Colgan v. Sentinel Ins. Co.

515 F.Supp.3d 1082

James COLGAN, Plaintiff,

v.SENTINEL INSURANCE COMPANY, LTD., Defendant.

Case No. 20-cv-04780-HSG

United States District Court, N.D. California.

Signed January 26, 2021

Guy Orville Kornblum, Mukesh Advani, Guy O. Kornblum, PLC, Yoav Simchoni, Quinn Emanuel, San Francisco, CA, for Plaintiff.

Anthony John Anscombe, 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 FOR JUDGMENT ON THE PLEADINGS

Re: Dkt. No. 27

HAYWOOD S. GILLIAM, JR., United States District Judge Pending before the Court is Defendant Sentinel Insurance Company's motion for judgment on the pleadings. Dkt. No. 27. The Court finds this matter appropriate for disposition without oral argument and the matter is deemed submitted. See Civil L.R. 7-1(b). For the reasons detailed below, the Court GRANTS the motion.¹

I. BACKGROUND

A. Plaintiff's Allegations

Plaintiff James Colgan brings this insurance action against Defendant based on the denial of Plaintiff's claim for business income loss coverage under the Sentinel business owner's policy, No. 57 SBA BD4683 (the "Policy"). See Dkt. No. 1-1 ("Compl.") ¶¶ 2, 6–20. Plaintiff alleges that he incurred losses when his salons closed due to two governmental orders, which "were issued for public health reasons as a result of a pandemic of a disease called coronavirus 2019, or COVID-19." See id. ¶¶ 2, 6–10. First, the City and County of San Francisco issued an order "[e]ffective March 17, 2020, and amended March 31, 2020," requiring "all people in San Francisco to shelter in place at their residences and, further, for all businesses in San Francisco to cease all but specific limited operations at facilities located within" San Francisco County. Id. ¶ 7. Second, "[e]ffective March 19, 2020, the Public Health Officer of the State of California issued Executive Order N-33-20, generally mandating that all individuals living in the State of California stay home or at their place of residence but for limited essential outings." Id. ¶ 8. Plaintiff alleges that he "did not suffer from this virus nor was their evidence that it existed or even threatened his business establishment." Id. ¶ 9. Plaintiff instead contends that he "was physically unable to utilize his business premises and thus lost the physical use thereof" as a result of "these governmental orders." Id. ¶ 10. Plaintiff alleges that Sentinel denied Plaintiff's claim for loss of business income in March 2020. Id. ¶ 12. On the basis of these facts, Plaintiff asserts causes of action for breach of contract and for declaratory relief. See id. ¶¶ 13–20.

B. The Policy

The Policy's Special Property Coverage Form provides that the insurer "will pay for direct physical loss of or physical damage to Covered Property ... caused by or resulting from a Covered Cause of Loss." Dkt. No. 13-1 at 34.² "Covered Causes of Loss" is defined as a "RISKS OF DIRECT PHYSICAL LOSS" unless the loss is specifically excluded or limited in other provisions. Id. at 35.

With respect to "Business Income" coverage, the Policy provides that the insurer

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" ... caused by or resulting from a Covered Cause of Loss.

Id. at 43. The Policy provides for "Extra Expense" coverage, detailing that the insurer "will pay reasonable and necessary Extra Expense you incur during the ‘period of restoration’ that you would not have incurred if there had been no direct physical loss or physical damage to property ... caused by or resulting from a Covered Cause of Loss." Id.

With respect to "Civil Authority" coverage, the Policy provides that "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." Id. at 44.

The Policy includes a Virus Exclusion provision, which details that the Special Property Coverage Form exclusions include:

"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.

Id. at 132. The Policy states that the Virus Exclusion provision does not apply in two instances: (1) when the "virus results from fire or lightning," or (2) when the Policy's Additional Limited Virus Coverage applies. Id. And the Additional Limited Virus Coverage "only applies" when the "virus is the result of" a " ‘specified cause of loss’ other than fire or lightning" or from an equipment breakdown.³ Id. at 133.

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure ("Rule") 12(c) a party may move for judgment on the pleadings "[a]fter the pleadings are closed—but early enough not to delay trial." "Judgment on the pleadings is proper when, taking all allegations in the pleading as true, the moving party is entitled to judgment as a matter of law." Stanley v. Trustees of Cal. State Univ. , 433 F.3d 1129, 1133 (9th Cir. 2006). " Rule 12(c) is functionally identical to Rule 12(b)(6) and ... the same standard of review applies to motions brought under either rule." Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc. , 637 F.3d 1047, 1054 n.4 (9th Cir. 2011) (quotation omitted). The Court will "accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party."

Manzarek v. St. Paul Fire & Marine Ins. Co. , 519 F.3d 1025, 1031 (9th Cir. 2008).

III. DISCUSSION

A. Policy Coverage

The Court finds that Plaintiff has not plausibly alleged a claim for coverage under the Policy. Defendant argues that Plaintiff's allegations do not establish "direct physical loss of or damage to" property, as required by the Business Income and Extra Expense provisions. Mot. at 14. Plaintiff argues that he has sufficiently alleged "direct physical loss of," pointing to a "temporar[y]" loss "of access and use" to his salons. Dkt. No. 29 ("Opp.") at 5. California courts have required a "distinct, demonstrable, physical alteration of the property" or a "physical change in the condition of the property" to demonstrate direct physical loss. MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co. , 187 Cal. App. 4th 766, 771, 779-80, 115 Cal.Rptr.3d 27 (2010) ; Ward Gen. Ins. Servs., Inc. v. Employers Fire Ins. Co. , 114 Cal. App. 4th 548, 556, 7 Cal. Rptr. 3d 844, 851 (2003), as modified on denial of reh'g (Jan. 7, 2004) (concluding "loss of the database, with its consequent economic loss, but with no loss of or damage to tangible property, was not a ‘direct physical loss of or damage to’ covered property"); see also Mortar & Pestle Corp. v. Atain Specialty Ins. Co. , No. 20-CV-03461-MMC, 508 F.Supp.3d 575, 579–80, (N.D. Cal. Dec. 21, 2020) (same).

When read in context, this interpretation also comports with the "period of restoration" language included in both the Business Income and Extra Expense provisions. These provisions provide coverage for certain losses and expenses incurred during the "period of restoration," which is elsewhere defined as the period that "[b]egins with the date of direct physical loss or physical damage" and ends when the property "should be repaired, rebuilt or replaced with reasonable speed and similar quality." See Dkt. No. 13-1 at 57 (emphasis added). Plaintiff's allegations of temporary loss of access and use, which claim no loss requiring repair, rebuilding, or replacement, are plainly insufficient.⁴ The Court thus finds that Plaintiff has not plausibly alleged "direct physical loss of or damage to" property, as required by the Policy.⁵

B. Virus Exclusion

Additionally, Plaintiff's losses are not covered because Defendant has met its burden of showing that the Virus Exclusion applies. As noted, the Virus Exclusion expressly excludes "loss or damage caused directly or indirectly by" a virus. See Dkt. No. 13-1 at 132. Plaintiff alleges that he incurred losses when his salons closed due to the governmental orders, which were issued because of COVID-19. See Compl. ¶ 9-10. It is undisputed that COVID-19 is a virus. See id. ¶ 9 (alleging Plaintiff "did not suffer from this virus"). Because the alleged losses were "caused directly or indirectly by" a virus, the Virus Exclusion applies under the unambiguous language of the Policy. Plaintiff seeks to sidestep the Virus Exclusion, arguing that the claimed losses were the result of governmental orders, rather than the virus. Opp. at 7-8. Specifically, Plaintiff contends that the "complaint clearly alleges around this exclusion by" stating that he "did not suffer from the virus" and that there was no evidence the virus "even threatened his property." Id. at 1. But Plaintiff's proffered distinction defies common sense and Plaintiff's own allegations detailing that these governmental orders "were issued ... as a result of ... COVID-19." See id. ¶ 9.

Consistent with the analysis adopted by courts throughout the Ninth Circuit, the Court rejects Plaintiff's attempt to avoid the exclusion based on this purported distinction. See, e.g., Robert W. Fountain, Inc. v. Citizens Ins. Co. of Am. , No. 20-CV-05441-CRB, 506 F.Supp.3d 847, 853, 2020 WL 7247207, at *4 (N.D. Cal. Dec. 9, 2020) (noting the plaintiff could not "convincingly argue that its losses were caused by the March 2020 governmental orders while ignoring that those governmental orders were themselves caused by a virus"); Franklin EWC,...