Saddle Ranch Sunset, LLC v. Fireman's Fund Ins. Co.

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SADDLE RANCH SUNSET, LLC et al., Plaintiffs and Appellants, v. FIREMAN'S FUND INSURANCE COMPANY et al., Defendants and Respondents.

B313609

California Court of Appeals, Second District, Fifth Division

June 22, 2023

NOT TO BE PUBLISHED

Order Date Filed 7/21/23

APPEAL from a judgment of the Superior Court of Los Angeles County No. 20STCV36531, Steven Kleifield, Judge.

Sinclair Braun, Nathaniel S.G. Braun and Nick S. Pelletier for Plaintiffs and Appellants.

Covington &Burling, Rani Gupta, David B. Goodwin, and Sabrina T. McGraw for United Policyholders as Amicus Curiae on behalf of Plaintiffs and Appellants.

DLA Piper, John P. Phillips and Brett Solberg for Defendants and Respondents.

Athene Law and Long X. Do for the California Medical Association as Amicus Curiae.

ORDER MODIFYING OPINION AND DENYING PETITION FOR REHEARING

THE COURT:*

GOOD CAUSE appearing the opinion filed in the aboveentitled matter on June 22, 2023, is modified as follows:

On page 18, before the last paragraph that begins with "At oral argument," insert the following new paragraph:

Fireman's Fund points out that the definition section states: "If the word 'location' is not shown in bold face, then such a reference includes all of the following: [¶] (a) Location(s); and [¶] (b) the legal boundaries of a parcel of property insured by Newly Acquired Location Coverage or Unnamed Location Coverage, or both." (Boldface in the original.) Fireman's Fund asserts that because of this sentence, the public health authority's order must specifically identify a Saddle Ranch restaurant to invoke coverage. We disagree. The sentence states un-bolded "location" includes the insured properties; it does not say that un-bolded "location" exclusively means the insured properties. "The term 'includes' is ordinarily a word of enlargement and not of limitation." (People v. Western Air Lines (1954) 42 Cal.2d 621, 639.) Thus, the use of unbolded "location" evokes its common meaning, inclusive of the insured properties. It does not require the restaurants to be singled out in the public health orders, requiring disinfection and evacuation.

There is no change in judgment.

The petition for rehearing is denied.

RUBIN P. J.

Plaintiffs Saddle Ranch Sunset, LLC, Saddle Ranch Orange, LLC, Saddle Ranch Valencia, LLC, and Saddle Ranch Glendale, LLC sued defendants Fireman's Fund Insurance Company, Allianz Global Corporate &Specialty, and Allianz Global Risks U.S. Insurance Company (collectively, Fireman's Fund) for breach of contract and breach of the implied covenant of good faith and fair dealing. Plaintiffs alleged that Fireman's Fund wrongfully denied property insurance coverage for COVID-19 pandemic-related losses incurred at their insured restaurants. Coverage was based on a communicable disease extension that plaintiffs had purchased. Fireman's Fund demurred, arguing primarily that plaintiffs failed to allege they incurred "direct physical loss or damage." The trial court sustained the demurrer without leave to amend, concluding plaintiffs could not allege direct physical loss or damage and did not allege a communicable disease event under the policy. Plaintiffs appealed.

Our colleagues in Division Four of the First District, and Division Seven of the Second District recently interpreted identical Fireman's Fund policy language and found that allegations of COVID-19 contamination were sufficient to allege "direct physical loss or damage" under the insureds' communicable disease coverage extensions. (Amy's Kitchen, Inc. v. Fireman's Fund Ins. Co. (2022) 83 Cal.App.5th 1062 (Amy's Kitchen); Marina Pacific Hotel &Suites, LLC v. Fireman's Fund Ins. Co. (2022) 81 Cal.App.5th 96 (Marina Pacific).)^[1] We agree with our colleagues that plaintiffs have sufficiently alleged the existence of a covered communicable disease event and direct physical loss or damage under the policy. Accordingly, we reverse.

FACTUAL AND PROCEDURAL BACKGROUND^[2]

1. Plaintiffs' Insurance Policy

Plaintiffs (four corporations based in California) operated four restaurants in close proximity to major medical centers and sports arenas at three locations in California and one in Arizona. In early 2020, plaintiffs obtained an insurance policy from Fireman's Fund, with a year-long policy period beginning on February 25, 2020. The policy insured plaintiffs against a range of business risks for their four restaurants.^[3] The policy included a communicable disease coverage extension, which stated:

We will pay for direct physical loss or damage to Property Insured caused by or resulting from a covered communicable disease event at a location including the following necessary costs incurred to:

(a) Tear out and replace any part of Property Insured in order to gain access to the communicable disease;

(b) Repair or rebuild Property Insured which has been damaged or destroyed by the communicable disease; and

(c) Mitigate, contain, remediate, treat, clean, detoxify, disinfect, neutralize, cleanup, remove, dispose of, test for, Monitor, and assess the effects of the communicable disease.

In the definition section, the contract stated: "Communicable disease means any disease, bacteria, or virus that may be transmitted directly or indirectly from human or animal to a human." "Communicable disease event" is "an event in which a public health authority has ordered that a location be evacuated, decontaminated, or disinfected due to the outbreak of a communicable disease at such location."

Under the subsection titled "Business Income and Extra Expense Coverage," the policy stated:

If a Limit of Insurance for Business Income and Extra Expense is shown in the Declarations, then we will pay for the actual loss of business income and necessary extra expense you sustain due to the necessary suspension of your operations during the period of restoration arising from direct physical loss or damage to property at a location, or within 1,000 feet of such location, caused by or resulting from a covered cause of loss.

The contract defines "covered cause of loss" to mean "risks of direct physical loss or damage not excluded or limited in this Coverage Form." The declarations stated plaintiffs had the following limits of insurance: $6 million for business real property, $1.6 million for business personal property, and $5 million for "business income, extra expense."^[4]

2. Beginning of the COVID-19 Global Pandemic and Plaintiffs' Tender to its Insurer

In early January 2020, the outbreak of COVID-19 began a global pandemic. On March 19, 2020, California and Arizona governors issued directives closing or limiting restaurant service and closing bars, impacting the four restaurants at issue in this appeal. "In the ensuing months, California and Arizona state and local officials and health departments . . . issued several further orders and directives. The new orders include[d] restrictions on the use of property and mandate[d] that restaurants, hospitals, elder care facilities, and other businesses modify their premises to slow or stop the spread of COVID-19, and mitigate, contain, remediate, treat, clean, detoxify, disinfect, neutralize, and cleanup their premises, remove and dispose-of property that has been contaminated with COVID-19, and test for, monitor, and assess the effects of COVID-19 at their premises."

As a result of these health orders, plaintiffs "suffered hundreds of thousands of dollars in lost business income and extra expense, losses to their covered locations, loss avoidance and mitigation, removal of property, and loss of leasehold interest." In addition, Saddle Ranch Glendale was forced to close "as a result of its suspension of operations due to the physical loss or damage at its covered location, from civil authority shutdowns, and from the physical loss and damage to dependent properties like the adjacent sports stadiums, which attracted customers to its business."

On April 2, 2020, plaintiffs tendered Fireman's Fund "a claim for their losses-for damage to property insured at the restaurants, loss avoidance and mitigation expenses, costs to remove, mitigate, clean up, disinfect, test for, and prevent infection from COVID-19, and for their lost business income and extra expenses incurred from the suspension of their operations." Fireman's Fund denied their claims, concluding that plaintiffs had not suffered direct physical loss or damage, and that the ongoing pandemic did not cause damage within 1,000 feet of the restaurant locations.

3. Present Lawsuit

On September 24, 2020, plaintiffs sued Fireman's Fund for breach of contract and breach of the implied covenant of good faith and fair dealing, alleging Fireman's Fund wrongfully denied their claims. Among the damages plaintiffs sought were "compensation for loss of insurance benefits, damage to property, costs for loss mitigation and avoidance, damages to leasehold interest, costs for removal and storage of property, and lost business income and extra expense, in an amount to be proven at trial."

Plaintiffs alleged that government-issued orders barred access to the Saddle Ranch restaurants and required plaintiffs at the Saddle Ranch locations to "mitigate, contain, remediate, treat, clean, detoxify, disinfect, neutralize, and/or cleanup their premises due to the COVID-19 pandemic-which the defendant Insurers admit is a 'global outbreak.' "

Plaintiffs stated, "The policy sold to Plaintiffs describes as covered 'physical loss or damage' the 'costs incurred to: . . . Mitigate, contain, remediate, treat clean, detoxify, disinfect, neutralize, cleanup, remove, dispose of, test for, monitor, and assess the effects [of] the communicable disease.'" Plaintiffs also asserted "insurers, and specifically Fireman's...