Judge: Christopher K. Lui, Case: 21STCV28878, Date: 2022-12-09 Tentative Ruling

Case Number: 21STCV28878    Hearing Date: December 9, 2022    Dept: 76

Pursuant to California Rule of Court 3.1308(a)(1), the Court does not desire oral argument on the demurrer addressed herein.  As required by Rule 3.1308(a)(2), any party seeking oral argument must notify ALL OTHER PARTIES and the staff of Department 76 of their intent to appear and argue.  Notice to Department 76 may be sent by email to smcdept76@lacourt.org or telephonically at 213-830-0776.  If notice of intention to appear is not given and the parties do not appear, the Court will adopt the tentative ruling as the final ruling.

Defendant General Star Indemnity Company’s demurrer to the Second Amended Complaint is SUSTAINED without leave to amend as to the first through fourth causes of action. 

The case is ordered dismissed with prejudice.

ANALYSIS

Demurrer

Meet and Confer 

            The Declaration of David A. Tartaglio reflects that Defendant’s counsel satisfied the meet and confer requirement set forth in CCP § 430.41.

Discussion

            Defendant General Star Indemnity Company demurs to the Second Amended Complaint as follows:

  1.       First Cause of Action (Breach of Contract).

            Defendant argues that no coverage is available under the policy for building and personal property coverage, business income and extra expense coverage, or civil authority coverage.

            Where the plain language of an insurance policy does not cover a loss, there is no breach of contract in refusing to pay benefits for such loss. (See Suarez v. Life Ins. Co. of N. Am. (1988) 206 Cal.App.3d 1396, 1402-07.)

            The Second Amended Complaint alleges that Plaintiff purchased a commercial property insurance policy to protect against losses resulting from catastrophic events, such as the current unforeseen COVID-19 pandemic. (2AC, ¶ 1.) Plaintiff reasonably believed that their policy, which included business interruption coverage, would insure

their businesses against losses resulting from any source of interruption. (Id.) Plaintiff alleges that, in breach of the insurance obligations that Defendant undertook in exchange for receipt of Plaintiff s premium payments, Defendants denied Plaintiff s insurance claims arising from the interruptions of Plaintiff s business caused by the COVID-l9 pandemic and the closure orders. (Id., ¶ 3.)

            Plaintiff alleges that the presence of COVID-19 on Plaintiff’s property caused a

distinct, demonstrable, physical change and or tangible alteration which results in continuous physical loss and/or damage to the property and is hazardous to human health. (2AC, ¶ 39.) Plaintiff alleges that, as a result of physical loss and/or damage caused by COVID-19 to property, due to its ability to attach to surfaces for prolonged periods, remain viable in indoor air, and render property unsafe for normal use, Governmental Orders were implemented to limit, restrict, or prohibit total or partial access to Plaintiff s properties. (Id., ¶ 48.) Plaintiff makes a conclusory allegation that it was damaged from the presence of COVID-19 on its property to the same extent it was damaged by the stringent order. (Id., ¶ 51.) Plaintiff alleges that as a result of the pandemic, direct physical loss and damage at the insured property, and the closure of local tourist-oriented businesses due to direct physical loss or damage, Plaintiff has incurred, and continues to incur, a substantial loss of business income and additional expenses that are properly covered under the Policy. (Id., ¶ 53.)

            Defendant allegedly wrongfully denied coverage under the comprehensive commercial liability and property insurance policy, which allegedly insured against business interruption. (2AC, ¶ 55.) Such coverage includes, among other things, business income coverage for the loss, extended business income coverage, business income and extra expense coverage, business income from dependent properties, and "civil authority" coverage. (Id.) Once triggered, the Policy pays actual losses sustained for the business income and extra expense coverage. (Id.)  Defendants denied Plaintiff s claim for business income losses without an investigation (id., ¶ 60), and took the position that the coronavirus outbreak did not cause a direct physical loss, or damage to the property. (Id., ¶ 63.)

            Plaintiff alleges that the Policy does not exclude the losses suffered by Plaintiff and, therefore, the Policy does provide coverage for the losses incurred by Plaintiff. (Id., 73.) Plaintiff also alleges the following:

74. PLAINTIFF suffered direct loss or damage within the definitions of the Policy as loss of use of property as it was intended to be used, as here, constitutes loss or damage.

75. PLAINTIFF losses were a result of the COVID-l9 virus and also caused by the entry Civil Authority Orders to mitigate the spread of COVID-l9. The Civil Authority Orders were issued because of damage to individuals and property caused by COVID-I9. The Civil Authority Orders were more than mere social distancing enactments but required closure.

            Of course, the Court need not accept Plaintiff’s conclusory allegations as to legal or factual conclusions and contentions as true for purposes of demurrer. “Although a court must on demurrer accept as true properly pleaded facts, a demurrer does not admit contentions or conclusions of law or fact.” (Freeman v. San Diego Assn. of Realtors (1999) 77 Cal.App.4th 171, 185.)

            A copy of the subject insurance policy is attached as Exhibit A. The first cause of action alleges that the following provisions which Defendant allegedly breached: the operative provisions enumerated in ¶¶ 10 – 15 including benefits for lost business income. (2AC, ¶ 88.a.)

            Plaintiff alleges the following coverage provisions apply:

12. According to the Business Income coverage provision, DEFENDANT "will pay for the actual loss of Business Income you sustain due to the necessary "suspensio 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 and for which a Business Income Limit Of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss."

13. The Policy's Extra Expense states that DEFENDANT'S Policy covers "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."

14. Civil Authority states: "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, provided that both of the following apply: (1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property; and (2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property."

            In the 2AC itself, Plaintiff fails to cite the exact portion of the Policy in which this language may be found.  The Court will herein refer to the page number in the PDF document where the cited policy provisions may be found.

Significantly, because the Court was forced to search the Policy for the relevant language, the Court came across the following provision which appears to be fatal to Plaintiff’s claims:

COMMUNICABLE DISEASE EXCLUSION 

This endorsement modifies insurance provided under the following: 

COMMERCIAL GENERAL LIABILITY COVERAGE PART

A The following exclusion is added to Paragraph 2.

Exclusions of Section I - Coverage A - Bodily

lnjury And Property Damage Liability:

2. Exclusions

This insurance does not apply to:

Communicable Disease

"Bodily injury" or "property damage" arising out

of the actual or alleged transmission of a com-

municable disease.

This exclusion applies even if the claims

against any insured allege negligence or other

wrongdoing in the:

a. Supervising, hiring, employing, training or

monitoring of others that may be infected

with and spread a communicable disease;

b. Testing for a communicable disease;

c. Failure to prevent the spread of the dis-

ease; or

d. Failure to report the disease to authorities. 

[Communicable Disease Exclusion, Page 95 of 148 in the PDF document (bold emphasis added).]

            In other words, even if the Court were to accept Plaintiff’s conclusory allegations that the subject property has suffered “property damage” by virtue of the presence of the SARS-CoV-2 virus on and at the property (see, e.g., 2AC, ¶ 39), such property damage is excluded from coverage under the communicable disease exclusion.[1]

            The Business Income Coverage provision cited at ¶ 12 of the 2AC reads as follows:

We will pay for the actual loss of Business

lncome 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 and for which a Business

lncome Limit Of lnsurance is shown in the

Declarations. The loss or damage must be

caused by or result from a Covered Cause of

Loss. With respect to loss of or damage to

personal property in the open or personal

property in a vehicle, the described premises

include the area within 100 feet of such

premises.

(Business Income (and Extra Expense) Coverage Form Page 1, Page 122 of 148 in the PDF document [bold emphasis and underlining added].)

As discussed above, loss or damage caused by the presence of the SARS-CoV-2 virus on and at the property is excluded from coverage under the communicable disease exclusion. Thus, it is not a “covered loss” for purposes of Business Income Coverage.

The Extra Expense Coverage provision cited at ¶ 13 of the 2AC reads as follows:

b. 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.

(Business Income (and Extra Expense) Coverage Form Page 1, Page 122 of 148 in the PDF document [bold emphasis and underlining added].) 

Again, as discussed above, loss or damage caused by the presence of the SARS-CoV-2 virus on and at the property is excluded from coverage under the communicable disease exclusion. Thus, it is not a “covered loss” for purposes of Extra Expense Coverage. 

The Civil Authority Coverage provision cited at ¶ 14 of the 2AC reads as follows:

When a Covered Cause of Loss causes

damage to property other than property at

the described premises, we will pay for the

actual loss of Business lncome you sustain

and necessary Extra Expense caused by

action of civil authority that prohibits access

to the described premises, provided that

both of the following apply:

(1) Access to the area immediately

surrounding the damaged property is

prohibited by civil authority as a result of

the damage, and the described

premises are within that area but are not

more than one mile from the damaged

property, and

(2) The action of civil authority is taken in

response to dangerous physical

conditions resulting from the damage or

continuation of the Covered Cause of

Loss that caused the damage, or the

action is taken to enable a civil authority

to have unimpeded access to thedamaged property.

damaged property.

(Business Income (and Extra Expense) Coverage Form Page 1, Page 123 of 148 in the PDF document [bold emphasis and underlining added].) 

Once again, as discussed above, loss or damage caused by the presence of the SARS-CoV-2 virus on and at the property is excluded from coverage under the Communicable Disease Exclusion. Thus, it is not a “covered loss” for purposes of Civil Authority Coverage. 

Thus, Plaintiff has not pled a Covered Cause of Loss for purposes of Business Income, Extra Expense, and Civil Authority coverage. As such, Plaintiff’s breach of contract claim fails.

            Defendant cites the following four decisions for the proposition that COVID-19 does not cause property damage within the meaning of policy provisions in the context of business losses caused by COVID-19 government closure orders:  Inns-by-the-Sea v. California Mutual Insurance Co. (2021) 71 Cal.App.5^th 688; United Talent Agency v. Vigilant Ins. Co. (2022) 77 Cal.App.5th 821; Musso & Frank Grill Co., Inc. v. Mitsui Sumitomo Ins. USA Inc. (2022) 77 Cal.App.5th 753; and Apple Annie, LLC v. Oregon Mut. Ins. Co. (2022) 82 Cal.App.5th 919.

            Although the Court finds the rationale of those cases to be compelling, they do not relate to the case at bar because they do not address the application of a Communicable Disease Exclusion akin to the one in this case. 

            The demurrer to the first cause of action is SUSTAINED without leave to amend. 

2.         Second Cause of Action (Breach of Covenant of Good Faith and Fair Dealing). 

            Defendant argues that absent coverage, this cause of action fails.

            “As a general rule, there can be no breach of the implied covenant of good faith and fair dealing if no benefits are due under the policy.” (Brehm v. 21st Century Ins. Co. (2008) 166 Cal.App.4th 1225, 1235.)

            For the reasons discussed above re: the first cause of action, because Plaintiff cannot plead facts that coverage is available under the Policy, this cause of action also fails.

            The demurrer to the second cause of action is SUSTAINED without leave to amend.

3.         Third Cause of Action (Unfair Business Practices—B & P Code § 17200).

            Defendant argues that this claim fails, as it is derivative of the other causes of action.

            The gist of this cause of action is based on Defendant’s allegedly wrongful denial of Plaintiff’s insurance claim based on erroneous interpretations of its Policy. (2AC, ¶ 115.) Plaintiff also alleges that, had it known coverage would not be available for loss of income under certain conditions and/or situations, Plaintiff would have made alternate provisions for income loss. (2AC, ¶ 109.)

            However, as discussed above, the Communicable Disease Exclusion was expressly set forth in a separate Provision, and would exclude property damage resulting from SARS-Cov-2 as a Covered Loss.

Plaintiffs' argument regarding Dr. Winokur's lack of knowledge ignores the objective theory of contract law. Further, if valid, it would permit any party to a contract to avoid a disadvantageous provision by claiming that they were not aware it existed. That, however, is not the law. “ ‘ “ ‘It is a general rule that the receipt of a policy and its acceptance by the insured without an objection binds the insured as well as the insurer and he cannot thereafter complain that he did not read it or know its terms. It is a duty of the insured to read his policy.’ ” [Citations.]’ [Citation.]” (Citations omitted.)

(Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (2011) 197 Cal.App.4th 1146, 1155.)

            As such, there was no unlawful, unfair or fraudulent business practice by virtue of Defendant’s marketing of the policy with is express, unambiguous terms set forth.

            The demurrer to the third cause of action is SUSTAINED without leave to amend.

4.         Fourth Cause of Action (Declaratory Relief).

            The fourth cause of action for declaratory relief seeks the following declaration:

a. COVID-I9 constitutes and causes a covered loss to the insured property.

b. The losses in connection with the closure orders and the necessary interruption of business stemming from the COVID-I9 pandemic are insured losses under the policies;

c. DEFENDANT has waived any right it may have had to assert defenses to coverage or otherwise seek to bar or limit coverage for the losses suffered by PLAINTIFF by issuing a blanket coverage denial without conducting a claim investigation as required under California law;

d. DEFENDANT is obligated to pay PLAINTIFF for the full amount of the losses incurred and to be incurred in connection with the covered business losses related to the closure orders during the necessary interruption of its business stemming from the COVID-I9 pandemic.

e. No policy coverage exclusions or limitations apply to exclude or limit coverage,

f. PLAINTIFF has suffered actual and covered loss of Business Income in an amount to be determined at trial, . . .

(2AC, ¶ 127.)

130. PLAINTIFF, therefore, seeks a declaratory judgment regarding each of PLAINTIFF'S contentions set forth in this Cause of Action. A declaratory judgment determining that PLAINTIFF is due coverage under its Policy, as set forth above, will help to ensure the survival of its business during this prolonged closure made necessary by the closure orders and by the presence of COVID-I9 at and around the insured premises during this global pandemic.

     (2AC, ¶ 130.) 

For the reasons set forth above, Plaintiff is not entitled to the declaratory relief it seeks. A declaratory relief cause of action may be dealt with by way of demurrer. (See Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 648 [“We therefore conclude the trial court did not abuse its discretion in sustaining a demurrer to plaintiffs' declaratory relief action.”]) “The court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.” (Civ. Proc. Code, § 1061.)

            As such, the demurrer to the fourth cause of action is SUSTAINED without leave to amend.

            The case is ordered dismissed with prejudice.