diego COVID‑19 orders restricted indoor dining and required social‑distancing; plaintiffs continued limited operations, reconfigured premises, added outdoor seating/plexiglass/hand sanitizer, and alleged loss of use/necessity of expenses.
- Plaintiffs filed an insurance claim; Century denied it, asserting no direct physical loss or damage and that government directives did not prohibit access or arise from damage to other property. Plaintiffs sued for breach of contract and declaratory relief (class action).
- The court applied California law to policy interpretation and Rule 12(b)(6) standards and granted defendant’s motion to dismiss all claims with prejudice, finding plaintiffs failed to allege the requisite physical loss or causal link for Civil Authority coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Business Income / Extra Expense: whether plaintiffs pleaded “direct physical loss of or damage to” property | COVID and the Closure Orders, plus virus presence and loss of use/functionality, satisfy “direct physical loss of or damage to” | Policy requires a distinct, demonstrable physical alteration to property; temporary loss of use or presence of virus does not suffice | Dismissed: plaintiffs failed to allege physical alteration; presence of virus or diminished use is insufficient |
| Civil Authority: whether closure orders “prohibited access” and were issued "due to" physical loss/damage to other property | Closure Orders prohibited normal use and were issued in response to COVID spread, so Civil Authority coverage applies | Orders did not prohibit access and were issued to protect public health, not because of physical damage to other property; plaintiffs allege no damage elsewhere or causal link | Dismissed: plaintiffs did not allege physical loss to other property or a plausible causal link between property damage and the orders |
| Sue & Labor: whether plaintiffs may recover expenses incurred to protect property | Plaintiffs incurred protective/alteration expenses and seek coverage under Sue & Labor | Sue & Labor coverage requires a covered cause of loss; because no covered loss pleaded, this provision does not apply | Dismissed: dependent on other coverages that fail |
| Leave to Amend / Relief | Plaintiffs implicitly seek leave to cure defects | Defendant sought dismissal; argued facts cannot support coverage theory | Dismissed with prejudice: court finds further amendment futile and closes case |
Key Cases Cited
- MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., 115 Cal. Rptr. 3d 27 (Cal. Ct. App. 2010) (requires a distinct, demonstrable physical alteration for property‑loss coverage)
- Doyle v. Fireman's Fund Ins. Co., 229 Cal. Rptr. 3d 840 (Cal. Ct. App. 2018) (diminution in value or loss of use alone is not physical loss)
- Ward Gen. Ins. Servs., Inc. v. Employers Fire Ins. Co., 7 Cal. Rptr. 3d 844 (Ct. App. 2003) (construing “direct physical” as modifying both “loss of” and “damage to”)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (complaint must state a plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (court need not accept legal conclusions as true)
- Waller v. Truck Ins. Exch., 900 P.2d 619 (Cal. 1995) (policy interpretation is a question of law; read contract to ascertain parties’ intent)
- La Jolla Beach & Tennis Club, Inc. v. Indus. Indem. Co., 884 P.2d 1048 (Cal. 1994) (ambiguities in insurance policies are construed against insurer)
- United States v. Corinthian Colleges, 655 F.3d 984 (9th Cir. 2011) (documents referenced by the complaint may be considered on a Rule 12(b)(6) motion)