Case Information
1
2
3 UNITED STATES DISTRICT COURT
4 NORTHERN DISTRICT OF CALIFORNIA 5 6 FRENCH LAUNDRY PARTNERS, LP Case No. 20-cv-04540-JSC
7 DBA THE FRENCH LAUNDRY, et al., 8 Plaintiffs, ORDER RE: DEFENDANT’S MOTION TO DISMISS 9 v. Re: Dkt. No. 58 10 HARTFORD FIRE INSURANCE
COMPANY, Defendant.
This is one of many insurance disputes filed in the wake of the COVID-19 pandemic
challenging insurance companies’ denial of coverage for economic losses flowing to businesses following regional shelter-in-place orders. Plaintiffs here own and operate the restaurants The French Laundry and Bouchon Bistro in Napa County California. They bring a dеclaratory judgment action against their insurer Hartford Fire Insurance Company seeking a declaration that the County’s March 18, 2020 shelter-in-place order triggered coverage under Plaintiffs’ insurance policy. Hartford moves to dismiss arguing that the policy provides no coverage for Plaintiffs’ economic losses as a matter of law. [1] (Dkt. No. 58.) Having considered thе parties’ briefs and the relevant legal authority, the Court determines that oral argument is unnecessary, see N.D. Cal. Civ. L.R. 7-1(b), VACATES the April 29, 2021 hearing, and GRANTS the motion to dismiss.
BACKGROUND
Plaintiffs’ restaurants in Napa County, California were forced to shut down after the Napa County Health Officer issued an order on March 18, 2020 directing “all individuals living in the county to stay at home except that they may leave to providе or receive certain essential services or engage in certain essential activities” (hereafter “the Order”). (First Amended Complaint, Dkt. No. 56 at ¶ 57.) The Order required all non-essential businesses, including restaurants, to cease operations except for delivery and takeout. ( Id. at ¶¶ 57, 62.) Access to Plaintiffs’ business was impacted for several months and Plaintiffs had to furlough оver 300 employees. ( Id . at ¶¶ 63, 66.)
Plaintiffs have an insurance contract with Hartford for indemnification for losses, including business income losses. ( Id . at ¶ 37.) Plaintiffs’ premiums include additional coverage “under the Property Choice – Specialized Property Insurance Coverages for Restaurants – Deluxe and Property Choice Business Income and Extra Expense Form – Additional Coverages in the event of business closures by viral contamination and order of a Civil Authority” (hereafter the “Deluxe Form”). ( Id . at ¶ 43.) The Policy covers “the actual loss of business income sustained and the actual, necessary and reasonable extra expenses incurred when access to the scheduled premises is specifically prohibited by order of civil authority аs the direct result of a covered cause of loss to property in the immediate area of plaintiffs’ scheduled premises.” ( Id . at ¶ 46.) Further, the “policy’s Property Choice Deluxe Form specifically extends coverage to direct physical loss or damage caused by virus under the viral contamination additional coverage.” ( Id . at ¶ 48.) Following Plaintiffs’ restаurants’ shutdown, Plaintiffs filed a claim with Hartford that was denied. Plaintiffs thereafter filed this declaratory judgment action under California Code of Civil Procedure Section 1060 in the Napa County Superior Court. (Dkt. No. 1-2.) Hartford removed the action to this Court based on diversity jurisdiction. The Court thereafter denied Plaintiffs’ motion to remand. Plaintiffs then filed the now operative First Amended Complaint sеeking a declaration (1) “that the Order by [the Napa County Health Officer], in her official capacity, constitutes a prohibition of access to plaintiffs’ Insured Premises”; (2) “that the prohibition of access by a Civil Authority is specifically prohibited access as defined in the Policy”; (3) “that the Order triggers coverage because the policy does not include an exclusion for a viral pandemic and extends coverage for loss or damage due to viral contamination”; (4) “that the policy provides coverage to plaintiffs for any current and future civil authority closures of restaurants in Napa County due to physical loss or damage from the Coronavirus under the Civil Authority provision parameters”; (5) “that the policy provides business income and property coverage due to the viral contamination
of COVID-19, which has caused a physical loss or damage to the insured property and property in its immediate area”; and (6) “that [Hartford is] estopped from denying viral contamination coverage due to [its] regulatory admissions or providing illusory coverage.” (FAC, Prayеr for Relief ¶¶ 1-6.) This motion to dismiss followed. (Dkt. No. 58.)
DISCUSSION
Hartford insists that Plaintiffs’ claim fails as a matter of law because the Policy’s Virus Exclusion bars any coverage for Plaintiffs’ losses and Plaintiffs have not shown that any exception to the exclusion applies.
A. The Policy Bars Coverage The Policy’s Property Choice Business Income and Extra Expense Coverage Form - Additional Coverages extends coverage “to the actual loss of Business Income” sustained “when access to your ‘Scheduled Premises’ is specifically prohibited by order of a civil authority.” [2] (Dkt. No. 8-1 at 94.) “Covered Causes of Loss” is separately defined as “direct physical loss or direct physical damage that occurs during the Policy Period and in the Coverage Territory unless the loss or damage is еxcluded or limited in this policy.” ( Id . at 115.) Plaintiffs allege that their “business property, and that of other property in the immediate area, experienced a physical loss or damage due to the [COVID-19] viruses propensity to adhere to surfaces.” (FAC at ¶ 65.) In addition, “the Orders affecting the plaintiffs were issued in part because of COVID-19’s impact on property and its presеnce in Napa County.” ( Id . at ¶ 64.)
The Policy includes several specified exclusions, among these, a Virus Exclusion, which states in part:
(Dkt. No. 8-1 at 115-116.) The Court concludes—as a multitude of other courts have—that virus exclusions such as this exclude coverage for business losses related to COVID-19 as alleged here. See Franklin EWC, Inc. v. Hartford Fin. Servs. Grp., Inc ., No. 20-CV-04434-JSC, 2020 WL 7342687, at *2 (N.D. Cal. Dec. 14, 2020) (collecting cases). In particular, the FAC allegеs that COVID-19 is the direct or indirect cause of Plaintiffs’ economic loss and the Virus Exclusion bars coverage under these circumstances under its plain and unambiguous language . See Waller v.
Truck Ins. Exch., Inc
.,
Plaintiffs do not appear to dispute this conclusion. Instead, Plaintiffs insist that they purchased additional coverage in the Deluxe Form which covers their losses. Plaintiffs point to the following provisions from the “Additional Coverages” section оf the Deluxe Form:
(Dkt. No. 8-1 at 70.)
First, Plaintiffs argue that the “Deluxe form [] extend[s] viral contamination coverage independent of a specified cause of loss, equipment breakdown, or flood.” (Dkt. No. 62 at 20:18- 19.) Plaintiffs insist that a “contrary reading would undermine the purpose for the policy extension itself” and argue that clause 15(a) must be read independently from clause 15(b). ( Id . at 21:1-7.) Plaintiffs’ reading is unsupported by the policy language itself or the rules of contract interpretation. Section 15(a) clearly states that “ [t]he coverage described below only applies when the ‘fungus’, wet or dry tot, bacteria or virus is the result of one or more of the following causes that occurs during the policy period…a ‘specified cause of loss’….; Equipment Breakdown Accident….; or [] Flood…” (Dkt. No. 8-1 at 70.) Plaintiffs do not argue that their request for coverage fits within оne of these categories; instead, Plaintiffs maintain that these categories are not exclusive. But this interpretation is unsupported by the Policy’s plain language. Waller, 11 Cal. 4th at 18. If the coverage “described below” is not clause 15(b) then clause 15(a) has no meaning.
Second, Plaintiffs maintain that because Hartford included “state specific endorsements
modifying the coverage terms and conditions for different locations through-out the nation” which
barred coverage for “loss or damage caused by or resulting from any virus . . .that induces or is
capable of inducing physical distress, illness or disease,” but did not use that same language for
other states (including California) the Deluxe Form “extends coverage for loss or damage causеd
by a virus independent of a specified cause of loss.” (Dkt. No. 62 at 21-22.) This argument, as the
one above, is illogical and untethered to the Policy’s plain language.
Third, Plaintiffs maintain that interpreting the policy to bar coverage here is inconsistent
with Hartford’s “prior admissions.” But Plaintiffs have not identified any statements made by
Hartford which are inconsistent with its current position. In the FAC, Plаintiffs vaguely allege
that “the insurance industry and HARTFORD DEFENDANTS made conflicting statements to the
[California Department of Insurance] to avoid a rate decrease for the removal of pandemic risk”
and that “HARTFORD DEFENDANTS and the insurance industry intentionally sowed doubts
about whether a virus was similar to other ‘contaminants’ to be included within the same risk,
thereby dodging a rate decrease and lowering their risk.” (FAC at ¶¶ 24-25.) Plaintiffs, however,
have neither identified any specific statements nor any statements made by Hartford as opposed to
the “insurance industry.”
See ATCM Optical, Inc. v. Twin City Fire Ins. Co
., No. CV 20-4238,
Fourth, Plaintiffs argue that interpreting the Policy so as to bar coverage here renders the
Policy illusory; that is, that coverage for a virus would never be possible if the virus had to be the
result of another specified loss. The Policy defines “Specified Causes of Loss” аs “‘Specified
Causes of Loss’ means fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles;
riot or civil commotion; vandalism; ‘Sinkhole Collapse’; ‘Volcanic Action’; falling objects;
weight of snow, ice or sleet; water damage, ‘Sprinkler Leakage’; ‘Theft’; or ‘Building Glass’
breakage.” (Dkt. No. 8-1 at 90.) Plaintiffs insist that viruses do not “‘result from’ lightning,
explosions, falling objects or water dаmage.” (Dkt. No. 62 at 23:24.) This Court rejected a
similar argument by an insured in
Franklin EWC, Inc. v. Hartford Fin. Servs. Grp., Inc
., No. 20-
CV-04434-JSC,
Fifth, Plaintiffs’ argument that Hartford’s “newfound” interpretation of thе Deluxe Form
renders the Policy language ambiguous is unavailing. A policy provision is ambiguous if it is
“capable of two or more constructions, both of which are reasonable.”
Waller
,
Plaintiffs next insist that Hartford is estopped from denying coverage based on representations that it made to the California Department of Insurance. Plaintiffs refer to both the doctrines of regulatory estoppel and judicial estoрpel. Neither applies here.
California courts reject the regulatory estoppel doctrine.
See ACL Techs., Inc. v.
Northbrook Prop. & Cas. Ins. Co.,
C. Plaintiffs’ Other Arguments
Plaintiffs make two final arguments. First, that dismissal at this stage would be premature and that the Court should allow discovery. In particular, Plaintiffs allegе that “discovery is expected to produce other versions of the viral coverage provision that uses more restrictive language showing, by contrast, that the Deluxe form in this case afforded broader coverage than Hartford contends today and previously admitted to the CA DOI” and that in 2006 Hartford recognized “the risks of pandemic to its property and casualty insurance claims.” (Dkt. No. 62 at 26:12-16.)
California courts consider extrinsic evidence even of unambiguous contracts when the
evidence “is relevant to prove a meaning to which the language of the instrument is reasonably
susceptible.”
Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co.,
Second, Plaintiffs note that the Court is required to follow California law and urge the
Court to follow the California trial court’s decision in
Goodwill Ind. of Orange County, California
v. Phil Indem. Ins. Co
., No. 30-2020-01169032-CU-IC-CXC. (Dkt. No. 63-1.) Plaintiffs are
correct that this Court is bound by California law and must “attempt to determine how the
California Supreme Court might decide the issue.”
Ileto v. Glock Inc
.,
CONCLUSION
For the reasons stated above, Defendants’ motion to dismiss is GRANTED. While the
Court acknowledges the havoc that the COVID-19 pandemic and consequent shelter-in-place
orders have caused businesses throughout this country and the world, the Court cannot read an
ambiguity into an insurance contract where none exists. Because Plaintiff previously filed an
amended complaint, and because the Virus Exclusion bars coverage here as a matter of law, leave
to amend would be futile.
See Hartmann v. Cal. Dep't of Corr. & Rehab
.,
Dated: April 27, 2021 JACQUELINE SCOTT CORLEY United States Magistrate Judge
Notes
[1] All parties have consented to the jurisdiction of a magistrate judge pursuant to 28 U.S.C. § 636(c). (Dkt. Nos. 16 & 19.)
[2] The Court may consider the Policy’s content under the incorporation by reference doctrine.
27
Biltmore Assocs., LLC v. Twin City Fire Ins. Co
.,