Jc Sc LLC v. Travelers Indemnity Company Of

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 14, 2023
• Docket: 22-55200
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS APR 14 2023 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

JC SC LLC, No. 22-55200

Plaintiff-Appellant, D.C. No. 2:21-cv-04835-AB-JPR v.

TRAVELERS INDEMNITY COMPANY MEMORANDUM* OF CONNECTICUT,

Defendant-Appellee.

Appeal from the United States District Court for the Central District of California Andre Birotte, Jr., District Judge, Presiding

Submitted April 10, 2023** Pasadena, California

Before: W. FLETCHER, BERZON, and MILLER, Circuit Judges.

Plaintiff-Appellant JC SC LLC (JC/SC) appeals from the district court’s

order granting Defendant-Appellee Travelers Indemnity Company of

Connecticut’s (Travelers) motion to dismiss this action challenging Travelers’

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). denial of insurance coverage. We have jurisdiction under 28 U.S.C. § 1291, and we

affirm.

We review de novo the district court’s dismissal for failure to state a claim.

Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1040 (9th Cir. 2011).

“To survive a motion to dismiss, a complaint must contain sufficient factual

matter, accepted as true, to state a claim to relief that is plausible on its

face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks

omitted). We review a district court’s decision to deny discovery for abuse of

discretion. Hall v. Norton, 266 F.3d 969, 977 (9th Cir. 2001).

1. Policyholder JC/SC seeks coverage under its insurance policy with

Travelers for COVID-19 related economic losses. The virus exclusion provision of

JC/SC’s insurance policy bars coverage for JC/SC’s alleged losses. The exclusion

provides that Travelers “will not pay for loss or damage caused by or resulting

from any virus, bacterium or other microorganism that induces or is capable of

inducing physical distress, illness, or disease.” JC/SC argues that the exclusion

does not apply because the COVID-19 virus was not the efficient proximate cause

of its losses. The district court correctly rejected that argument.

In California, “where there is a concurrence of different causes, the efficient

cause—the one that sets others in motion—is the cause to which the loss is to be

attributed, though the other causes may follow it, and operate more immediately in

2 producing the disaster.” Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th

885, 894 (9th Cir. 2021) (quoting Sabella v. Wisler, 377 P.2d 889, 895 (Cal.

1963)). Coverage does not exist if “an excluded risk was the efficient proximate

(meaning predominant) cause of the loss.” Id. (quoting Garvey v. State Farm Fire

& Cas. Co., 770 P.2d 704, 707 (Cal. 1989)).

Mudpie involved the same virus exclusion provision at issue here, and the

insured made a similar “efficient cause” argument, claiming that government

orders, rather than the virus itself, were the most direct cause of its losses. 15 F.4th

at 893-94. We rejected that argument, holding that the insured did “not plausibly

allege that ‘the efficient cause,’ i.e., the one that set others in motion, . . . was

anything other than the spread of the virus throughout California, or that the virus

was merely a remote cause of its losses.” Id. at 894 (quoting Sabella, 377 P.2d at

895).

JC/SC’s attempts to distinguish this case from Mudpie are unsuccessful.

JC/SC argues that its complaint alleges that its losses stem from its tenants’

financial hardships during the pandemic; those economic factors, JC/SC reasons,

are less closely tied to the virus than the government orders at issue in Mudpie

because “they represent, among other things, business decisions by tenants in

response to the COVID-19 Pandemic.” Accordingly, JC/SC argues that “[w]hether

these losses fall squarely and solely within the Virus Exclusion, squarely outside

3 that exclusion (and, thus, squarely within coverage), or some combination of both

covered and arguably uncovered perils cannot be resolved on the pleadings”

because it is a factual question of causation.

But JC/SC’s complaint does not allege an attenuated causal chain between

the virus and the losses. Instead, it alleges that “tenants’ businesses suffered,” and

“[m]any tenants simply could not pay their rents,” as a result of “‘stay at home’

orders, lockdown mandates, and work from home protocols [that] were issued” in

response to the virus. Just as in Mudpie, the complaint describes losses directly

caused by government orders as a result of the virus.

JC/SC’s complaint further explains that “[g]iven the manner in which [the

COVID-19 virus] lingers in the air, in airspace, and on surfaces, and its manner of

transmission, and the government’s desire to ‘flatten the curve,’ JC/SC’s properties

could not be used by many of JC/SC’s tenants, who did not pay rent.” “[A]s a

result of these events, many of JC/SC’s commercial tenants did not renew leases

and vacancies at JC/SC’s properties increased, causing JC/SC further economic

loss.” These allegations are even more directly linked to the presence of the virus

itself. Therefore, as in Mudpie, JC/SC’s complaint does not plausibly allege that

the efficient cause of its losses is anything but the COVID-19 virus. Accordingly,

the virus exclusion bars all coverage. Because the virus exclusion bars coverage for

all of the claims, we need not reach JC/SC’s remaining arguments regarding

4 coverage.

2. JC/SC also argues the district court abused its discretion by denying

JC/SC’s request for discovery. JC/SC correctly notes that California law “requires

at least a preliminary consideration of all credible evidence offered to prove the

intention of the parties.” Pac. Gas & Elec. Co. v. G.W. Thomas Drayage &

Rigging Co., 442 P.2d 641, 645 (Cal. 1968). But that rule is about the admissibility

of extrinsic evidence when such evidence is presented; it does not require a court

to grant discovery in every contract case. “When a dispute arises over the meaning

of contract language, the first question to be decided is whether the language is

‘reasonably susceptible’ to the interpretation urged by the party. If it is not, the

case is over.” Dore v. Arnold Worldwide, Inc., 139 P.3d 56, 61 (Cal. 2006)

(quoting Southern Cal. Edison Co. v. Superior Ct., 44 Cal. Rptr. 2d 227, 232 (Cal.

Ct. App. 1995)). It was not an abuse of discretion for the district court to determine

that the virus exclusion was not reasonably susceptible to JS/SC’s interpretation,

and to deny discovery accordingly.

AFFIRMED.