BA Lax, LLC v. Hartford Fire Ins. Co.

• Decision Date: 12 January 2021
• Docket Number: Case No. 2:20-cv-06344-SVW-JPR
• Citation: 519 F.Supp.3d 711
• Court: U.S. District Court — Central District of California
• Parties: BA LAX, LLC et al. v. HARTFORD FIRE INSURANCE COMPANY

519 F.Supp.3d 711

BA LAX, LLC et al.

v.HARTFORD FIRE INSURANCE COMPANY

Case No. 2:20-cv-06344-SVW-JPR

United States District Court, C.D. California.

Filed January 12, 2021

Edward Susolik, Adrian L. Canzoneri, Raphael D. Cung, Richard T. Collins, Callahan and Blaine APLC, Santa Ana, CA, for BA LAX, LLC, Candleberry Properties, L.P., Sun Beverly, LLC, Sunstone Century, LLC, SVI Airport, LLC, SVI Healdsburg, LLC, SVI LAX, LLC, SVI 6344 Arizona, LLC.

Ashwin J. Ram, Steptoe and Johnson LLP, Los Angeles, CA, Cody B. DeCamp, Steptoe and Johnson LLP, San Francisco, CA, Johanna S. Dennehy, Pro Hac Vice, Sarah D. Gordon, Pro Hac Vice, Steptoe and Johnson LLP, Washington, DC, for Hartford Fire Insurance Company.

Proceedings: ORDER GRANTING MOTION FOR SUMMARY JUDGMENT [17]

STEPHEN V. WILSON, U.S. DISTRICT JUDGE

I. Introduction

Before the Court is Defendant Hartford Fire Insurance Company's motion for summary judgment in this insurance recovery case. For the reasons articulated below, the Court GRANTS the motion for summary judgment.

II. Factual and Procedural Background

a. Parties and the Policy

Plaintiffs are eight owners and operators of commercial properties. Dkt. 1-2 ("Compl.") ¶ 17. Seven of the eight properties are used for hotels, and the eighth is used for office rental. Id. Seven of the eight properties are located in Los Angeles County, and the eighth is in Sonoma County. Id.

Plaintiffs are insured by a "Property Choice Elite" policy ("the Policy") effective August 1, 2019 through August 1, 2020. Plaintiffs’ Statement of Genuine Issues (SGI), Dkt. 22-1 ¶ 3.

b. COVID-19 Pandemic

The COVID-19 pandemic is familiar to the parties and to the Court and requires no background discussion. Plaintiffs claim a loss in revenue of 70 percent from the beginning of the pandemic through June 11, 2020. SGI ¶ 2. They attribute this loss to "Stay at Home Orders, the damage caused by COVID-19, and the transmission of COVID-19." Id.

c. Tender and Denial

Plaintiffs allege that they tendered their claim to Defendant through their contracted manager, and that Defendant denied the claim. Compl. ¶ 40 & n.1.

d. Relevant Policy Provisions

As relevant to the instant motion, the Policy covers "direct physical loss or direct physical damage to ... Covered Property at an ‘Insured Premises’ ... caused by or resulting from a Covered Cause of Loss." Declaration of Kevin E. Majewski, Dkt. 27-1, Ex. A at 23. The Policy defines Covered Cause of Loss as "direct physical loss or direct physical damage that occurs during the Policy Period and in the Coverage Territory unless the loss or damage is excluded or limited in this policy." Id. at 41.

In separate coverage forms, the Policy extends coverage to Business Income and Extra Expense. The Business Income provision covers "actual loss of Business Income you sustain due to the necessary interruption of your business operations during the Period of Restoration due to direct physical loss of or direct physical damage to property caused by or resulting from a Covered Cause of Loss at ‘Insured Premises.’ " Id. at 52. The Extra Expense provision covers "actual, necessary and reasonable Extra Expense you incur due to the necessary interruption of your business operations during the Period of Restoration due to direct physical loss of or direct physical damage to property caused by or resulting from a Covered Cause of Loss at ‘Insured Premises.’ " Id. at 60.

Both the Business Income and Extra Expense coverage forms contain coverage extensions for Civil Authority, Ingress or Egress, and Ordinance or Law – Increased Period of Restoration. The Civil Authority provision requires prohibited access "by order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate area of your ‘Insured Premises.’ " Id. at 54, 61. The Ingress or Egress provision requires prohibited ingress or egress "as the direct result of a Covered Cause of Loss to property at premises that is contiguous to your ‘Insured Premises.’ " Id. at 56, 63. The Ordinance or Law provision covers additional compliance costs "[i]f a Covered Cause of Loss occurs to property at ‘Insured Premises.’ " Id. at 56-57, 64.

In the covered causes of loss and exclusions form, the Policy contains a virus exclusion. It reads: "We will not pay for loss or damage caused directly or indirectly by ... [p]resence, growth, proliferation, spready or any activity of ‘fungus,’ wet rot, dry rot, bacteria or virus." Id. at 41-42. The Business Income and Extra Expense coverage forms incorporate this list of exclusions. Id. at 53, 61. The virus exclusion has a few exceptions for particular causes that are not at issue in this case. Id. at 21, 42.

III. Legal Standard

Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The moving party bears the initial responsibility of informing the court of the basis of its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, admissions, or affidavits that demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In determining a motion for summary judgment, all reasonable inferences from the evidence must be drawn in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A genuine issue exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party," and material facts are those "that might affect the outcome of the suit under the governing law." Id. at 248, 106 S.Ct. 2505.

IV. Application¹

a. Interpretation of Insurance Agreements

"Under California law, interpretation of an insurance policy is a question of law, subject to the ordinary rules of contractual interpretation." AXIS Reinsurance Co. v. Northrop Grumman Corp. , 975 F.3d 840, 847 (9th Cir. 2020) (citations omitted). "[T]he fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties." Id. (quoting Bank of the West v. Superior Court , 2 Cal. 4th 1254, 1264, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992) ).

"When interpreting a policy provision, we must give terms their ordinary and popular usage, unless used by the parties in a technical sense or a special meaning is given to them by usage." Palmer v. Truck Ins. Exch. , 21 Cal. 4th 1109, 1115, 90 Cal.Rptr.2d 647, 988 P.2d 568 (1999) (citation and quotation marks omitted).

"If contractual language is clear and explicit, it governs." AXIS Reinsurance Co. , 975 F.3d at 847 (quoting Bank of the West , 2 Cal. 4th at 1264-65, 10 Cal.Rptr.2d 538, 833 P.2d 545 ). "[Courts] will not strain to create an ambiguity where none exists or indulge in tortured constructions to divine some theoretical ambiguity in order to find coverage where none was contemplated." Fireman's Fund Ins. Co. v. Superior Court , 65 Cal. App. 4th 1205, 1212-13, 78 Cal.Rptr.2d 418 (1997) (citations omitted).

b. Direct Physical Damage or Direct Physical Loss

Plaintiffs invoke five coverages under the Policy – Business Income, Extra Expense, Civil Authority, Ingress and Egress, and Ordinance or Law – Increased Period of Restoration. Compl. ¶¶ 34-38.

Under the Policy, the insured must have suffered "direct physical loss" or "direct physical damage" to its property to recover for Business Income, Extra Expense, and Ordinance or Law coverages. The Policy's general coverage provision explains that "[w]e will pay for direct physical loss of or direct physical damage ... caused by or resulting from a Covered Cause of Loss." Majewski Decl., Ex. A at 23. The Policy goes on to define Covered Cause of Loss as "direct physical loss or direct physical damage that occurs during the Policy Period and in the Coverage Territory...." Id. at 41. The sections addressing scope of coverage for Business Income and Extra Expense limit recovery to "direct physical loss of or direct physical damage to property caused by or resulting from a Covered Cause of Loss at ‘Insured Premises.’ " Id. at 52 (Business Income); id. at 60 (Extra Expense). Likewise, Ordinance or Law coverage requires "a Covered Cause of Loss ... to property at ‘Insured Premises.’ " Id. at 56, 64.

The Civil Authority and Ingress or Egress provisions allow recovery for disruptions resulting from direct physical loss or direct physical damage elsewhere. As mentioned above, Covered Cause of Loss is defined as "direct physical loss or direct physical damage." Id. at 41. The coverage extension for Civil Authority requires prohibited access "as the direct result of a Covered Cause of Loss to property in the immediate area of your ‘Insured Premises.’ " Id. at 54, 61. Ingress or Egress coverage requires prohibited ingress or egress "as the direct result of a Covered Cause of Loss to property at a premise that is contiguous to your ‘Insured Premises.’ " Id. at 56, 63.

The meaning of "direct physical damage" and "direct physical loss" is well established under California law. Property must undergo a "distinct, demonstrable, physical alteration." MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co. , 187 Cal. App. 4th 766, 779, 115 Cal.Rptr.3d 27 (2010) (citation and quotation marks omitted). "Detrimental economic impact" does not suffice. Id. (citation and quotation marks omitted); see also Doyle v. Fireman's Fund Ins. Co. , 21 Cal. App. 5th 33, 39, 229 Cal.Rptr.3d 840 (2018) ("[D]iminution in value is not a covered peril, it is a measure of loss" in property insurance (citation omitted)). "[T]he phrase ‘loss of’ includes the permanent dispossession of something.’ " Total Intermodal Servs., Inc. v. Travelers Property Cas. Co. of Am. , 2018 WL 3829767, at *4 (C.D. Cal. 2018).

In policies with similar language and scope, numerous courts have now held that neither the presence of COVID-19 in society nor government restrictions can by...