Water Sports Kauai, Inc. v. Fireman's Fund Insurance Company

• Court: District Court, N.D. California
• Decided: November 9, 2020
• Docket: 3:20-cv-03750
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 WATER SPORTS KAUAI, INC., Case No. 20-cv-03750-WHO

8 Plaintiff, ORDER GRANTING THE MOTION 9 v. TO DISMISS

10 FIREMAN'S FUND INSURANCE Re: Dkt. No. 39 COMPANY, et al., 11 Defendants.

12 13 Plaintiff Water Sports Kauai, Inc., a Hawaii corporation, dba Sand People (“Sand People”), 14 shut down its businesses (twelve stores on three islands that sell gifts, artwork, décor, jewelry, 15 glassware, coastal furnishing, apparel, soaps, lotions, candles, and books) six months ago due both 16 to the spread of the coronavirus and to directives from Hawaii’s Governor limiting the operation 17 of non-essential businesses, including Sand People’s stores. Amended Complaint (“AC”), Dkt. 18 No. 38, ¶ 56. It submitted a claim for coverage under an insurance policy (Policy) issued by 19 defendants Fireman’s Fund Insurance Company, National Surety Corporation, and Allianz Global 20 Risks US Insurance Co (collectively, “defendants”) under the “Lost Business Income” and “Civil 21 Authority” provisions. AC ¶ 4. That claim was denied, and Sand People filed suit. 22 I agree with the vast majority of cases that have addressed materially similar policy 23 provisions and facts. Sand People has failed to plausibly plead Business Income or Civil 24 Authority coverage. Its claims are dismissed with limited leave to amend. 25 BACKGROUND 26 The Policy provides that the defendants will “pay for direct physical loss of or damage 27 to Covered Property at the premises described in the Declarations caused by or resulting from any 1 3. Covered Causes of Loss

2 RISKS OF DIRECT PHYSICAL LOSS unless the loss is [excluded]. 3 Id. at 31. g. Business Income 4 We will pay for the actual loss of Business Income you sustain due to 5 the necessary suspension of your operations during the period of restoration. 6 . . .

7 The suspension must be caused by direct physical loss of or damage to property at the described premises, including personal property in 8 the open (or in a vehicle) within 100 feet, caused by or resulting from any Covered Causes of Loss. 9 Id. at 33. 10 h. Extra Expense 11 We will pay necessary Extra Expense you incur during the period of 12 restoration that you would not have incurred if there had been no direct physical loss or damage to property at the described premises, 13 including personal property in the open (or in a vehicle) within 100 feet of the described premises, caused by or resulting from a Covered 14 Cause of Loss

15 Id. at 34.

16 i. Civil Authority

17 We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that 18 prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused 19 by or resulting from any Covered Cause of Loss. This coverage will apply for a period of up to two consecutive weeks from the date of 20 that action.

21 Id. at 35.

22 15. Period of Restoration means the period of time that:

23 a. Begins with the date of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at the described premises; 24 and b. Ends on the date when the property at the described premises 25 should be repaired, rebuilt or replaced with reasonable speed and similar quality. 26 Id. at 63. 27 Based on the spread of the coronavirus, directives from Hawaii’s Governor limiting the 1 operation of non-essential businesses, including Sand People’s stores, and government closure 2 orders issued in 49 other states/jurisdictions as a result of the coronavirus pandemic, and 3 defendants’ denial of requests for coronavirus coverage under similarly worded policies, Sand 4 People asserts the following claims on behalf of a class and a subclass: (1) Breach of Contract; (2) 5 Breach of Covenant of Good Faith and Fair Dealing; (3) Unfair or Deceptive Business Practices; 6 and (4) Declaratory Relief. 7 The class and subclass are defined as:

8 Class All persons or entities in the United States (including its territories 9 and the District of Columbia) who own an interest in a business that was insured by Defendants in March 2020 and made (or attempted to 10 make) a claim with Defendants arising from lost business income (or other losses related to business interruption) at that business related 11 to COVID-19, and did not receive coverage for that claim.

12 Hawaii Subclass All persons or entities in Hawaii who own an interest in a business 13 that was insured by Defendants in March 2020 and made (or attempted to make) a claim with Defendants arising from lost business 14 income (or other losses related to business interruption) at that business related to COVID-19, and did not receive coverage for that 15 claim.

16 AC ¶ 123. 17 LEGAL STANDARD 18 In Hawaii, “‘because insurance policies are contracts of adhesion and are premised on 19 standard forms,’” the contracts must be “construed liberally” in favor of the insured and based on 20 the reasonable expectations of a layperson, with any ambiguities being resolved against the 21 insurer. Hart v. Ticor Title Ins. Co., 126 Hawai'i 448, 456 (2012) (quoting Dairy Road Partners v. 22 Island Ins. Co., Ltd., 92 Hawai‘i 398, 411- 414 (2000)); see also Great Divide Ins. Co. v. AOAO 23 Maluna Kai Estates, 492 F. Supp. 2d 1216, 1226–27 (D. Haw. 2007) (“A policy provision is not 24 ambiguous just because the insurer and insured disagree over the interpretation of the terms of a 25 policy. . . . Ambiguity exists only when the policy ‘taken as a whole, is reasonably subject to 26 differing interpretation.’” (quoting Oahu Transit Servs., Inc. v. Northfield Ins. Co., 107 Hawai‘i 27 231, 236 n. 7 (Haw.2005)). 1 DISCUSSION 2 Defendants move to dismiss Sand People’s claims because the mere threat of coronavirus 3 is insufficient to show a “direct physical loss of or damage to” its covered property and the 4 government closures orders are likewise insufficient to show the same. Defendants note that 5 district courts around the country – including ones in this District and throughout the Ninth Circuit 6 – have rejected identical claims under similar policies and that the only two federal cases Sand 7 People identifies in support of their claims – both from the Western District of Missouri – are 8 distinguishable or wrongly decided. Sand People responds that this case is different from the bulk 9 of district court cases relied on by defendants because (i) it specifically alleges that it had to close 10 its properties due directly to the coronavirus’ rapid spread and imminent threat to its businesses, 11 and (ii) the vast majority of district court cases dismissing for lack of coverage also had virus 12 exclusions limitations in their policies. 13 As described below, I will follow the overwhelming majority of courts that have 14 determined that the mere threat of coronavirus cannot cause a “direct physical loss of or damage 15 to” covered property as required under the Policy. That resolves the issue of coverage under the 16 Business Income and Civil Authority provisions as a result of both the spread of coronavirus and 17 the government closure orders. 18 I. LOST BUSINESS INCOME 19 Sand People contends that “lost business income” coverage was triggered by both the 20 “physical” spread of the coronavirus and, independently, the government closure orders. I will 21 address each argument in turn. 22 A. Spread of Coronavirus 23 Sand People asserts that it adequately alleged closure because of the “imminent” threat of 24 coronavirus at their properties. AC ¶ 69 (“The Coronavirus and its pernicious spread created 25 inherently dangerous conditions where the stores and property within them were at immediate and 26 imminent risk of exposure to the Coronavirus. This caused them to suspend operations and lose 27 access to the stores, which rendered them untenantable.”); ¶ 76 (“Because, inter alia, the spread of 1 in many cases impossible to operate safely, it directly caused them to suffer physical damage and 2 loss.”). It claims that the explosive spread of coronavirus and the imminence of the threat it 3 presented is sufficient to show a “direct physical loss” because the closure is alleged to have 4 resulted from a physical event “the spread of the virus” and potential exposure to a disease. 5 Sand People relies on a series of cases where courts found coverage because asbestos, 6 arsenic, and e-coli contamination were present on covered property. For example, in Port Auth. of 7 New York and New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002), the Third Circuit 8 interpreted a “physical loss or damage” policy with respect to asbestos and concluded, “[w]hen the 9 presence of large quantities of asbestos in the air of a building is such as to make the structure 10 uninhabitable and unusable, then there has been a distinct loss to its owner. However, if asbestos 11 is present in components of a structure, but is not in such form or quantity as to make the building 12 unusable, the owner has not suffered a loss.” Id. at 236. The court explained, “‘physical loss or 13 damage’ occurs only if an actual release of asbestos fibers from asbestos containing materials has 14 resulted in contamination of the property such that its function is nearly eliminated or destroyed, 15 or the structure is made useless or uninhabitable, or if there exists an imminent threat of the release 16 of a quantity of asbestos fibers that would cause such loss of utility. The mere presence of 17 asbestos, or the general threat of future damage from that presence, lacks the distinct and 18 demonstrable character necessary for first-party insurance coverage.” Id. 19 That case confirms that there must be sufficient evidence of the presence of the 20 contaminant at the property plus an imminent threat from it. Id. at 236 (“We thus find ourselves in 21 agreement with the District Court’s ruling that plaintiffs’ inability ‘to produce evidence 22 concerning the manifestation of an imminent threat of asbestos contamination’ forecloses the 23 existence of a viable claim. Although the plaintiffs demonstrated that many of its structures used 24 asbestos-containing substances, those buildings had continuous and uninterrupted usage for many 25 years. The mere presence of asbestos or the general threat of its future release is not enough to 26 survive summary judgment or to show a physical loss or damage to trigger coverage under a first- 27 party ‘all risks’ policy.”); see also In Assn. of Apt. Owners of Imperial Plaza v. Fireman’s Fund 1 satisfied where plaintiff demonstrates “that an event had a direct impact and proximately caused a 2 loss related to the physical matter of the Property” and arsenic seeping into the “concrete slab, 3 carpet, and interior objects are physical matter within the ordinary use of those words.”); Motorists 4 Mut. Ins. Co. v. Hardinger, 131 Fed. Appx. 823, 826–27 (3d Cir. 2005) (unpublished) (“we 5 believe there is a genuine issue of fact whether the functionality of the Hardingers’ property was 6 nearly eliminated or destroyed, or whether their property was made useless or uninhabitable” by 7 presence of e-coli in well). For that reason, it does not help Sand People. 8 Defendants do not dispute that actual presence of a contaminant at a covered property 9 might trigger coverage. They argue that what is alleged here – the “mere threat” of exposure – is 10 categorically insufficient to trigger coverage as a direct physical loss of or damage to Sand 11 People’s property. They contend that there must be an incident of a direct physical impact to 12 covered property to trigger coverage and a mere threat does not suffice. That distinction is 13 supported by Port Authority, 311 F.3d at 236, where even though asbestos was in the property – 14 and thus there was some threat of exposure in the future – plaintiff’s claims failed because there 15 was insufficient “evidence concerning the manifestation of an imminent threat of asbestos 16 contamination.” Id. at 236 (emphasis added). Sand People pleads that coronavirus was rapidly 17 spreading and feasibly in Hawaii but fails to allege both its presence in any of its properties and a 18 manifestation of imminent threat of contamination in any of its properties. 19 That manifestation is significant because the Policy requires a “direct physical loss of or 20 damage to” property that has not been alleged. See, e.g., Mudpie, Inc. v. Travelers Cas. Ins. Co. of 21 Am., 20-CV-03213-JST, 2020 WL 5525171, at *5 (N.D. Cal. Sept. 14, 2020) (dismissing claim for 22 failure to allege COVID-19 or any other physical impetus caused the loss of functionality “where 23 plaintiff “does not allege that ‘Covid-19 entered the [property] through any employee or 24 customer” and did not allege that store was closed “because its employees became sick or 25 coronavirus was discovered on the property”). For this reason alone, Sand People’s reliance on 26 Studio 417, Inc. v. Cincinnati Ins. Co., 20-CV-03127-SRB, 2020 WL 4692385, at *2 (W.D. Mo. 27 Aug. 12, 2020) and Blue Springs Dental Care, LLC v. Owners Ins. Co., 20-CV-00383-SRB, 2020 1 salon, restaurant, and dental practice alleged the actual presence of the coronavirus in their 2 establishments – Sand People only pleads an “imminent threat.” See also Mudpie, Inc, 2020 WL 3 5525171 *6 (distinguishing Studio 417 because “Mudpie makes no similar allegation here. It does 4 not allege, for example, that the presence of the COVID-19 virus in its store created a physical 5 loss.”). There are no facts plausibly alleging an actual exposure at one or more Sand People 6 stores, much less that an actual physical exposure caused them to close a particular store or set of 7 stores.1 8 Instead of alleging actual physical exposure, Sand People broadly claims that closing the 9 stores to avoid imminent exposure is “indistinguishable” from actual exposure in the context of an 10 insurance contract because it was under a duty to mitigate losses. Oppo. at 5. But Sand People 11 cites no cases finding that similar coverage provisions were triggered without some physical and 12 direct occurrence on the property in the first instance. See, e.g., Hampton Foods, Inc. v. Aetna 13 Cas. and Sur. Co., 787 F.2d 349, 352 (8th Cir. 1986) (plaintiff suffered “direct, concrete and 14 immediate loss due to extraneous physical damage to the building,” and because of “the 15 unquestioned danger of reentering the building” at risk of collapse, plaintiff was entitled to attempt 16 to mitigate its damages by “removing and salvaging as much property as it could before the 17 building’s destruction.”); see also Armstrong World Industries, Inc. v. Aetna Cas. & Sur. Co., 45 18 Cal. App. 4th 1, 92 (Cal. App. 1st Dist. 1996) (“remedial costs incurred in cleaning up 19 contaminated waste sites are covered by CGL policies, but ‘prophylactic’ costs-costs incurred in 20 advance of any release of hazardous waste, to prevent threatened future pollution-are not incurred 21 because of property damage.”).2 22 1 During the oral argument, Sand People’s counsel admitted that it would not be able to plead facts 23 that coronavirus actually entered or was otherwise found in one of the Sand People’s stores. I also note that at least one court has dismissed coverage claims despite plaintiff’s allegation that 24 coronavirus had entered a property. See, e.g. Uncork and Create LLC v. The Cincinnati Insurance Company, et al., No. 2:20-cv-00401, slip op. (S.D.W. Va. November 2, 2020) (granting motion to 25 dismiss for lack of “physical loss” and concluding that “even when present, COVID-19 does not threaten the inanimate structures covered by property insurance policies, and its presence on 26 surfaces can be eliminated with disinfectant. Thus, even actual presence of the virus would not be sufficient to trigger coverage for physical damage or physical loss to the property.”). 27 1 Sand People also contends that the significant “gravity of the risk” from coronavirus, as 2 confirmed by the March 2020 government closure orders and which they intend to prove through 3 discovery and expert testimony, “will demonstrate how, in the midst of a global pandemic, 4 Plaintiff’s traveler-focused Stores in touristic centers of Hawai‘i would have been exposed to 5 Coronavirus had they not closed down.” Oppo. 8-9. But it cites no case finding coverage based 6 only on a “would have been exposed” allegation because of a contaminant’s rapid spread. 7 Finally, Sand People asserts that coverage is independently required because of “exposure” 8 to coronavirus on other properties in Hawaii that were in the “same tourism and supply chains” as 9 its stores and that third party exposure establishes coverage. Oppo. at 9.3 However, no specific 10 “income support property” in Sand People’s supply chain is identified in the Amended Complaint. 11 Even if one was, Sand People would still need to allege facts showing that the identified income 12 support property itself suffered a direct physical loss, which then caused Sand People a specific 13 loss. 14 B. Government Closure Orders 15 Sand People also contends that the government closure orders independently triggered 16 coverage because (i) it suffered a “loss of” its property and “material alteration” of the property is 17 not required and (ii) deprivation of the functionality of the property triggers coverage. It argues 18 that “loss” broadly includes a deprivation, dispossession, and impairment of property, similar to 19 what it suffered here due to the government orders shutting down non-essential businesses like 20 Sand People’s. It asserts that there is no need, under the “loss” prong, to show a “material 21 alteration” of its property (that might otherwise be required under the “damage to” prong). 22 Sand People relies on Total Intermodal Services Inc. v. Travelers Prop. Cas. Co. of Am., 23 CV 17-04908 AB (KSX), 2018 WL 3829767 (C.D. Cal. July 11, 2018). There the court 24

25 3 The Policy provides: “j. Income Support Properties. We will pay for the actual loss of Business Income you sustain due to direct physical loss or damage at the premises of an income support 26 property not described in the schedule caused by or resulting from any Covered Cause of Loss. Income Support Property means property operated by others on whom you depend to: (1) Deliver 27 material or services to you, or to others for your account; (2) Accept your products or services; (3) 1 recognized that the separate “loss of” property clause “contemplates that the property is misplaced 2 and unrecoverable, without regard to whether it was damaged,” but could include the permanent 3 dispossession of something; there the loss of a shipping container. Id. at *3-4. The Total 4 Intermodal court distinguished “loss of” from “loss to” property, where “loss to” suggests an 5 external force acting on property, and “loss of” connotes simple dispossession or similar harm not 6 “localized” on a segment of property. Id. at 3-4; see also Oppo. at 10-11. 7 In the Mudpie case, the Hon. Jon S. Tigar of this District accepted the distinction drawn by 8 Total Intermodal and rejected the alleged requirement – suggested by defendants here – that there 9 be some physical alteration to the covered property. Mudpie, Inc., 2020 WL 5525171 at *4. 10 However, Judge Tigar concluded Total Intermodal did not help plaintiffs because while

11 Mudpie has been dispossessed of its storefront, it will not be a “permanent dispossession” as with the lost cargo in Total Intermodal. 12 See 2018 WL 3829767, at *4. When the Stay at Home orders are lifted, Mudpie can regain possession of its storefront. Mudpie’s 13 physical storefront has not been “misplaced” or become “unrecoverable,” and neither has its inventory. 14 15 2020 WL 5525171 at *4. 16 The same is true here. As Judge Tigar noted, applying the broader “loss of” coverage, the 17 surrounding provisions within the policy at issue there “suggest that Mudpie’s inability to occupy 18 its storefront does not fall within the Business Income and Extra Expense coverage of this policy” 19 given the “period of restoration” definition limits the period of coverage to when the property is 20 “repaired, rebuilt or replaced with reasonable speed and similar quality.” Id. He stated that there 21 was “nothing to fix, replace, or even disinfect for Mudpie to regain occupancy of its property” 22 because its loss was “caused by state closure orders and thus will last for however long those 23 restrictions remain.” Id. The period of restoration provisions in this case are materially identical 24 and likewise support a conclusion that there has been no covered disposition or “loss of” property 25 because Sand People identifies nothing it needs to fix or replace at any of its properties. 26 Sand People takes issue with those two conclusions, arguing that a covered “disposition” 27 does not have to be “permanent” and cites to multiple cases where “removeable substances” like 1 cases do not help Sand People because it has not alleged any direct physical anything that 2 happened to or at its specific properties. Moreover, it has not been dispossessed or deprived of 3 any specific property; its inventory and equipment remain. Instead, it complains of loss of use, 4 meaning its inability to operate its stores. 5 Numerous courts have found that materially identical allegations do not trigger coverage 6 under similarly worded policies as a result of government closure orders. The cases consistently 7 conclude that there needs to be some physical tangible injury (like a total deprivation of property) 8 to support “loss of property” or a physical alteration or active presence of a contaminant to support 9 “damage to” property. See, e.g., Mudpie, Inc., 2020 WL 5525171, at *4 (“Although Mudpie has 10 been dispossessed of its storefront, it will not be a “permanent dispossession” as with the lost 11 cargo in Total Intermodal. . . . When the Stay at Home orders are lifted, Mudpie can regain 12 possession of its storefront.”); Real Hospitality, LLC d/b/a/ Ed’s Burger Joint v. Travelers 13 Casualty Insurance Company of America, No. 2:20-cv-00087, slip op. (S.W.D.Ms. November 4, 14 2020) (interpreting “loss of” prong in “direct physical loss of or damage to” to mean total 15 dispossession of property); 10E, LLC v. Travelers Indem. Co. of Connecticut, 2:20-CV-04418- 16 SVW-AS, 2020 WL 5359653, at *4 (C.D. Cal. Sept. 2, 2020) (“Under California law, losses from 17 inability to use property do not amount to ‘direct physical loss of or damage to property’ within 18 the ordinary and popular meaning of that phrase. Physical loss or damage occurs only when 19 property undergoes a ‘distinct, demonstrable, physical alteration.’ [] ‘Detrimental economic 20 impact’ does not suffice.” (internal citations omitted)); see also Travelers Cas. Ins. Co. of Am. v. 21 Geragos and Geragos, CV 20-3619 PSG (EX), 2020 WL 6156584, at *4 (C.D. Cal. Oct. 19, 22 2020) (dismissing claim under “loss of or damage to” language where insured “fails to allege that 23 there was physical damage to the property and concedes that Coronavirus ‘has never been detected 24 at [its] property.’”); Henry's Louisiana Grill, Inc. v. Allied Ins. Co. of Am., 1:20-CV-2939-TWT, 25 2020 WL 5938755, at *6 (N.D. Ga. Oct. 6, 2020) (dismissing claims because the “range of 26 contemplated harms aligns with an understanding that ‘loss of’ means total destruction while 27 1 ‘damage to’ means some amount of harm or injury.”).4 2 Sand People’s “deprivation of functionality” argument – namely its inability to operate the 3 stores during the duration of the government closure orders, triggering coverage – fares no better. 4 There is no allegation of any direct physical contact that caused a tangible loss to their property (as 5 in Total Intermodal) or the direct physical presence of a contaminant that creates an inability to 6 use or need for remediation (like the actual presence of coronavirus, asbestos, mold, etc.). See, 7 e.g., Assn. of Apt. Owners of Imperial Plaza v. Fireman's Fund Ins. Co., 939 F. Supp. 2d 1059, 8 1068 (D. Haw. 2013) (“arsenic concentrated and posed a health risk that required abatement”). 9 Finally, as in Mudpie, viewing the language of the Policy as a whole, the “Period of 10 Restoration” language (during which the Policy covers lost business income and extra expenses) 11 shows the strength of defendants’ argument and the weakness of Sand People’s. Mudpie, Inc., 12 2020 WL 5525171 at *4; AC, Ex. 9 at 63 (defining the restoration period as beginning on the 13 “date of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at 14 the described premises” and ending when “the property at the described premises should be 15 repaired, rebuilt or replaced with reasonable speed and similar quality.”). As in Mudpie, here 16 there is nothing on any of Sand People’s premises that allegedly needs to be repaired, rebuilt or 17 replaced.5 18 4 Sand People argues that these cases (and the dozens of other cases that have been similarly 19 decided by district courts) are not persuasive because some of them also addressed virus exclusions in the policies at issue. The majority of these courts reasonably determined, first, that 20 coverage was not implicated given the lack of a direct physical event causing loss of or damage to property. See, e.g., Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 20-CV-03213-JST, 2020 WL 21 5525171, at *7 n. 9 (N.D. Cal. Sept. 14, 2020) (“Because Mudpie is not entitled to Civil Authority coverage, the Court need not consider Travelers’s additional argument that the virus exclusion 22 bars such coverage.”); 10E, LLC v. Travelers Indem. Co. of Connecticut, 2:20-CV-04418-SVW- AS, 2020 WL 5359653, at *6 (C.D. Cal. Sept. 2, 2020) (“Plaintiff’s FAC does not articulate a 23 theory of Civil Authority coverage clearly enough to allow the Court to adjudicate at this stage whether and how the Policy’s virus exclusion applies.”); Henry’s Louisiana Grill, Inc. v. Allied 24 Ins. Co. of Am., 1:20-CV-2939-TWT, 2020 WL 5938755, at *6 n. 3 (N.D. Ga. Oct. 6, 2020) (“Because the Plaintiffs have not pleaded sufficient facts to support a claim for coverage here, this 25 Court will not proceed to analyze the parties' arguments regarding the Virus or Bacteria exclusion.”). These courts’ initial coverage determinations are persuasive here. 26

5 In post-briefing submissions, plaintiff submits a pair of North Carolina Superior Court decisions 27 from October 9, 2020, granting summary judgment to plaintiffs on policies that require only a 1 Therefore, Sand People has failed to allege a plausible basis for Lost Business Income 2 coverage under either of its theories (the threat of rapidly spreading coronavirus or the Hawaii 3 government closure orders). This claim is DISMISSED. Sand People is given limited leave to 4 amend. It is unlikely to be able to allege the physical presence of coronavirus in any of its covered 5 properties, but it may be able to allege the physical presence of coronavirus and additional facts in 6 support of its “supply chain” theory. 7 II. CIVIL AUTHORITY LOSS 8 Sand People also argues that under the plain language of the Policy, it is entitled to 9 coverage under the Civil Authority provision because the closure orders in Hawaii “prohibited” 10 access to its stores and the orders themselves were issued “in response” to physical loss and 11 damage elsewhere. Numerous judges, including Judge Tigar in Mudpie, have addressed and 12 rejected this argument in this identical posture:

13 Mudpie’s allegations establish that the government closure orders were intended to prevent the spread of COVID-19. See ECF No. 1 ¶ 14 24 (California’s Safer at Home Order was issued “to control the spread of COVID-19.”). Because the orders were preventative – and 15 absent allegations of damage to adjacent property – the complaint does not establish the requisite causal link between prior property 16 damage and the government’s closure order. 17 Mudpie, Inc., 2020 WL 5525171, at *7. 18 The same result is required here. The preventative closure orders cannot support a causal 19

20 this case and highly persuasive. In the first, W. Coast Hotel Mgmt., LLC v. Berkshire Hathaway Guard Ins. Cos., No. 2:20-cv-05663-VAP-DFMx, slip op. (C.D. Cal. Oct. 27, 2020), a Central 21 District judge granted defendants’ motion to dismiss on a policy requiring a “direct physical loss of or damage to property” for Business Income coverage and Civil Authority coverage. Similarly, 22 in Uncork and Create LLC v. The Cincinnati Insurance Company, et al., No. 2:20-cv-00401, slip op. (S.D.W. Va. November 2, 2020), the district court dismissed with prejudice claims materially 23 identical to the ones asserted here. Id. (rejecting Business Income and Civil Authority coverages under a “direct physical damage or loss to property” policy despite plaintiffs’ assertions of closure 24 due to (1) a direct threat/exposure to coronavirus and (2) government closure orders). See also In Raymond H. Nahmad DDS PA v. Hartford Cas. Ins. Co., No. 1:20-cv-22833-BB, slip op. (S.D. 25 Fla. Nov. 2, 2020) (dismissing Business Income and Civil Authority claims under a “direct physical damage or loss to property” policy); Real Hospitality, LLC d/b/a/ Ed’s Burger Joint v. 26 Travelers Casualty Insurance Company of America, No. 2:20-cv-00087, slip op. (S.W.D.Ms. November 4, 2020) (“When all of the provisions are read together it makes logical sense that the 27 property that is insured, i.e., the building and/or personal property in or on the building, must first 1 link of direct physical loss of or damage to property for the reasons discussed above. In the 2 absence of any allegation that any specific neighboring property to a Sand People property in 3 Hawaii had actual coronavirus exposure, this coverage has not plausibly been triggered. See 4 Sandy Point Dental, PC v. Cincinnati Ins. Co., 20 CV 2160, 2020 WL 5630465, at *3 (N.D. Ill. 5 Sept. 21, 2020) (“the policy’s civil authority coverage applies only if there is a Covered Cause of 6 Loss, meaning a direct physical loss, to property other than the plaintiff’s property. Even then, 7 there is coverage only if the civil authority order, (1) prohibits access to the premises due to (2) 8 direct physical loss to property, other than plaintiff’s premises, caused by or resulting from any 9 Covered Cause of Loss.”); In Raymond H. Nahmad DDS PA v. Hartford Cas. Ins. Co., No. 1:20- 10 cv-22833-BB, slip op. (S.D. Fla. Nov. 2, 2020) (same). 11 This claim is likewise dismissed with limited leave to amend. 12 III. REMAINING CLAIMS 13 Given the failure to plead plausible coverage under any of the provisions of the Policy, I 14 need not reach plaintiff’s remaining claims (Unfair or Deceptive Trade Practices, under HI Rev 15 Stat § 480-1 et seq., Breach of Covenant of Good Faith and Fair Dealing, and declaratory relief) 16 because they all fail if the underlying breach of contract claim based on coverage fails. 17 An unfair conduct claim could be premised on defendants’ alleged “misrepresentation” of 18 the scope of coverage. Oppo. at 22. However, there are no “how and what and where” facts 19 alleged identifying any alleged misrepresentations in the Amended Complaint. The only time 20 “misrepresent” is used is in paragraph 155 (alleging unfair conduct as “promising coverage to 21 Plaintiffs and the Subclass that was not provided, and that Defendants had no intention of 22 providing”). No specific facts regarding alleged fraudulent acts or misrepresentations are 23 provided.6 Sand People is given limited leave to amend this claim to identify the specific 24 misrepresentations it allegedly received regarding the coverage provided by defendants. 25 CONCLUSION 26 For the foregoing reasons, defendants’ motion is GRANTED. Sand People is given 27 1 limited leave to amend as described above. Any amended complaint should be filed within twenty 2 || days of the date of this Order. 3 IT IS SO ORDERED. Dated: 4 November 9, 2020 \ 6 ® liam H. Orrick 7 United States District Judge 8 9 10 11 a 12

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