Kevin Barry Fine Art Assocs. v. Sentinel Ins. Co., Case No. 20-cv-04783-SK

513 F.Supp.3d 1163

KEVIN BARRY FINE ART ASSOCIATES, Plaintiff,

v.SENTINEL INSURANCE COMPANY, LIMITED, Defendant.

Case No. 20-cv-04783-SK

United States District Court, N.D. California.

Signed January 13, 2021

Alexander J. Berline, Sean Griffin Herman, Hanson Bridgett LLP, 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 & Johnson LLP, Washington, DC, for Defendant.

ORDER GRANTING MOTION FOR JUDGMENT ON THE PLEADINGS

Regarding Docket Nos. 31, 32, 36, 38

SALLIE KIM, United States Magistrate Judge This matter comes before the Court upon consideration of the motion judgment on the pleadings filed by Sentinel Insurance Company Limited doing business as the Hartford ("Sentinel"). The Court determines that the motion is appropriate for disposition without oral argument and, thus, is deemed submitted. See Civ. L.R. 7-1(b). Accordingly, the hearing set for January 25, 2021 is HEREBY VACATED. Having carefully considered the parties’ papers, relevant legal authority, and the record in the case, the Court hereby GRANTS Sentinel's motion for judgment on the pleadings for the reasons set forth below.

The Court also GRANTS Sentinel's requests that the Court take judicial notice of other court's orders and transcripts pursuant to Fed. R. Evid. 201. (Dkt. Nos. 32, 38.) Public records are proper subjects of judicial notice. See, e.g., United States v. Black , 482 F.3d 1035, 1041 (9th Cir. 2007) ("[Courts] may take notice of proceedings in other courts, both within and without the federal system, if those proceedings have a direct relation to matters at issue."). KBFA requests that the Court take judicial notice of a report from San Francisco on COVID-19 data, a press release by the United States Department of Health and Human Services, Center for Disease Control and Prevention, a press release by the California Department of Insurance, and a bulletin published by the Insurance Services Office, Incorporated. (Dkt. No. 36.) The Court GRANTS the request by Kevin Barry Fine Art Associates ("KBFA") to take judicial notice and takes judicial notice that these statements were issued. See Lee v. City of Los Angeles , 250 F.3d 668, 689-90 (9th Cir. 2001) ("A court may take judicial notice of matters of public record .... But a court may not take judicial notice of a fact that is subject to reasonable dispute.").

BACKGROUND

KBFA has three retail locations where it sells art to the public – one in San Francisco, one in Santa Monica, and one in Las Vegas. (Dkt. No. 1, ¶¶ 1, 12.) KBFA alleges that it was forced to close these three locations in March 2020 due to COVID-19. (Id. )

KBFA alleges that COVID-19 has caused civil authorities across the country to issue orders requiring the suspension of business, including civil authorities with jurisdiction over KBFA's businesses. (Id. , ¶ 31.) KBFA points to the state of emergency declared by California Governor Gavin Newsom, the shelter-in-place order issued by the San Francisco Public Health Department requiring "[a]ll businesses with a facility in the County, except Essential Businesses ... to cease all activities at facilities located within the County except Minimum Basic Operations....", a shelter-in-place order by the County of Los Angeles, and an order by the State of Nevada that all non-essential businesses that promote social gathering to close. (Id. , ¶¶ 32-42.) The Court will refer to these orders as Stay-at-Home Orders.

KBFA purchased insurance coverage from Sentinel. (Id. , ¶¶ 2, 3.) The insurance policy at issue, Policy No. 72 SBA IA0061 (the "Policy") for the period March 1, 2020, to March 1, 2021. (Id. , ¶ 14.; Dkt. No. 17-1 (the Policy, attached as Exhibit A to Sentinel's Answer).) The Policy provides, in pertinent part:

A. COVERAGE

We will pay for direct physical loss of or physical damage to Covered Property at the premises ....

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.

...

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.

...

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".

...

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 "operations" are resumed; ...

...

12. "Period of Restoration" means the period of time that:

a. Begins with the date of direct physical loss or physical damage caused by or resulting from a Covered Cause of Loss at the "scheduled premises", and

b. Ends on the date when:

(1) The property at the "scheduled premises" should be repaired, rebuilt or replaced with reasonable speed and similar quality;

(2) The date when your business is resumed at a new, permanent location.

...

[Virus Endorsement]

"Fungi", Wet Rot, Dry Rot, Bacteria And Virus [Sentinel] 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 ....

(Dkt. No. 17-1, pp. 50, 51, 59, 60, 73.)

KBFA filed suit alleging that Sentinel failed to pay its business income due under the Policy. Sentinel brings this motion for judgment on the pleadings, arguing that, based on the language of the policy, there is no coverage for KBFA's business losses.

ANALYSIS

A. Applicable Legal Standard on Motion for Judgment on the Pleadings.

A motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) challenges the legal sufficiency of the claims asserted in the complaint. A Rule 12(c) motion is "functionally identical" to a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Ross v. U.S. Bank Nat'l Ass'n , 542 F. Supp. 2d 1014, 1023 (N.D. Cal 2008). "For purposes of the motion, the allegations of the non-moving party must be accepted as true ...." See Hal Roach Studios, Inc. v. Richard Feiner and Co., Inc. , 896 F.2d 1542, 1550 (9th Cir. 1990). Although the standards for evaluating a motion to dismiss and a motion for judgment on the pleadings are similar, a motion for judgment on the pleadings "is proper when the moving party clearly establishes on the face of the pleadings that no material issue of fact remains to be resolved and that it is entitled to judgment as a matter of law. " Id. (emphasis added).

B. Sentinel's Motion for Judgment on the Pleadings.

Sentinel argues that the Policy does not cover KBFA's lost income from closing during the pandemic. Under California law, "interpretation of an insurance policy is a question of law that is decided under settled rules of contract interpretation." State v. Continental Ins. Co. , 55 Cal. 4th 186, 195, 145 Cal.Rptr.3d 1, 281 P.3d 1000 (2012). "The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties." Bank of the West v. Super. Ct. , 2 Cal. 4th 1254, 1264, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992). "Such intent is to be inferred, if possible, solely from the written provisions of the contract." AIU Ins. Co. v. Super. Ct. , 51 Cal. 3d 807, 822, 274 Cal.Rptr. 820, 799 P.2d 1253 (1990). "If contractual language is clear and explicit, it governs." Bank of the West , 2 Cal. 4th at 1264, 10 Cal.Rptr.2d 538, 833 P.2d 545. Courts must interpret coverage clauses "broadly so as to afford the greatest possible protection to the insured" and interpret "exclusionary clauses ... narrowly against the insurer." State Farm Mut. Auto. Ins. Co. v. Partridge , 10 Cal.3d 94, 101-02, 109 Cal.Rptr. 811, 514 P.2d 123 (1973). Any doubt must be resolved in the insured's favor. Horace Mann Ins. Co. v. Barbara B. , 4 Cal.4th 1076, 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792 (1993).

1. Direct Physical Loss of Property.

KBFA seeks to recover lost business income under both the Business Income and Extended Business Income provision. Sentinel argues that KBFA's claims under these provisions fail because the "virus endorsement" noted above precludes coverage and because KBFA has not, and cannot, allege direct physical loss of property from when it closed its art galleries due to the pandemic and the Stay-at-Home Orders. Because the Court finds that KBFA has not, and cannot, allege direct physical loss of property, it need not address the scope of the "virus endorsement."

Numerous courts have considered whether allegations similar to KBFA's constitute a "direct physical loss of ... property, and the overwhelming majority have concluded that temporarily closing a business due to government closure orders during the pandemic does not constitute a direct loss of property under insurance policies with the same coverage provision. See, e.g., 10E, LLC v. Travelers Indem. Co. of Connecticut , 483 F.Supp.3d 828, 835–37 (C.D. Cal. 2020) ("An insured cannot recover by attempting to artfully plead temporary impairment to economically valuable use of property as physical loss or damage."); Pappy's Barber Shops, Inc. v. Farmers Grp., Inc. , ...