Karen Trinh, DDS, Inc. v. State Farm Gen. Ins. Co.
| Decision Date | 28 December 2020 |
| Docket Number | Case No. 5:20-cv-04265-BLF |
| Parties | KAREN TRINH, DDS, Inc., a California Corporation, Plaintiff, v. STATE FARM GENERAL INSURANCE COMPANY, an Illinois Corporation doing business in California, and DOES 1 to 50, inclusive, Defendants. |
| Court | U.S. District Court — Northern District of California |
[Re: ECF 27]
This case arises from a dispute over the interpretation of a business insurance policy against the backdrop of recent public health orders attempting to curb the spread of COVID-19. Karen Trinh, DDS, Inc. ("Plaintiff") sues State Farm General Insurance Company ("Defendant") and unidentified Does 1 through 50 for denying an insurance claim for loss of business income. Plaintiff asserts seven causes of action: (1) Breach of Contract; (2) Breach of Implied Covenant of Good Faith and Fair Dealing; (3) Bad Faith Denial; (4) Declaratory Relief; (5) Unjust Enrichment; (6) Unfair Competition under Cal. Bus. & Prof. Code § 17200 et seq.; and (7) Injunctive Relief under Cal. Bus. & Prof. Code § 17200 et seq. Second Am. Compl. ("SAC"), ECF 26. Defendant brings this Motion to Dismiss for failure to state a claim. Mot. to Dismiss Second Am. Compl. ("Mot."), ECF 27. Pursuant to Civil Local Rule 7-1(b), the Court found the Motion appropriate for determination without oral argument on October 30, 2020. Order Vacating Hr'g, ECF 33. Having considered the parties' briefing as well as the rapidly evolving applicable law, the Court GRANTS this Motion WITH LEAVE TO AMEND.
Plaintiff is an active dental practice in Watsonville, California. SAC ¶ 4. To safeguard against unexpected calamities, on April 1, 2019, Plaintiff obtained from Defendant a business insurance policy (the "Policy"), which remains effective today. SAC ¶¶ 11-14. The Policy covers loss of income and extra expenses for "accidental direct physical loss" to "Covered Property," subject to certain limitations, including a "Virus Exclusion." SAC ¶ 19.
In March 2020, COVID-19 was recognized as a pandemic, prompting governments around the world to enact laws tackling the crisis. SAC ¶¶ 21-22. To curb the spread of the virus, counties across California, as well as the state itself, issued public health ordinances aimed to limit transmission of the virus. See SAC ¶¶ 23-31. As a designated "essential business" under the Order of the Santa Cruz County Health Officer to Shelter in Place ("Santa Cruz Order"), Plaintiff continued operations but was limited to urgent care and emergency visits only, causing substantial revenue reductions. SAC ¶¶ 32-33.
On April 1, 2020, Plaintiff contacted Defendant to determine whether the Policy covered loss of income as a result of the health ordinances. SAC ¶ 43. Defendant promptly informed Plaintiff that the Policy likely did not cover such loss but explained how to initiate a claim. SAC ¶ 43. Plaintiff submitted a claim on April 3, 2020. Compl. ¶ 43. The next day, Defendant, pointing to the Policy's Virus Exclusion, informed Plaintiff that the claim was denied. SAC ¶ 43.
Plaintiff commenced this action on April 6, 2020, in the Superior Court of California, County of Santa Cruz. Notice of Removal, Ex. A ("Compl."), ECF 1-1. On May 22, 2020, Plaintiff filed an amended complaint in state court. Notice of Removal, Ex. B ("FAC"), ECF 1-2. Defendant filed a Notice of Removal on June 26, 2020. Notice of Removal, ECF 1. Defendant moved to dismiss the First Amended Complaint on July 6, 2020, and the parties stipulated to allowing Plaintiff to amend the complaint on August 19, 2020. See Mot., ECF 7; Stipulation, ECF 25. Plaintiff filed the Second Amended Complaint on August 24, 2020. See SAC. Defendant again moved to dismiss on September 5, 2020. See Mot. Plaintiff filed its Opposition on September 21, 2020. See Opp'n to Mot. to Dismiss ("Opp'n"), ECF 29. Defendant filed its Reply on October 13, 2020. See Reply to Opp'n ("Reply"), ECF 29.
"A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted 'tests the legal sufficiency of a claim.'" Conservation Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). When considering such a motion, the Court "accept[s] factual allegations in the complaint as true and construe[s] the pleadings in the light most favorable to the nonmoving party." Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). While a complaint typically need not contain detailed factual allegations, it "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) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. However, the Court need not "accept as true allegations that contradict matters properly subject to judicial notice" or "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Sci. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations omitted). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id.
Under Federal Rule of Civil Procedure 15(a), the Court should freely grant leave to amend "when justice so requires," keeping in mind Rule 15's underlying purpose "to facilitate decision on the merits, rather than on the pleadings or technicalities." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (internal quotation marks and alterations omitted). When dismissing a complaint for failure to state a claim, "a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Id. at 1130 (internal quotation marks omitted). A court has discretion, however, to deny leave to amend where amendment is futile. Leadsinger, Inc. v. BMG Music Pub., 512 F.3d 522, 532 (9th Cir. 2008) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).
Relying on a flurry of recent cases across the country interpreting similar insurance claims, Defendant argues that the Policy language plainly does not cover Plaintiff's alleged losses, meaning there is no breach of contract. See Mot. 1-3. And because there is no breach of contract, the derivative contract claims necessarily fail. See Mot. 22-25. Plaintiff contends that its insurance claim is covered, either by the Policy's plain language or, alternatively, because of its ambiguities. Opp'n 1-2.
In California, the interpretation of an insurance policy is a question of law for the court to decide. Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 18 (1995). "Insurance policies are contracts, and the ordinary rules of contract interpretation apply." McMillin Homes Constr., Inc. v. Nat'l Fire & Marine Ins. Co., 35 Cal. App. 5th 1042, 1050 (Cal. Ct. App. 2019). In interpreting an insurance policy, the Court first examines the contract language to determine its plain or ordinary meaning. Waller, 11 Cal. 4th at 18 (citation omitted). A policy is ambiguous if it is "capable of two or more constructions, both of which are reasonable." Id. Where a policy is ambiguous, it must be interpreted "to protect the objectively reasonable expectations of the insured." Minkler v. Safeco Inc., 49 Cal. 4th 315, 321 (2010). Courts should not, however, "strain to create an ambiguity where none exists." Waller, 11 Cal. 4th at 18-19. If the insured shows that a claim falls within the policy terms, the burden shifts to the insurer to demonstrate that an exclusion applies. Id. at 16.
With this framework in mind, the Court discusses Plaintiff's claims.
In Claim One, Plaintiff alleges breach of contract for Defendant's alleged failure to fulfill its obligations under the Policy. SAC ¶¶ 49-55. Defendant argues that the breach of contract claim should be dismissed as a matter of law because "[u]nder the plain language of the Policy, Plaintiff's claimed losses both do not meet the Policy's terms of coverage and are subject to exclusions, including the Policy's Virus Exclusion." Mot. 4-5. This Court agrees with Defendant.
Defendant moves to dismiss first on the ground that the Policy excludes from its coverage any loss caused by virus. Mot. 5. This Court agrees that Defendant has met its burden of showing that the Virus Exclusion precludes coverage. See Waller, 11 Cal. 4th at 16.
To obtain relief, Plaintiff's alleged losses must be covered under the Policy. See Mot. Ex. A ("Policy") Ex. A-16, § I.2 The Virus Exclusion states, in relevant part:
Policy Ex. A-16, A-17 § I.2.i.(2), ECF 27-1. The language is plain and unambiguous—any loss caused by virus that can induce physical distress, illness, or disease, such as COVID-19, is excluded from coverage. See Waller, 11 Cal. 4th at 18. Courts in this circuit contemplating comparable insurance policy exclusions agree. See, e.g., 10E LLC v. Travelers Indem. Co. of Conn., No. 2:20-cv-04418-SVW-AS, 2020 WL 6749361, at *3 (C.D. Cal. Nov. 13, 2020) (); Boxed...
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