Plan Check Downtown III, LLC v. Amguard Ins. Co.

485 F.Supp.3d 1225

PLAN CHECK DOWNTOWN III, LLC

v.AMGUARD INSURANCE COMPANY, et al.

Case No. Cv 20-6954-GW-SKx

United States District Court, C.D. California.

Filed September 10, 2020

Attorneys Present for Plaintiffs: Kathryn L. Boyd, Janine F. Cohen.

Attorneys Present for Defendants: Chet A. Kronenberg.

PROCEEDINGS: TELEPHONIC HEARING ON DEFENDANT'S MOTION TO DISMISS [8]

GEORGE H. WU, UNITED STATES DISTRICT JUDGE

The Court's Tentative Ruling is circulated and attached. Court and counsel confer. For reasons stated on the record, the Court continues the motion to September 17, 2020 at 8:30 a.m.

Tentative Ruling on Defendant's Motion to Dismiss

I. Background¹

Like many other restaurateurs across the country, plaintiff Plan Check Downtown III has seen its business suffer greatly since the onset of the ongoing COVID-19 pandemic. In response to various city-and state-government orders requiring restaurants to suspend on-premise dining and individuals to shelter at home, Plan Check stopped all operations at its two restaurant locations in Los Angeles in March 2020. Compl. ¶ 43. While its West Los Angeles location has since reopened for take-out and delivery service, its downtown location remains closed. Id.

Prior to these events, Plan Check had purchased a property insurance policy from defendant AmGuard Insurance Company (the "Policy") for its two restaurants. Id. ¶ 14. The Policy provides coverage for, among other things, loss of business income due to the necessary suspension of business operations due to any "physical loss of or damage to" the covered properties. See Policy § I.A.5(f). Plan Check argues that its loss of business income caused by the changes to its operations is covered by the Policy and submitted a claim to AmGuard for reimbursement. Compl. ¶ 50. AmGuard rejected the claim, concluding that Plan Check had not suffered a physical loss or damage to its properties and that in any event a "virus exclusion" in the Policy meant that Plan Check's claims were not covered. Id. ¶ 52.

After AmGuard's denied its claim, Plan Check brought this putative class action against AmGuard on behalf of all restaurants in California that purchased comprehensive business insurance coverage from AmGuard. Id. ¶ 64. Plan Check filed its lawsuit in California state court, alleging a breach of contract and other related claims. AmGuard removed the case to federal court based on diversity jurisdiction. See NoR at 2-5. Before the Court is AmGuard's motion to dismiss for failure to state a claim.

II. Legal Standard

Under Rule 12(b)(6), a defendant may move to dismiss for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). A complaint may be dismissed for failure to state a claim for one of two reasons: (1) lack of a cognizable legal theory; or (2) insufficient facts under a cognizable legal theory. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; see also Mendiondo v. Centinela Hosp. Med. Ctr. , 521 F.3d 1097, 1104 (9th Cir. 2008).

The court must construe the complaint in the light most favorable to the plaintiff, by accepting all well-pled allegations of material fact as being true, and drawing all reasonable inferences from well-pleaded factual allegations in favor of the plaintiff. Gompper v. VISX, Inc. , 298 F.3d 893, 896 (9th Cir. 2002). The court is not required to accept as true legal conclusions couched as factual allegations. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While a complaint does not need detailed factual allegations to survive a Rule 12(b)(6) motion, the plaintiff must provide grounds demonstrating its entitlement to relief. Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (2007). Under the Supreme Court's decisions in Twombly and Iqbal , this requires that the complaint contains "sufficient factual matter ... to ‘state a claim to relief that is plausible on its face.’ " Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ).

III. Discussion

The parties agree that the Policy is governed by California law. See generally Stonewall Surplus Lines Ins. Co. v. Johnson Controls, Inc. , 14 Cal.App.4th 637, 718-21, 17 Cal.Rptr.2d 713 (1993) (principal location of insured risk is most important consideration in determining which state's law applies to insurance policy); Restatement (Second) of Conflict of Laws § 193 (rights created by policy are determined by the local law of the state which the parties understood was to be the principal location of the insured risk).

"When determining whether a particular policy provides a potential for coverage," a court "[is] guided by the principle that interpretation of an insurance policy is a question of law." Waller v. Truck Ins. Exch., Inc. , 11 Cal.4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995). "[A]ny ambiguity or uncertainty in an insurance policy is to be resolved against the insurer and ... if semantically permissible, the contract will be given such construction as will fairly achieve its object of providing indemnity for the loss to which the insurance relates." Reserve Ins. Co. v. Pisciotta , 30 Cal.3d 800, 807, 180 Cal.Rptr. 628, 640 P.2d 764 (1982). The purpose is "to protect the insured's reasonable expectation of coverage in a situation in which the insurer-draftsman controls the language of the policy." Id. at 808, 180 Cal.Rptr. 628, 640 P.2d 764. "Whereas coverage clauses are interpreted broadly so as to afford the greatest possible protection to the insured, exclusionary clauses are interpreted narrowly against the insurer." Id.

A. The terms of the insurance policy

In the Policy, AmGuard promises that "[it] will pay for direct physical loss of or damage to Covered Property ... caused by or resulting from any Covered Cause of Loss." Policy § I.A. It goes on to provide a subsection titled "Additional Coverages," which specifies some covered causes of loss. Relevant here, that section includes:

Section I – Property

A. Coverage

We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

* * *

5. Additional Coverages

f. Business Income

... 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 damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.

* * *

g. Extra Expense

(1) We will pay 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 damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss....

(2) Extra Expense means expense incurred:

(a) To avoid or minimize the suspension of business and to continue "operations":

(i) At the described premises; or (ii) At replacement premises or at temporary locations, including relocation expenses, and costs to equip and operate the replacement or temporary locations.

(b) To minimize the suspension of business if you cannot continue "operations" ....

Policy § I.A.5.f-g. The Policy includes an "Exclusions" section. Relevant here is the following "virus exclusion":

Section I – Property

A. Coverage

* * *

B. Exclusions

1. 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. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

a. Ordinance Or Law

* * *

j. Virus or Bacteria.

(1) Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.

Policy § I.B.1.j(1).

B. Whether Plan Check suffered from any "direct physical loss of or damage to" its properties

The Policy is an "all-risk property" insurance policy² that limits its coverage to "direct physical loss of or damage to Covered Property." Policy § I.A.³ The term "physical loss or damage" is typically the trigger for coverage in modern all-risk property insurance policies. 10A Couch on Insurance (3d ed. 2010), § 148:46. The word "physical" modifies both "loss" and "damage." Plan Check concedes that its properties did not suffer any "physical damage." Opp. at 11. However, the parties do dispute whether Plan Check has suffered a "physical loss."

Neither the words "physical" nor "loss" are defined in the Policy. When interpreting an insurance policy provision, courts "must give its terms their ordinary and popular sense, unless used by the parties in a technical sense or a special meaning is given to them by usage." Palmer v. Truck Ins. Exch. , 21 Cal.4th 1109, 1115, 90 Cal.Rptr.2d 647, 988 P.2d 568 (1999). Courts must also "interpret these terms in context, and give effect to every part of the policy with each clause helping to interpret the other." Id.

AmGuard focuses on the word "physical." That the "loss" must be "physical," given the ordinary definition of that word, "is widely held to exclude alleged losses that are intangible or incorporeal and, thereby, to preclude any claim against the property insurer when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property. " MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co. , 187 Cal.App.4th 766, 799, 115 Cal.Rptr.3d 27 (2010) (emphasis added) (quoting Couch on Insurance, § 148.46). According to AmGuard, the fact that there was no physical alteration to the properties means that Plan Check has not suffered a physical loss of property.

Plan Check, on the other hand, focuses on the word "loss" and the accompanying prepositions. In particular, it emphasizes the fact...