Wellness Eatery La Jolla LLC v. Hanover Ins. Grp.

517 F.Supp.3d 1096

WELLNESS EATERY LA JOLLA LLC, Wellness Eatery Little Italy LLC, and Welness Eatery Carmel Valley LLC, Plaintiffs,

v.The HANOVER INSURANCE GROUP, California Capital Insurance Co., and Does 1 through 10, Inclusive, Defendants.

Case No.: 20cv1277-AJB-RBB

United States District Court, S.D. California.

Signed February 3, 2021

Francis A. Bottini, Bottini & Bottini, Inc., La Jolla, CA, for Plaintiffs.

Stephen Michael Hayes, Hayes Scott Bonino Ellingson Guslani Simonson & Clause LLP, San Carlos, CA, for Defendants.

ORDER GRANTING DEFENDANT'S MOTION FOR JUDGMENT OR PARTIAL JUDGMENT ON THE PLEADINGS

Anthony J. Battaglia, United States District Judge

This civil action concerns Wellness Eatery La Jolla LLC, Wellness Eatery Little Italy LLC, and Wellness Eatery Carmel Valley LLC's (collectively, "Plaintiffs" or "Wellness Eatery") claims of insurance coverage against The Hanover American Insurance Company¹ ("Defendant" or "Hanover"). Plaintiffs’ suit comes in the wake of the COVID-19 public health crisis, and government emergency orders relating thereto. It is not the first of its kind. The pandemic has severely affected small businesses across the United States, and COVID-19 insurance cases have been, and continue to be, litigated across the nation. Presently before this Court is Defendant's motion for judgment or partial judgment on the pleadings. (Doc. No. 8.) Plaintiffs filed an opposition, to which Defendant replied. (Doc. Nos. 13, 14.) Upon careful consideration of the insurance policy and applicable case law, as more fully set forth below, the Court GRANTS Defendant's motion.

I. BACKGROUND

Plaintiffs operate Parakeet Café, a restaurant "serving up health-conscious food, coffee, tea, and freshly baked goods" in three different locations in San Diego. (Doc. No. 1-2 at ¶¶ 1, 21–23.) According to the complaint, Wellness Eatery and Hanover entered into an insurance contract with a policy period of June 20, 2019, through June 20, 2020 ("Policy").² (Id. at ¶ 16.)

On March 4, 2020, California Governor Gavin Newsom declared a State of Emergency in California due to the threat of COVID-19, "a deadly infectious disease caused by the recently discovered Coronavirus known as SARS-CoV-2." (Doc. No. 1-2 at ¶ 36, 40.) On March 16, 2020, California Department of Public Health issued guidance to restaurants, stating "Restaurants should be closed for in-restaurant seated dining, and should be open only to drive-through or other pick-up/delivery options." (Id. at ¶ 43.) The guidance permitted restaurants to serve food and beverages for off-premises consumption, but "mandated that they ensure they have an environment where patrons purchasing food or beverages ‘maintain adequate social distancing.’ " (Id. ) Three days later, on March 19, 2020, Governor Newsom issued Executive Order N-33-20, directing "all residents of the state to stay home except as needed to maintain infrastructure sectors[.]" (Id. at ¶ 8.)

Plaintiffs claim that on March 16, as a result of the "Closure Orders," Parakeet Café "was forced to close its doors to the public," and suffered and continues to suffer "extraordinary losses of business income and lost wages for their full-time employees." (Id. at ¶ 47–50.) According to Plaintiffs, their losses amount to covered losses under the business income, extra expense, extended business income, and civil authority provisions of their Policy. (Id. at ¶ 51–69.) The Policy states, in pertinent part,

1. 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 premises which are described in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.

...

2. Extra Expense

Extra Expense means necessary expenses 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 caused by or resulting from a Covered Cause of Loss.

...

5. Additional Coverages

a. Civil Authority

We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises , caused by or resulting from any Covered Cause of Loss.

...

c. Extended Business Income

(1) Business Income Other Than "Rental Value"

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 (except "finished stock") is actually repaired, rebuilt or replaced and "operations" are resumed; and

(b) Ends on the earlier of:

(i) The date you could restore your "operations", with reasonable speed, to the level which would generate the business income amount that would have existed if no direct physical loss or damage had occurred [.]

(Doc. No. 8-3 at 48, 49 (emphasis added).)³

Plaintiffs filed an insurance claim with Hanover, which it denied. (Id. at 50.) Plaintiffs thereafter commenced this litigation, raising nine causes of action: (1) breach of contract, (2) breach of covenant of good faith and fair dealing, (3) bad faith denial of insurance claim, (4) unfair business practices under California Business and Professions Code section 17200 et seq. , ("UCL") (5) fraudulent misrepresentation, (6) constructive fraud, (7) unjust enrichment, (8) declaratory relief under California Code of Civil Procedure § 1060, et seq. , and (9) injunctive relief under California's UCL. Defendant's motion for judgment or partial judgment on the pleadings followed.

II. LEGAL STANDARD

"After the pleadings are closed—early enough not to delay trial—a party may move for judgment on the pleadings." Fed. Civ. Pro. R. 12(c). "A district court will render a ‘judgment on the pleadings 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.’ " Enron Oil Trading & Transp. Co. v. Walbrook Ins. Co. Ltd. , 132 F.3d 526, 529 (9th Cir. 1997) (quoting George v. Pacific–CSC Work Furlough , 91 F.3d 1227, 1229 (9th Cir. 1996) ). "In considering a motion for judgment on the pleadings, a court must accept as true all material allegations in the complaint and must construe those allegations in the light most favorable to the plaintiff." United States v. In re Seizure of One Blue Nissan Skyline Auto., & One Red Nissan Skyline , 683 F. Supp. 2d 1087, 1089 (C.D. Cal. 2010) (citing Pillsbury, Madison & Sutro v. Lerner , 31 F.3d 924, 928 (9th Cir. 1994) ). Judgment on the pleadings is appropriate when, accepting as true all material allegations in the nonmoving party's pleadings, the moving party is entitled to judgment as a matter of law. Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc. , 896 F.2d 1542, 1550 (9th Cir. 1989).

III. DISCUSSION

In this case, Defendant primarily argues that Plaintiffs failed to allege a "direct physical loss of or damage to" property as required to trigger coverage under the business income, extra expense, extended business income, and civil authority provisions of the Policy.⁴ (Doc. Nos. 8-1 at 8–15; 14 at 5–9.) The Court discusses each in turn.

A. California Law

To begin, the parties do not dispute that California law governs. See, e.g., Intri-Plex Techs., Inc. v. Crest Group, Inc. , 499 F.3d 1048, 1052 (9th Cir. 2007) ("Since this is a diversity action the law of the forum state, California, applies."). Under California law, the "interpretation of an insurance policy is a question of law" to be answered by the court. Waller v. Truck Ins. Exch., Inc. , 11 Cal. 4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995), as modified on denial of reh'g (Oct. 26, 1995). The "goal in construing insurance contracts, as with contracts generally, is to give effect to the parties’ mutual intentions." Minkler v. Safeco Inc. Co. , 49 Cal. 4th 315, 321, 110 Cal.Rptr.3d 612, 232 P.3d 612 (2010) (quoting Bank of the West v. Superior Court , 2 Cal. 4th 1254, 1264, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992) ). To do so, the court must "look first to the language of the contract in order to ascertain its plain meaning or the meaning a layperson would ordinarily attach to it." Waller , 11 Cal. 4th at 18, 44 Cal.Rptr.2d 370, 900 P.2d 619 ; see also Cont'l Cas. Co. v. City of Richmond , 763 F.2d 1076, 1080 (9th Cir. 1985) ("The best evidence of the intent of the parties is the policy language."). Generally, if the policy terms are clear and explicit, their ordinary and popular interpretation governs. Minkler , 49 Cal. 4th at 321, 110 Cal.Rptr.3d 612, 232 P.3d 612. But if the terms are ambiguous or susceptible to more than one reasonable interpretation, courts "interpret them to protect the objectively reasonable expectations of the insured." Id. However, "[c]ourts will not strain to create an ambiguity where none exists." Waller , 11 Cal. 4th at 18–19, 44 Cal.Rptr.2d 370, 900 P.2d 619.

B. Business Income, Extra Expense, and Extended Business Income Provisions

To trigger insurance coverage under the business income, extra expense, and extended business income provisions of the Policy, there must be "direct physical loss of or damage to property at premises which are described in the Declarations." (Doc. No. 8-3 at 48, 49.) Plaintiffs’ arguments focus on the "direct physical loss of" property prong of the provision. While the Policy does not define the terms "physical" or "loss", "[t]he fact that a term is not defined in the policies does not make it ambiguous." Foster-Gardner, Inc. v. Nat'l Union Fire Ins. Co. , 18 Cal. 4th 857, 868, 77 Cal.Rptr.2d 107, 959 P.2d 265 (1998). The terms of a contract "must be construed in the context of that instrument as a...