Judge: Stephen P. Pfahler, Case: 22CHCV01332, Date: 2023-04-25 Tentative Ruling

Case Number: 22CHCV01332    Hearing Date: April 25, 2023    Dept: F49

Dept. F-49

Date: 4-25-23

Case #22CHCV01332

Trial Date: Not Set

 

DEMURRER

 

MOVING PARTY:                Defendant, Nonprofits Insurance Alliance of California

RESPONDING PARTY:       Plaintiff, Homenetmen Western Region

 

RELIEF REQUESTED

Demurrer to the Complaint

·         1st Cause of Action: Breach of Contract

·         2nd Cause of Action: Breach of Covenant of Good Faith and Fair Dealing

·         3rd Cause of Action: Unfair Business Practices Business and Professions Code 17200

·         4th Cause of Action: Unjust Enrichment

·         5th Cause of Action: Negligent Misrepresentation

·         6th Cause of Action: Declaratory Relief

 

SUMMARY OF ACTION

Plaintiff Homenetmen Western Region contends defendant Nonprofits Insurance Alliance of California wrongfully denied a claim related to business interruptions caused by the Covid-19 pandemic and subsequent government orders from various government agencies, including the City of Los Angeles and State of California.

 

On December 18, 2022, Plaintiff filed a complaint for Breach of Contract, Breach of Covenant of Good Faith and Fair Dealing, Unfair Business Practices Business and Professions Code 17200, Unjust Enrichment, Negligent Misrepresentation, and Declaratory Relief

 

RULING: Sustained with Leave to Amend.

Request for Judicial Notice: Denied.

The court declines to take judicial notice of district and circuit court authority. Defendant may present any and all authority in the points and authorities.

 

Defendant Nonprofits Insurance Alliance of California submits a demurrer to the entire

complaint on grounds of insufficient facts establishing coverage, and therefore failure to state a claim. Plaintiff in opposition maintains all causes of action are well pled. Defendant in reply reiterates the arguments in the demurrer, including the viral and bacterial exclusion language, and the impact on all individual causes of action.

 

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) In applying these standards, the court liberally construes the complaint to determine whether a cause of action has been stated.  (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.)

 

“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616; Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139 [“[U]nder our liberal pleading rules, where the complaint contains substantive factual allegations sufficiently apprising defendant of the issues it is being asked to meet, a demurrer for uncertainty should be overruled or plaintiff given leave to amend.]

 

1st Cause of Action: Breach of Contract

Plaintiff seeks to allege breach of contract based on the withholding of insurance benefits under the business interruption clause of the policy. Plaintiff acknowledges the Covid-19 pandemic outbreak during the relevant time frame, but characterizes the interruption as a result of the government orders, rather than the Covid-19 virus itself. [Comp., ¶¶ 3, 10-45.] The complaint articulates a number of reasons for the alleged wrongful denial, including presentation of an adhesion policy effectively preventing Plaintiff from the required coverage; failure to disclose said exclusions; denial of any physical damage by the insurer which would constitute a basis of coverage; and, lack of sufficient investigation into the claim. [Comp., ¶¶ 46-70.] Plaintiff also cites to courts in England and France as a basis of public policy support articulating the wrongful denial claim. [Comp., ¶¶ 71-73.]

 

The operative complaint incorporates a copy of the insurance policy. The court therefore references the incorporated exhibit. Defendant directly cites to the business interruption section, which specifically includes an exclusion for interruptions caused by viral or bacterial outbreaks.

 

“‘While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.’ (Citation.) ‘The principles governing the interpretation of insurance policies in California are well settled. “Our goal in construing insurance contracts, as with contracts generally, is to give effect to the parties' mutual intentions.”’ (Citation.) “‘Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Citation.) The “clear and explicit” meaning of these provisions, interpreted in their “ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage’ (Citation), controls judicial interpretation. (Citation.)’” (Citation) “‘If contractual language is clear and explicit, it governs.’”

 

“‘If the terms are ambiguous [i.e., susceptible of more than one reasonable interpretation], we interpret them to protect “‘the objectively reasonable expectations of the insured.’” (Citation.) This rule stems from the principle that “‘[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.’” (Citation.) “‘Only if these rules do not resolve a claimed ambiguity do we resort to the rule that ambiguities are to be resolved against the insurer....’ The ‘tie-breaker’ rule of construction against the insurer stems from the recognition that the insurer generally drafted the policy and received premiums to provide the agreed protection.” (Citation.) “[L]anguage in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.... Courts will not strain to create an ambiguity where none exists.”

 

“‘The insured has the burden of establishing that a claim, unless specifically excluded, is within basic coverage, while the insurer has the burden of establishing that a specific exclusion applies.’ (Citation.) The principles of contractual interpretation, as applied to insurance policies ‘do not include using public policy to redefine the scope of coverage.’”

 

(Inns-by-the-Sea v. California Mutual Ins. Co. (2021) 71 Cal.App.5th 688, 697–698.)

 

The existence of the viral bacterial exclusion remains undisputed. Defendant specifically relies on a recent case regarding interpretation of a viral or bacterial exclusion in support of the demurrer. “The virus exclusion expressly bars coverage for all loss or damage caused by or resulting from ‘any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease.’ Musso & Frank's allegation that its losses were caused by the public health orders does not change the fact that those orders were a response to the COVID-19 virus. (Citation.) The Ninth Circuit agrees, observing that the complaint in that case did not allege an attenuated causal chain between the virus and the insured's losses, and the insured did not dispute the fact that the closure orders were due to COVID-19. (Citation.)” (Musso & Frank Grill Co., Inc. v. Mitsui Sumitomo Ins. USA Inc. (2022) 77 Cal.App.5th 753, 761.)

 

Plaintiff counters with an argument analogizing Covid-19 as a means of causing physical loss or damage, in that the outbreak rendered the property uninhabitable or unusable. Plaintiff cites a case involving E. Coli bacteria. (Cooper v. Travelers Indem. Co. of lllinois, Case No. C-01-2400-VRW, 2002 WL 32775680 at *1 (N.D. Ca. Nov. 4,2002),affd, 113 F. App'x 198 (9th Cir.2004) (applying California law).) The court was unable to locate this case, and requests Plaintiff use official citations, including proof that the subject case was actually published and therefore citable. Plaintiff also cites to a case involving a landslide claim, whereby the court found for the insureds based at least in part by the displacement of the residents from the property from the underlying geologic issues. (Strickland v. Federal Ins. Co. (1988) 200 Cal.App.3d 792, 803.)

 

Plaintiff next analogizes the pandemic as a form of trespass, in that the “invasion” of microscopic viral particles caused a physical disruption to premises use and occupation. (Elton v. Anheuser-Busch Beverage Group, Inc. (1996) 50 Cal.App.4th 1301, 1305; Civic Western Corp. v. Zila Industries, Inc. (1977) 66 Cal.App.3d 1, 16.) Plaintiff additionally cites to out of state authorities, as well as other examples based on noxious fumes and gases. Even without reviewing the E. Coli bacteria case, the court appreciates the argument regarding the conflated approach presented in the opposition physical (viral) disruption and the operative complaint pled government shutdown allegations.

 

Regardless of the factual basis for the arguments, the essence of the opposition relies on establishing the origin of the business disruption constitutes an event fitting within the terms of the insurance policy. [Comp., ¶¶ 31-45.] The Musso & Frank case found efficient proximate cause doctrine applied. In considering the doctrine, the court cited to prior decisions considering California laws and determined government restrictions on business operations caused by the pandemic “remote” as to a claim for business losses. Covid-19 related restrictions limited operations to purposes “deemed essential,” but by no means demonstrated a causal, physical displacement of all business. (Mudpie, Inc. v. Travelers Casualty Insurance Company of America (9th Cir. 2021) 15 F.4th 885, 894.) Under this standard, and regardless of the attribution describing the virus as a “physical” invader, the court finds no basis of a valid, covered claim for business disruption around the viral bacterial exclusion.

 

Plaintiff also cites to a “Civil Authority” basis of coverage. [Comp., ¶¶ 63-69.] It’s not clear from the allegations in the operative complaint, whether plaintiff relies on a different section of the policy as basis of this coverage, or a form of establishing a wrongful exemption under the bacterial and viral exclusion. Given the lack of appreciable clarity, the court finds the argument subsumed within the efficient proximate cause standard previously relied upon and discussed.

 

The court therefore finds Plaintiff fails to establish a viable basis for breach of contract, as alleged. Again, as discussed in the standard, it remains Plaintiff’s burden to establish application of the terms. The court declines the invitation to make new public policy declarations based on interpretation of public health proclamations and the science behind the aerosol transmission of respiratory transmitted viruses. The function of the trial court is to consider the operative terms of the policy and facts alleged in interpreting potential coverage.

 

2nd Cause of Action: Breach of Covenant of Good Faith and Fair Dealing

Given the lack of a valid contract claim, the court also finds an invalid cause of action for bad faith. (McMillin Scripps North Partnership v. Royal Ins. Co. (1993) 19 Cal.App.4th 1215, 1222;  Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395; Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1153.)

 

3rd Cause of Action: Unfair Business Practices Business and Professions Code 17200

“The UCL does not proscribe specific acts, but broadly prohibits ‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising....’” [¶] “‘A private plaintiff must make a twofold showing: he or she must demonstrate injury in fact and a loss of money or property caused by unfair competition.’ (Citation.)” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1359.) Fact specific pleading is not required in order to allege an unfair business practice. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 46–47.

 

An “unlawful” practice “means any practices forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made.… ‘Unfair’ simply means any practice whose harm to the victim outweighs its benefits. (Citation.) ‘Fraudulent,’ as used in the statute, does not refer to the common law tort of fraud but only requires a showing members of the public ‘“are likely to be deceived.”’” (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 838–839.) “[A]n unfair business practice also means” the relied upon public policy provision is “tethered” to a specific regulatory provisions. (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 81.)

 

To the extent the complaint depends on the terms of the policy, the court finds no basis of support for the subject cause of action in the current form of the complaint.

 

4th Cause of Action: Unjust Enrichment

California no longer recognizes unjust enrichment as a cause of action. Notwithstanding a party may state a claim in equity arising in restitution. (Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1138.) The court finds an insufficient basis for a claim of restitution based on the underlying contractual dispute.

 

5th Cause of Action: Negligent Misrepresentation

“Negligent misrepresentation is a separate and distinct tort, a species of the tort of deceit. ‘Where the defendant makes false statements, honestly believing that they are true, but without reasonable ground for such belief, he may be liable for negligent misrepresentation, a form of deceit.’” (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 407.) “The tort of negligent misrepresentation does not require scienter or intent to defraud. (Citation.) It encompasses ‘[t]he assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true’ (Citation), and ‘[t]he positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true’ (Citation)…’” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173–174.) Misrepresentations must be made about past or existing fact. (Neu-Visions Sports, Inc. v. Soren/McAdam/Bartells (2000) 86 Cal.App.4th 303, 309–310; Agricultural Ins. Co. v. Superior Court (1999) 70 Cal.App.4th 385, 390.)

 

The complaint insufficiently articulates the basis of this claim.

 

6th Cause of Action: Declaratory Relief

Declaratory relief arises under Code of Civil Procedure section 1060, which states in part:

 

“Any person interested under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property … may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract. He or she may ask for a declaration of rights or duties, either alone or with other relief; and the court may make a binding declaration of these rights or duties, whether or not further relief is or could be claimed at the time. The declaration may be either affirmative or negative in form and effect, and the declaration shall have the force of a final judgment. The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought.”

 

“‘[S]ection 1060 does not require a breach of contract in order to obtain declaratory relief, only an ‘actual controversy.’ Declaratory relief pursuant to this section has frequently been used as a means of settling controversies between parties to a contract regarding the nature of their contractual rights and obligations.’” (Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, 365.) Declaratory relief operates prospectively. (Id. at p. 366.)

 

“[U]nder California rules, an actual controversy that is currently active is required for such relief to be issued, and both standing and ripeness are appropriate criteria in that determination. (Citation.) One cannot analyze requested declaratory relief without evaluating the nature of the rights and duties that plaintiff is asserting, which must follow some recognized or cognizable legal theories, that are related to subjects and requests for relief that are properly before the court.”

 

(Otay Land Co.v. Royal Indemn. Co. (2008) 169 Cal.App.4th 556, 563.)

 

To the extent the operative complaint relies on the terms of the policy for all claims of declaratory relief, the court finds no basis of support.

 

The demurrer is sustained with 30 days leave to amend. Plaintiffs may not add any new or different causes of action, and may only add facts within the scope of the existing insurance coverage dispute. (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) Any new causes of action added without leave from court are subject to a motion to strike.

 

Defendant to give notice.