Barbizon Sch. of S.F. v. Sentinel Ins. Co.
| Decision Date | 03 December 2021 |
| Docket Number | 20-cv-08578-TSH |
| Parties | BARBIZON SCHOOL OF SAN FRANCISCO, INC., et al., Plaintiffs, v. SENTINEL INSURANCE COMPANY LTD, Defendant. |
| Court | U.S. District Court — Northern District of California |
Plaintiffs Barbizon School of San Francisco, Inc. (“Barbizon-West”) and Barbizon School of Modeling of Manhattan, Inc. (“Barbizon-NY” and collectively with Barbizon-West, “Plaintiffs”) filed a First Amended Complaint (“FAC”) (ECF No. 30) against their insurance company, Defendant Sentinel Insurance Company, LTD. (“Sentinel”)[1], seeking coverage for economic losses to their businesses caused by COVID-19. Pending before the Court is Sentinel's Motion To Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). ECF No. 31. Plaintiffs filed an Opposition (“Opp'n.”) (ECF No. 35) and Sentinel filed a Reply. ECF No. 38. Having considered the parties' positions and relevant legal authority, the Court GRANTS Sentinel's motion for the following reasons.[2]
Plaintiffs are independently owned and operated licensees of Barbizon International, Inc., offering modeling, acting, and studio services at locations in New York, NY (Barbizon-NY) and on the West Coast in San Francisco, Los Angeles, and Sacramento, California; Portland, Oregon; and Seattle, Washington (Barbizon-West). FAC ¶ 10. Sentinel is a Connecticut corporation authorized to do business in the State of California, having a principal place of business at One Hartford Plaza, Hartford, Connecticut. Id. ¶ 6.
Barbizon-West procured insurance coverage under Policy Number 57 SBA UZ9898 (“West Coast Policy” or “WC Policy”) for the policy period July 8, 2019, through July 8, 2020, which was issued as of April 19, 2019. ECF No. 8-2 p. 2; FAC ¶ 11. The basic coverage provisions of the policy are written on the “Special Property Coverage Form, ” Form SS 00 07 07 05, which states:
WC Policy p. 39; FAC ¶ 12. “Covered Property” under the Special Property Coverage Form includes the “building(s) and structure(s) described in the Declarations, ” Special Property Coverage Form, A(1)(a) (WC Policy p. 39; FAC ¶ 13), which included five properties in California, Oregon, and Washington. See WC Policy pp. 13-23; FAC ¶ 14.
Under the Special Property Coverage Form (A)(3) in the West Coast policy, “Covered Cause of Loss” is defined as follows:
WC Policy p. 40; FAC ¶ 15. “Section B., EXCLUSIONS” of the Special Property Coverage Form, ” Form SS 00 07 07 05, for the West Coast Policy does not itself have a virus exclusion. WC Policy p. 54; FAC ¶ 16. However, the West Coast Policy contains a “Limited Fungi, Bacteria Or Virus Coverage” Endorsement, Form SS 40 93 07 05, that limits virus coverage in Section B of the Special Property Coverage Form. WC Policy pp. 145-47; FAC ¶ 17. This endorsement includes two parts:
(1) Fungi, Bacteria or Virus Exclusion (“Virus Exclusion”) which removes virus coverage under certain circumstances from the West Coast Policy, providing that Sentinel “will not pay for loss or damage caused directly or indirectly by” a virus except if it results in a “specified cause of loss” or from specified causes: “‘fungi', wet or dry rot, bacteria or virus results from fire or lightning” (WC Policy p. 145; FAC ¶ 18), [4] and (2) Limited Coverage for “Fungi”, Wet Rot, Dry Rot, Bacteria and Virus (“Limited Coverage”), an exception to the Virus Exclusion which provides virus coverage in limited circumstances, including “when the ‘fungi', wet or dry rot, bacteria or virus is the result of . . . [a] ‘specified cause of loss' other than fire or lightning . . .”[5] and covers “[d]irect physical loss or direct physical damage to Covered Property, ” including the cost to tear out and replace affected area and the cost of testing after repair.[6]
Hence, under the Limited Virus Coverage Endorsement, while the Virus Exclusion generally removes coverage for viruses, the Limited Coverage exception adds back in coverage for specific types of damage caused by specific conditions. Plaintiffs acknowledge that Sentinel “contends” that the Limited Coverage:
does obligate [it] to cover [d]irect physical loss or direct physical damage to Covered Property caused by . . . virus, ” provided that such “direct physical loss or direct physical damage” is caused by a virus that “is the result of” “explosion, windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage.”
FAC ¶ 22 (emphasis in original).
Barbizon-NY procured insurance coverage under Policy Number 57 SBA BG9898 (the “NY Policy, ” and together with the West Coast Policy, the “Policies”) for the policy period September 14, 2019, through September 14, 2020, covering a single property located in New York, New York. See ECF No. 8-1 pp. 15-16; FAC ¶¶ 23, 25. The New York policy was issued as of July 3, 2019, almost three months after the West Coast policy. Id. ¶ 23. The New York policy does not include a Limited Virus Coverage Endorsement (id. ¶¶ 26-27) and hence neither a Virus Exclusion nor a Limited Coverage provision.[7] Id. ¶ 47.
Plaintiffs allege that they were forced to close the insured locations in March 2020 due to the COVID-19 pandemic, which was caused by the pervasive presence of the virus SARS-CoV-2. FAC ¶ 28. They allege that Id. ¶ 53. They further allege that “[t]he SARS-CoV-2 virus and the resulting pandemic led to ‘direct physical loss of' the NY Location because Barbizon-NY was unable to use the NY Location because of the virus.” Id. ¶ 54.
On June 26, 2020, Plaintiffs submitted claims to Sentinel for business interruption losses at the insured locations. Id. ¶ 29. Sentinel denied the claims and sent letters to Plaintiffs that same day (“NY Denial Letter” and “West Coast Denial Letter, ” collectively the “Denial Letters”). Id. ¶ 30. Both letters stated, “We have completed a review of your loss and have determined that since the coronavirus did not cause property damage at your place of business or in the immediate area, this loss is not covered.” Id. ¶¶ 31, 32. The West Coast Denial Letter went on to state that “[e]ven if the virus did cause damage, it is excluded from the policy, and the limited coverage available for losses caused by virus does not apply to the facts of your loss.” Id. ¶ 33.
Sentinel also relied on the “pollution exclusion” as “further grounds for denial of the COVID-19 claims.”[8] Id. ¶ 18. The Denial Letters stated that “[t]he coronavirus is understood to be an irritant or contaminant which causes or threatens to cause physical impurity, unwholesomeness and threatens human health or welfare and that, for that reason, even if coverage were otherwise available for loss caused by coronavirus, the pollution exclusion could further bar coverage for the loss.” Id. ¶ 85. Plaintiffs allege that Sentinel's reliance on the pollution exclusion rendered “the marketing and sale of policies including the [Limited Coverage] provision a false, unfair, fraudulent and/or deceptive business practice” because Sentinel's “interpretation of the pollution exclusion renders the purported virus coverage in the [Limited Coverage] meaningless and worthless.” Id. ¶ 86. Plaintiffs allege that despite offering the Limited Coverage provision, “[w]hen put to the test, [Sentinel] has taken the position that a virus cannot cause ‘direct physical loss of or physical damage to' property under any circumstances.” Id. ¶ 80.
Plaintiffs further allege that “Sentinel sold the same insured a nearly identical policy” (Opp'n at 14), differing only in the inclusion of the Limited Coverage in the West Coast Policy, yet Sentinel denied coverage under both policies, such that different policies have the same effect with respect to Plaintiffs' claim for damages due to COVID-19-related business losses. See FAC ¶¶ 2, 3. Plaintiffs contends that “the virus coverage, even if limited, has to mean something real; if it does not, its marketing and sale is false, unfair, fraudulent, and/or deceptive (hereinafter collectively, ‘bait and switch' for ease of reference).” Opp'n at 14:19-21. Plaintiffs assert that “Sentinel's ‘bait and switch' derives largely from the fact that its own interpretation of the Limited Coverage would exclude all business losses that Barbizon could conceivably incur in connection with a virus.” Id. at 14:24-15:2.
Plaintiffs filed the initial complaint on December 4, 2020 alleging three causes of action: breach of contract and breach of the implied covenant of good faith and fair dealing for failing to cover business-interruption losses they suffered because of COVID-19 that they contend should have trigged coverages under the Sentinel insurance policies, as well as a putative claim for Unfair Business...
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