Apple Annie, LLC v. Or. Mut. Ins. Co.
Decision Date | 02 September 2022 |
Docket Number | A163300 |
Parties | APPLE ANNIE, LLC, Plaintiff and Appellant, v. OREGON MUTUAL INSURANCE COMPANY, Defendant and Respondent. |
Court | California Court of Appeals Court of Appeals |
CERTIFIED FOR PUBLICATION
Trial Court: San Francisco County Superior Court No. CGC-20-585712 Trial Judge: Honorable Richard B. Ulmer
Attorney for Plaintiff and Appellant, Apple Annie, LLC Shernoff Bidart Echeverria; Michael J. Bidart, Ricardo Echeverria, Steven Schuetze, Reid Ehrlich-Quinn; Hess Bower Adams-Hess, PC; Randy M. Hess
Attorney for Defendant and Respondent, Oregon Mutual Insurance Company: Pacific Law Partners, LLP; Clarke Holland David. B.A. Demo, Andrew P. Collier.
The COVID pandemic and ensuing lockdown have generated a host of legal issues. One of the most momentous, in terms of the potential monetary liability, is whether businesses ordered by government decree to close or suspend operations could get compensation under the business income coverage of the standard comprehensive commercial liability policy. The issue has generated opinions from different Courts of Appeal, all of which have held that the issue comes down to whether the insured can allege it suffered "direct physical loss of or damage to [the insured] property." Having lost in the trial court, the insured here tells us "this appeal can be viewed as a referendum on whether [those] decisions were correctly decided." We conclude that they were, add our agreement with the other cases, and thus affirm the judgment on the pleadings for the insurer.
At all relevant times, plaintiff Apple Annie, LLC, operated restaurants in Marin, San Francisco, and Santa Barbara counties. Defendant Oregon Mutual Insurance Company issued Apple Annie a comprehensive commercial liability and property insurance policy that, as relevant here, promised in general to "pay for direct physical loss of or damage to Covered Property at the [insured] premises," and in particular to The policy did not define "direct physical loss of or damage."
The policy included two provisions that will have only glancing provisions relevant to our analysis and conclusion.[2] According to Apple Annie's complaint, in March 2020, first the Marin and San Francisco Departments of Public Health, and then the Governor, issued "Shelter in Place orders,"[3] which Apple Annie alleged "caused [it] to suspend business operations at all its locations, which resulted in an immediate loss of business income."[4] Oregon Mutual denied Apple Annie's claim for its "business income loss."
Apple Annie's action for breach of contract damages ended when the trial court granted Oregon Mutual's motion for judgment on the pleadings and entered a judgment in its favor.
Apple Annie's opening brief was filed on November 16, 2021. It deployed cogent reasoning and analyzed a veritable mountain of authorities-published and unpublished, state and federal-on the issue of coverage.
The very same day, November 16, Division One of the Fourth District Court of Appeal filed its opinion in Inns-by-the-Sea v. California Mutual Ins. Co. (2021) 71 Cal.App.5th 688 (review denied Mar, 9, 2022, S272450) (Inns-by-the-Sea). Noting that "hundreds of merit-based rulings have been issued in both state and federal courts," the court then summarized: "The overwhelming majority of federal district court cases find no possibility of coverage under commercial property insurance policies for a business's pandemic-related loss of income [citations], along with each federal appellate court to consider the issue [citations], including the Ninth Circuit applying California law (Mudpie, Inc. v. Travelers Casualty Ins. Co. of America (9th Cir. 2021) 15 F.4th 885)."[5] (Id. at p. 692, fn. 1.)
After a comprehensive survey of the subject, the court concluded that a business that closed pursuant to a government shut-down order had not suffered "direct physical . . . damage to" the business's property. This was a matter of plain English:
(Inns-by-the-Sea, supra, 71 Cal.App.5th 688, 699-700.)
The Inns-by-the-Sea court concluded that the Covid virus did not itself cause "direct physical damage."" [Citation.] " (Inns-by-the-Sea, supra, 71 Cal.App.5th 688, 704.)[7]
Having concluded that the insured business suffered no "direct physical damage" to its property, the court was equally unwilling to concede that the insured being forced to suspend operations amounted to a "direct physical loss" of its property. This conclusion had the support of considerable authority, starting with a leading insurance treatise:
"The Couch treatise sets forth the generally recognized principle in the context of first party property insurance that mere loss of use of physical property to generate business income, without any other physical impact on the property, does not give rise to coverage for direct physical loss: 'The requirement that the loss be "physical," given the ordinary definition of that term, is widely held to exclude alleged losses that are intangible or incorporeal and, thereby, to preclude any claim against the property insurer when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property.'" (Inns-by-the-Sea, supra, 71 Cal.App.5th 688, 705-706, quoting 10A Couch on Insurance (3d ed. 2016) § 148:46, pp. 148-96-148-98.) And here, the court was not blazing a new trail: (Inns-by-the-Sea, supra, at p. 706.)
Such, the court said, was also the conclusion of other courts: (Inns-by-the-Sea, supra, 71 Cal.App.5th 688, 706-707.)
Finally, the court deemed its conclusion fully harmonious with other language in the policy: "The Policy's reference to the 'period of restoration' further supports our conclusion that mere loss of use, without any other physical impact to Inns' property, is not sufficient to trigger the business income coverage. The Policy states, (Italics added.) Significantly, the 'period of restoration' is defined as ending on the earlier of '(1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or [¶] (2) The date when business is resumed at a new permanent location.'
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