Barbizon Sch. of San Francisco, Inc. v. Sentinel Ins. Co.

530 F.Supp.3d 879

BARBIZON SCHOOL OF SAN FRANCISCO, INC., et al., Plaintiffs,

v.SENTINEL INSURANCE COMPANY LTD., Defendant.

Case No. 20-cv-08578-TSH

United States District Court, N.D. California.

Signed March 31, 2021

Gregory A. Blue, Lachtman Cohen, PC, New York, NY, for Plaintiffs.

Johanna Oh, Laurie Edelstein, Steptoe & Johnson LLP, San Francisco, CA, Sarah D. Gordon, Pro Hac Vice, Steptoe and Johnson LLP, Washington, DC, for Defendant.

ORDER GRANTING MOTION TO DISMISS

Re: Dkt. No. 8

THOMAS S. HIXSON, United States Magistrate Judge

I. INTRODUCTION

Plaintiffs Barbizon School Of San Francisco, Inc. and Barbizon School of Modeling Of Manhattan, Inc. bring this action against their insurance company, Defendant Sentinel Insurance Company, LTD., seeking coverage for economic losses to their businesses caused by COVID-19. Pending before the Court is Sentinel's Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). ECF No. 8. Plaintiffs filed an Opposition (ECF No. 19) and Sentinel filed a Reply (ECF No. 22). The Court finds this matter suitable for disposition without oral argument and VACATES the April 1, 2021 hearing. See Civ. L.R. 7-1(b). Having considered the parties’ positions, relevant legal authority, and the record in this case, the Court GRANTS Sentinel's motion for the following reasons.

II. BACKGROUND

Plaintiffs are independently owned and operated licensees of Barbizon International, Inc., offering modeling, acting, and studio services at locations in New York City (Barbizon-NY) and on the West Coast (Barbizon-West). Compl. ¶ 10, ECF No. 1.

A. The West Coast Policy

Barbizon-West procured insurance coverage under Policy Number 57 SBA UZ9898 for the policy period July 8, 2019, through July 8, 2020. The West Coast Policy was issued as of April 19, 2019. Id. ¶ 11. The basic coverage provisions of the policy are written on the "Special Property Coverage Form," Form SS 00 07 07 05, which states:

A. COVERAGE

We will pay for direct physical loss of or physical damage to Covered Property at the premises described in the Declarations (also called "scheduled premises" in this policy) caused by or resulting from a Covered Cause of Loss.

Id. ¶ 12. "Covered Property" under the Special Property Coverage Form includes the "building(s) and structure(s) described in the Declarations," Special Property Coverage Form, A(1)(a). Id. ¶ 13. Under the Special Property Coverage Form in the West Coast policy "Covered Cause of Loss" is defined as follows:

B. 3. Covered Causes of Loss

RISKS OF DIRECT PHYSICAL LOSS unless the loss is:

a. Excluded in Section B., EXCLUSIONS; or

b. Limited in Paragraph A.4. Limitations; that follow.

Id. ¶ 15. "Section B., EXCLUSIONS" of the "Special Property Coverage Form," Form SS 00 07 07 05, for the West Coast Policy does not itself have a virus exclusion. An exclusion was, however, added to "Section B., EXCLUSIONS" of the West Coast Policy through a "LIMITED FUNGI, BACTERIA OR VIRUS COVERAGE" Endorsement, Form SS 40 93 07 05. Id. ¶ 16.

One portion of the virus endorsement removes all virus coverage from the Special Property Coverage Form by adding an exclusion to Section B of the Special Property Coverage Form:

2. The following exclusion is added to Paragraph B.1. Exclusions of the ... Special Property Coverage Form ...:

i. "Fungi", Wet Rot, Dry Rot, Bacteria And Virus

We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss:

(1) Presence, growth, proliferation, spread or any activity of "fungi", wet rot, dry rot, bacteria or virus.

(2) But if "fungi", wet rot, dry rot, bacteria or virus results in a "specified cause of loss" to Covered Property, we will pay for the loss or damage caused by that "specified cause of loss".

This exclusion does not apply:

(1) When "fungi", wet or dry rot, bacteria or virus results from fire or lightning; or

(2) To the extent that coverage is provided in the Additional Coverage – Limited Coverage for "Fungi", Wet Rot, Dry Rot, Bacteria and Virus with respect to loss or damage by a cause of loss other than fire or lightning.

This exclusion applies whether or not the loss event results in widespread damage or affects a substantial area.

Id. 18. The virus endorsement then adds some very limited virus coverage:

b. We will pay for loss or damage by "fungi", wet rot, dry rot, bacteria and virus. As used in this Limited Coverage, the term loss or damage means:

(1) Direct physical loss or direct physical damage to Covered Property caused by "fungi", wet rot, dry rot, bacteria or virus, including the cost of removal of the "fungi", wet rot, dry rot, bacteria or virus;

(2) The cost to tear out and replace any part of the building or other property as needed to gain access to the "fungi", wet rot, dry rot, bacteria or virus; and

(3) The cost of testing performed after removal, repair, replacement or restoration of the damaged property is completed, provided there is a reason to believe that "fungi", wet rot, dry rot, bacteria or virus are present.

Id. ¶ 19. That limited virus coverage is limited further by the requirement that, for coverage to apply, the loss must be due to a limited number of things. The coverage is restricted by this language:

a. The coverage described in 1.b. below only applies when the "fungi", wet or dry rot, bacteria or virus is the result of one or more of the following causes that occurs during the policy period and only if all reasonable means were used to save and preserve the property from further damage at the time of and after that occurrence.

(1) A "specified cause of loss" other than fire or lightning;

Id. ¶ 20. "Specified Cause of Loss" is defined in the Special Property Coverage Form as follows:

19. "Specified Cause of Loss" means the following: Fire; lightning; explosion, windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage.

Id. ¶ 21. As a result, the virus endorsement states that Sentinel will pay for "[d]irect physical loss or direct physical damage to Covered Property caused by ... virus," provided that such "direct physical loss or direct physical damage" is caused by a virus that "is the result of" "explosion, windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage." Id. ¶ 22.

B. The New York Policy

Barbizon-NY procured insurance coverage under Policy Number 57 SBA BG9898 for the policy period September 14, 2019, through September 14, 2020. The New York policy was issued as of July 3, 2019, almost three months after the West Coast policy. Id. ¶ 23.

The New York policy, like the West Coast policy, is based upon "Special Property Coverage Form," Form SS 00 07 07 05, which states:

A. COVERAGE

We will pay for direct physical loss of or physical damage to Covered Property at the premises described in the Declarations (also called "scheduled premises" in this policy) caused by or resulting from a Covered Cause of Loss.

Id. ¶ 24. The New York policy does not include the virus endorsement. Id. ¶¶ 26-27.

Beginning on March 7, 2020, New York Governor Andrew Cuomo and New York City Mayor Bill DeBlasio issued a series of executive orders. Among other things, those executive orders, declared "a State disaster emergency for the entire State of New York," closed all schools, and ultimately required the closure of non-essential businesses in New York City. Id. ¶¶ 35-41. The NY policy provides "Civil Authority Coverage" as follows:

q. Civil Authority

(1) This insurance is extended to apply to the actual loss of Business Income you sustain when access to your "scheduled premises" is specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate area of your "scheduled premises".

(2) The coverage for Business Income will begin 72 hours after the order of a civil authority and coverage will end at the earlier of:

(a) When access is permitted to your "scheduled premises", or

(b) 30 consecutive days after the order of the civil authority.

Id. ¶ 42. The Civil Authority coverage is triggered by an "order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate area" of the NY Location. Id. ¶ 43. "Immediate area" is not defined.

The NY policy provides "Business Income" coverage as follows:

o. Business Income

(1) We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your "operations" during the "period of restoration". The suspension must be caused by direct physical loss of or physical damage to property at the "scheduled premises", including personal property in the open (or in a vehicle) within 1,000 feet of the "scheduled premises", caused by or resulting from a Covered Cause of Loss.

* * *

(5) With respect to the coverage provided in this Additional Coverage, suspension means:

(a) The partial slowdown or complete cessation of your business activities; or

(b) That part or all of the "scheduled premises" is rendered untenantable as a result of a Covered Cause of Loss if coverage for Business Income applies to the policy.

Id. ¶ 58. The NY policy also provides "Extended Business Income" coverage. The "Extended Business Income" coverage in the Special Property Coverage Form is entirely replaced by the following from the "Stretch for Schools" Endorsement:

r. Extended Business Income

(1) If the necessary suspension of your "operations" produces a Business Income loss payable under this policy, we will pay for the actual loss of Business Income you incur during the period that:

(a) Begins on the date property is actually repaired, rebuilt or replaced and "operation

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