L. A. Lakers, Inc. v. Fed. Ins. Co.
| Docket Number | CV 21-02281 TJH (MRWx) |
| Decision Date | 17 March 2022 |
| Citation | 591 F.Supp.3d 672 |
| Parties | The LOS ANGELES LAKERS, INC., Plaintiff, v. FEDERAL INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Central District of California |
Kyle Alexander Casazza, Shawn Scott Ledingham, Jr., Manuel F. Cachan, Proskauer Rose LLP, Los Angeles, CA, John E. Failla, Pro Hac Vice, Nathan R. Lander, Pro Hac Vice, Proskauer Rose LLP, New York, NY, for Plaintiff.
Daniel M. Petrocelli, Zoheb Noorani, Leah Godesky, Richard Blair Goetz, O'Melveny and Myers LLP, Los Angeles, CA, for Defendant.
The Court has considered Defendant Federal Insurance Company's ["Federal"] motion to dismiss [dkt. # 42], together with the moving and opposing papers.
The following facts are as alleged in the First Amended Complaint ["the FAC"].
In August, 2019, the Los Angeles Lakers, Inc. ["the Lakers"] purchased an all-risk commercial property insurance policy ["the Policy"] from Federal for, inter alia , the Staples Center, as it was then known, and the UCLA Health Training Center [collectively, "the Covered Properties"]. The Policy was in effect from August 1, 2019, to August 1, 2020. The Lakers tendered property damage and business interruption claims to Federal for losses related to the SARS-CoV-2 virus ["the Virus"], which causes the COVID-19 disease. Federal denied the claims because, it concluded, there was no direct physical damage or loss to the Covered Properties.
The Policy obligated Federal to reimburse the Lakers for "direct physical loss or damage to [the Covered Properties] caused by, or resulting from, a peril not otherwise excluded" ["the Property Damage Clause"]. The Policy did not contain an exclusion for damage caused by a virus.
The Policy, also, obligated Federal to reimburse the Lakers for lost business income, and expenses incurred, due to, inter alia : (1) Actual or potential impairment of the Lakers' operations "caused by or result[ing] from direct physical loss or damage" to the property ["Business Interruption Clause"]; or (2) Actual impairment of the Lakers' operations "directly caused by the prohibition of access to" the property by a civil authority, provided that "the prohibition of access by a civil authority must be the direct result of direct physical loss or damage" to property away from, but within one mile of, the Lakers' Covered Properties ["Civil Authority Clause"].
As early as December, 2019, the Virus began to spread in Los Angeles as it was exhaled by infected people. Some studies concluded that when the Virus landed on physical surfaces it could be transmitted to other people who touched those surfaces. In March, 2020, a number of Lakers players, as well as others who were present at the Covered Properties during the previous weeks, tested positive for COVID-19.
On March 11, 2020, the National Basketball Association suspended its season due to COVID-19. On March 15, 2020, Los Angeles Mayor Eric Garcetti issued an order closing all performance venues. On March 16, 2020, the Los Angeles County Public Health Officer ["the Health Officer"] issued an order prohibiting mass gatherings of more than 50 people, including all arena events, and closing gyms and fitness centers. On March 19, 2020, the Health Officer prohibited gatherings of more than 10 people, with violators subject to fine, imprisonment, or both.
Also, on March 19, 2020, California Governor Gavin Newsom issued Executive Order N-33-20, which required Californians to shelter at home, with violators subject to misdemeanor prosecution. On April 1, 2021, Mayor Garcetti revised his Safer at Home Order, to prohibit, inter alia , all non-exempt public gatherings to further limit the spread of COVID-19. The Safer at Home Order stated that it was "given because, among other reasons, the COVID-19 virus ... is physically causing property loss or damage due to its tendency to attach to surfaces for prolonged periods of time." Violators of the Safer at Home Order were, also, subject to fine, imprisonment, or both.
As a result of the closure of the Staples Center, the Lakers alleged that they lost tens of millions of dollars in revenue. The Lakers, further, alleged that the presence of Virus particles on fixtures and building systems caused physical alterations to the Covered Properties. Specifically, Virus particles landed on, and adhered to, surfaces such as fabric seats, elevator buttons, and air ducts, causing a physical and chemical reaction that transformed the surfaces into vectors of viral spread called fomites. As a result, the Lakers upgraded the Covered Properties to include, inter alia , new air filters; touchless light switches, toilets, and sinks; sleeves or coatings for high-touch surfaces; and plexiglass dividers. The Lakers alleged that the Covered Properties were not usable until those upgrades were completed. The Lakers, also, alleged that there are five Metro stations within a mile of the Staples Center that fans use to get to Lakers games; that COVID-19 was present in, and caused physical loss or damage to, those Metro stations; and that those stations were closed by civil authorities.
On June 12, 2020, the Health Officer allowed professional sports teams to reopen their facilities for training and events, but continued the ban on spectators. After consultations with the Los Angeles County Department of Public Health, the Lakers made extensive and costly changes to procedures and protocols that enabled them to resume training at the UCLA Health Training Center.
On March 15, 2021, the Lakers filed this action for declaratory judgment, pursuant to 28 U.S.C. § 2201 ; breach of contract; and breach of the implied covenant of good faith and fair dealing.
In April, 2021, the State of California allowed live events with spectators to resume, subject to strict protocols.
On August 11, 2021, the Court granted Federal's motion to dismiss the Lakers' original complaint, without prejudice, after concluding that the Lakers' allegations of direct physical loss or damage at the Covered Properties were mere legal conclusions couched as factual allegations, and, therefore, were insufficient to state a claim.
On October 6, 2021, the Lakers filed their FAC, which alleged the same claims that were previously dismissed but with additional factual allegations. The Lakers, also, relied on Inns by the Sea v. Cal. Mut. Ins. Co. , 71 Cal. App. 5th 688, 286 Cal.Rptr.3d 576 (2021), which was published after the original complaint, here, was dismissed.
Federal, now, moves to dismiss the FAC.
While a complaint need not include detailed factual allegations for each element of each claim, it must contain enough facts to state a facially plausible claim. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A plaintiff must not simply restate the elements of its claim, but, rather, must allege enough facts to allow the Court to draw a reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Further, the Court must accept all allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. See Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. However, the Court is "not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal , 556 U.S. at 679, 129 S.Ct. 1937.
The claims alleged in the FAC require the Lakers to establish the validity of its three insurance claims. "The insured has the burden of establishing that a claim, unless specifically excluded, is within basic coverage[.]" Minkler v. Safeco Ins. Co. of Am. , 49 Cal. 4th 315, 322, 110 Cal.Rptr.3d 612, 232 P.3d 612 (2010). The parties, here, agree that each of the Lakers' three coverage claims require it to have suffered "direct physical loss of or damage to property." The burden is on the Lakers to establish that physical loss or damage occurred. See Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am. , 15 F.4th 885, 890 (9th Cir. 2021).
The Policy does not define direct physical loss or damage. Consequently, the Court must construe those terms. Because the Policy is a contract, the Court must apply the rules of contractual interpretation to construe the terms. See Palmer v. Truck Ins. Exchange , 21 Cal. 4th 1109, 1115, 90 Cal.Rptr.2d 647, 988 P.2d 568 (1999). The Court's goal, here, is to give effect to the parties' mutual intent. See Minkler , 49 Cal. 4th at 321, 110 Cal.Rptr.3d 612, 232 P.3d 612. If possible, the Court must infer that intent solely from the contract's written provisions. Cal. Civ. Code § 1639. When contractual terms are clear and explicit, the Court will interpret them by using their ordinary and popular meaning. Waller v. Truck Ins. Exchange, Inc. , 11 Cal. 4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995). When contractual terms are ambiguous, the Court will interpret those terms so as to protect the insured's objectively reasonable expectations. Minkler , 49 Cal. 4th at 321, 110 Cal.Rptr.3d 612, 232 P.3d 612. All ambiguous terms must be construed against the insurer. Minkler , 49 Cal. 4th at 321, 110 Cal.Rptr.3d 612, 232 P.3d 612. Finally, the language in a contract must be interpreted as a whole, with consideration of the circumstances. Waller , 11 Cal. 4th at 18-19, 44 Cal.Rptr.2d 370, 900 P.2d 619.
The California Court of Appeal's recent decision in Inns by the Sea is squarely on point, here. The plaintiff in that case owned five lodging facilities in California, and had an insurance policy that covered, inter alia , "direct physical loss of or damage to Covered Property at the premises ... caused by or resulting from any Covered Cause of Loss." Inns by the Sea , 71 Cal. App. 5th at 693, 794-95, 286 Cal.Rptr.3d 576. The Court of Appeal considered whether the plaintiff sufficiently alleged direct physical damage or direct physical loss. See Inns by the Sea , 71 Cal. App. 5th at...
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