Caribe Restaurant and Nightclub, Inc. v. Topa Insurance Company

• Court: District Court, C.D. California
• Decided: April 9, 2021
• Docket: 2:20-cv-03570
• Status: Unknown

Opinion

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8 United States District Court 9 Central District of California

11 CARIBE RESTAURANT & Case № 2:20-cv-03570-ODW (MRWx) NIGHTCLUB, INC., individually and on 12 behalf of all others similarly situated, 13 ORDER GRANTING MOTION TO Plaintiff, DISMISS [61] 14 v. 15 TOPA INSURANCE COMPANY, 16 Defendant. 17 18 I. INTRODUCTION 19 Plaintiff Caribe Restaurant & Nightclub, Inc. (“Caribe”) initiated this class 20 action against Defendant Topa Insurance Company (“Topa”) alleging breach of 21 contract and seeking declaratory judgment for insurance coverage. (First Am. Compl. 22 (“FAC”), ECF No. 57.) Topa moves to dismiss. (Mot. to Dismiss (“Motion” or 23 “Mot.”), ECF No. 61.) The matter is fully briefed. (See Opp’n, ECF No. 66; Reply, 24 ECF No. 67.) For the reasons below, the Court GRANTS the Motion.1 25 26 27

28 1 Having carefully considered the papers filed in connection with the Motion, the Court deemed the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. 1 II. BACKGROUND2 2 Caribe owns and operates La Luz Ultralounge (“La Luz”), a restaurant and 3 nightclub located in Bonita, California. (FAC ¶ 1.) Caribe purchased an insurance 4 policy (“Policy”) from Topa for the policy period of May 18, 2019, through May 18, 5 2020. (Id. ¶¶ 2, 20; see Compl. Ex. A (“Policy”), ECF No. 7.)3 6 In March 2020, due to the COVID-19 pandemic, the State of California and 7 County of San Diego ordered “the closure of bars” and “bann[ed] onsite dining.” 8 (FAC ¶¶ 35–37.) In May 2020, San Diego County “permitted the resumption of 9 onsite dining” subject to restrictions. (Id. ¶ 36.) Caribe alleges that, as a result of 10 these civil authority orders, it was forced to “suspend or reduce business” at La Luz. 11 (Id. ¶ 8.) Caribe also alleges that COVID-19 “impaired Caribe’s property by making 12 it unusable in the way that it had been used before.” (Id. ¶ 10.) 13 Caribe alleges that its losses are covered under the Policy and identifies four 14 specific provisions: “Business Income”; “Extra Expense”; “Civil Authority”; and 15 “Duties in the Event of Loss” (referred to as the “Sue and Labor” provision). (Id. 16 ¶¶ 3–6, 54–88.) Caribe filed claims for coverage under these provisions, which Topa 17 denied. (Id. ¶¶ 15, 42.) Accordingly, Caribe commenced this litigation against Topa 18 asserting that denial of coverage was a breach of contract and seeking declaratory 19 judgment. (See FAC.) Topa’s motion to dismiss followed. (See Mot.) 20 21 22

23 2 All factual references derive from Plaintiff’s FAC, unless otherwise noted, and well-pleaded factual allegations are accepted as true for purposes of this Motion. See Ashcroft v. Iqbal, 556 U.S. 24 662, 678–79 (2009). 25 3 Although the FAC superseded the Complaint, Caribe does not include the Policy with the FAC. (But see FAC ¶ 20 (mistakenly indicating the Policy is “attached hereto as Exhibit A”)). 26 Nevertheless, it is appropriate to consider the Policy under the incorporation by reference doctrine. (See FAC ¶ 20; Mot. 2 n.2); Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (discussing that a 27 document may be incorporated by reference if neither party disputes its authenticity and the pleading 28 necessarily relies on the document). As the Policy is a compiled document with internally repeating pagination, the Court cites to the CM/ECF pagination at the top of each page of this document. 1 III. LEGAL STANDARD 2 A court may dismiss a complaint under Rule 12(b)(6) for lack of a cognizable 3 legal theory or insufficient facts pleaded to support an otherwise cognizable legal 4 theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). To 5 survive a dismissal motion, a complaint need only satisfy the minimal notice pleading 6 requirements of Rule 8(a)(2)—a short and plain statement of the claim showing the 7 pleader is entitled to relief. Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). The 8 factual “allegations must be enough to raise a right to relief above the speculative 9 level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). That is, the complaint 10 must “contain sufficient factual matter, accepted as true, to state a claim to relief that 11 is plausible on its face.” Iqbal, 556 U.S. at 678 (internal quotation marks omitted). 12 The determination of whether a complaint satisfies the plausibility standard is a 13 “context-specific task that requires the reviewing court to draw on its judicial 14 experience and common sense.” Id. at 679. A court is generally limited to the 15 pleadings in ruling on a Rule 12(b)(6) motion but may consider “attached exhibits, 16 documents incorporated by reference, and matters properly subject to judicial notice.” 17 In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1051 (9th Cir. 2014); Lee v. City of 18 Los Angeles, 250 F.3d 668, 688–89 (9th Cir. 2001). When considering the pleadings, 19 a court must construe all “factual allegations set forth in the complaint . . . as true 20 and . . . in the light most favorable” to the plaintiff. Lee, 250 F.3d at 679. However, a 21 court need not blindly accept conclusory allegations, unwarranted deductions of fact, 22 and unreasonable inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 23 (9th Cir. 2001). 24 Where a district court grants a motion to dismiss, it should generally provide 25 leave to amend unless it is clear the complaint could not be saved by any amendment. 26 See Fed. R. Civ. P. 15(a); Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 27 1025, 1031 (9th Cir. 2008). Leave to amend may be denied when “the court 28 determines that the allegation of other facts consistent with the challenged pleading 1 could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture 2 Co., 806 F.2d 1393, 1401 (9th Cir. 1986). Thus, leave to amend “is properly 3 denied . . . if amendment would be futile.” Carrico v. City and Cnty. of San 4 Francisco, 656 F.3d 1002, 1008 (9th Cir. 2011). 5 IV. DISCUSSION 6 Topa argues the Policy provisions Caribe cites provide coverage only for 7 “direct physical loss of or damage to” Caribe’s property and Caribe cannot recover 8 under any of these provisions because it fails to allege “any ‘direct physical loss’ of or 9 damage to” the insured premises. (Mot. 1.) Caribe, on the other hand, insists that it 10 has sustained “direct physical loss” of its property because it was “forced to suspend 11 or reduce business at its location due to COVID-19” and the resultant safety orders. 12 (Opp’n 1, 5.) The Court agrees with Topa for the following reasons.4 13 To begin, every Policy provision at issue contains language conditioning 14 recovery on physical loss or damage to the property. (See Policy 42–43.) Indeed, the 15 Business Income provision states that coverage is contingent on “the necessary 16 ‘suspension’ of [business] ‘operations’” caused by “direct physical loss of or damage 17 to [the insured] property.” (Policy 42 (emphasis added).) Similarly, Extra Expense 18 coverage is available only for losses that the insured “would not have incurred if there 19 had been no direct physical loss or damage to property.” (Id. (emphasis added).) The 20 Civil Authority provision also provides coverage only for losses caused by an “action 21 of civil authority that prohibits access to the described premises . . . [due to] dangerous 22 physical conditions resulting from the damage or continuation of the Covered Cause 23 of Loss [i.e., the direct physical loss] that caused the damage.” (Policy 16, 43.) And 24 the Sue and Labor provision merely provides the insured’s duties to mitigate losses 25 “in the event of loss or damage” to the property covered by another provision of the 26 27

28 4 As the Court finds the failure to allege direct physical loss or damage dispositive, it need not consider the parties’ additional arguments, and declines to do so. 1 Policy. (Policy 35–36.) Thus, the question here becomes whether Caribe has alleged 2 “physical loss or damage” sufficient to trigger coverage under one of these provisions. 3 Under California law,5 “losses from inability to use property do not amount to 4 ‘direct physical loss of or damage to property’ within the ordinary and popular 5 meaning of that phrase.” 10E, LLC v. Travelers Indem. Co. of Conn., 483 F. Supp. 3d 6 828, 835–36 (C.D. Cal. 2020). Further, only a “distinct, demonstrable, physical 7 alteration” of property will amount to physical loss or damage that may trigger 8 coverage. MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., 187 Cal. 9 App. 4th 766, 779 (2010). “Detrimental economic impact” alone is insufficient. 10E, 10 483 F. Supp. 3d at 836. Several courts in this jurisdiction have recently considered 11 cases with facts nearly identical to this one, and these courts have reached a 12 consensus—where an insurance policy conditions recovery on “direct physical loss or 13 damage,” economic business impairments caused by COVID-19 safety orders do not 14 fall within the scope of coverage. 10E, 483 F. Supp. 3d at 835–37; see, e.g., Mark’s 15 Engine Co. No. 28 Rest., LLC v. Traveler’s Indem. Co. of Conn., No. 2:20-cv-04423- 16 AB (SKx), 2020 WL 5938689, at *3–5 (C.D. Cal. Oct. 2, 2020) (holding a business 17 could not recover for pandemic-related economic losses under an insurance policy 18 requiring “direct physical loss” or “direct physical damage” for coverage), appeal 19 filed No. 20-56031 (9th Cir. Oct. 6, 2020); W. Coast Hotel Mgmt., LLC v. Berkshire 20 Hathaway Guard Ins. Cos., No. 2:20-cv-05663-VAP (DFMx), 2020 WL 6440037, 21 at *4–7 (C.D. Cal. Oct 27, 2020) (same). 22 Here, the Policy provisions on which Caribe relies clearly condition recovery 23 on physical loss or damage to the insured premises. (See Policy 42–43.) But Caribe 24

25 5 It is undisputed that California law governs this case. See Intri-Plex Techs., Inc. v. Crest Grp., Inc., 499 F.3d 1048, 1052 (9th Cir. 2007) (“[In] a diversity action the law of the forum state, California, 26 applies.”). Under California law, “interpretation of an insurance policy is a question of law.” Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 18 (1995). When “interpreting a policy provision, [courts] 27 must give its terms their ordinary and popular sense, unless used by the parties in a technical sense 28 or a special meaning is given to them by usage.” Palmer v. Truck Ins. Exch., 21 Cal. 4th 1109, 1115 (1999) (internal quotation marks omitted). 1 alleges only that COVID-19 restrictions have prevented it from using its property for 2 normal business operations, which does not suffice. (See, e.g., FAC ¶ 39 (explaining 3 that COVID-19 “impair[ed] the function of and damage[ed] the covered property” and 4 caused the “suspension of operations”).) Nowhere in the FAC does Caribe 5 sufficiently allege direct physical loss or damage such as would trigger coverage.6 6 (See generally FAC.) Therefore, just as in the cases discussed above, Caribe’s failure 7 to allege direct physical loss or damage forecloses its claim to coverage under the 8 Policy. See, e.g., 10E, 483 F. Supp. 3d at 835–37. 9 Nevertheless, Caribe contends “direct physical loss” should be read to 10 encompass the type of economic business impairments it has suffered. (Opp’n 7–9 11 (citing Total Intermodal Servs. v. Travelers Prop. Cas. Co. of Am., No. CV 17-04908 12 AB (KSx), 2018 WL 3829767, at *3–4 (C.D. Cal. July 11, 2018)).) But Caribe’s 13 reliance on Total Intermodal is misplaced. The Total Intermodal court merely held 14 that an insured need not show lost cargo is damaged if the cargo has been permanently 15 dispossessed. Total Intermodal, 2018 WL 3829767, at *3–4. That holding is entirely 16 inapplicable to the present facts; the court in Total Intermodal acknowledged as much 17 when it noted that “the same phrase in a different kind of insurance contract could 18 mean something else.”7 Id. at *4 n.4. Moreover, even if the Policy covered 19 permanent dispossession, which it does not, Caribe has not alleged permanent 20 dispossession, nor could it, as COVID-19 safety orders only temporarily restricted 21 Caribe’s use of its premises. See 10E, 483 F. Supp. 3d at 836; Plan Check Downtown 22 III, 485 F. Supp. 3d at 1231–32. 23 24 6 To the extent Caribe attempts to argue that direct physical loss or damage has occurred, it has 25 failed to do so in a non-conclusory manner. 7 Notably, the same court that decided Total Intermodal later commented that “rel[iance] on . . . Total 26 Intermodal [to interpret the policy language] ‘direct physical loss of’ [as] encompass[ing] deprivation of property without physical change in the condition of the property . . . would be 27 without any ‘manageable bounds.’” Mark’s Engine, 2020 WL 5938689, at *4 (emphasis added) 28 (quoting Plan Check Downtown III, LLC v. AmGuard Ins. Co., 485 F. Supp. 3d 1225, 1231 (C.D. Cal. 2020)). 1 While the Court is sympathetic that Caribe is suffering economically from the 2 || unprecedented COVID-19 pandemic, an economic business impairment does not 3 || qualify as a physical loss or damage to the premises. See, e.g., JOE, LLC, 483 F. 4|| Supp. 3d at 836. As Caribe does not allege direct physical loss or damage, its claims 5 || were not covered and its causes of action for breach of contract and declaratory 6 || judgment fail. Thus, the Court GRANTS Topa’s Motion to Dismiss. Additionally, 7 || the Court finds that leave to amend would be futile because allegations of other facts 8 || consistent with the FAC could not cure these deficiencies. See Schreiber Distrib. Co., 9 | 806 F.2d at 1401; Carrico, 656 F.3d at 1008. As such, dismissal is without leave to 10 || amend. 11 Vv. CONCLUSION 12 For the reasons discussed above, the Court GRANTS Topa’s Motion to 13 || Dismiss Caribe’s First Amended Complaint without leave to amend. (ECF No. 61.) 14 || The Court will issue judgment. 15 16 IT IS SO ORDERED. 17 18 April 9, 2021 es 19 oi, a 2

1 OTIS D. HT, II UNITED STATES DISTRICT JUDGE

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