Mostre Exhibits, LLC v. Sentinel Ins. Co., Ltd

• Decision Date: 15 October 2021
• Docket Number: 20-cv-1332-BAS-BLM
• Parties: MOSTRE EXHIBITS, LLC, Plaintiff, v. SENTINEL INSURANCE COMPANY, LIMITED, Defendant. And Related Counterclaim
• Court: U.S. District Court — Southern District of California

MOSTRE EXHIBITS, LLC, Plaintiff, v. SENTINEL INSURANCE COMPANY, LIMITED, Defendant. And Related Counterclaim

No. 20-cv-1332-BAS-BLM

United States District Court, S.D. California

October 15, 2021

ORDER GRANTING DEFENDANT SENTINEL INSURANCE COMPANY LIMITED'S MOTION FOR JUDGMENT ON THE PLEADINGS (ECF No 31)

Hon Cynthia Bashant, United States District Judge.

Plaintiff Mostre Exhibits, LLC (“Mostre”) purchased a property insurance policy from Defendant Sentinel Insurance Company, Limited (“Sentinel”). During the policy period, demand for Mostre's services declined with canceled trade shows, conferences, and events due to the SARS-CoV-2 (“COVID-19”) pandemic and various government measures to slow its spread. Mostre filed a claim with Sentinel for loss of business income related to COVID-19, and Sentinel denied the claim. Mostre brought suit arguing that Sentinel's denial of coverage constituted a breach of contract and the implied covenant of good faith and fair dealing.

Sentinel filed a motion for judgment on the pleadings, which asks the Court to decide whether, taking Mostre's allegations as true, Mostre's claims must be dismissed as a matter of law. Mostre opposes the motion. The Court finds the motion suitable for determination on the papers submitted and without oral argument. See Fed.R.Civ.P. 78(b); Civ. L.R. 7.1(d)(1). Because the factual allegations in Mostre's Complaint do not establish that its claimed loss related to COVID-19 was covered under any provision of the insurance policy, the Court GRANTS Sentinel's motion for judgment on the pleadings. (ECF No. 31.)

I. BACKGROUND

A. The Parties

Mostre is a Tennessee limited liability company in the business of designing, producing, and renting exhibits for “trade shows, corporate environments, retail stores, special events, user conferences, annual meetings, and outdoor events.” (Compl. ¶ 1, ECF No. 1-2.) Mostre has its principal places of business in the County of San Diego, California, and in Williamson County, Tennessee. (Id.) Sentinel is a licensed Connecticut corporation authorized to do business in California with offices located in Los Angeles, California. (Id.)

B. The Policy

Sentinel issued Spectrum Business Owner's Policy No. 72 SBA AP9428 (“Policy”) to Mostre for the June 25, 2019, to June 25, 2020, Policy Period. (Compl. ¶¶ 2, 14; Id. Ex. B. (“The Policy”), ECF No. 1-2 at 40.) The Policy is 183 pages long and includes Property Coverage Declarations, a Special Property Coverage Form, a Business Liability Coverage Form, and various endorsements that change the terms of the Policy. (The Policy, ECF No. 1-2 at 30-201.)

1. Spectrum Policy Declarations

The Spectrum Policy Declarations page, Form SS 00 02 12 06, lists the policy period, policy number, and the type of property coverage. (The Policy, ECF No. 1-2 at 40.) For a total annual premium of $4, 738, the Policy provides coverage for two locations: “Location 001, ” located in Franklin, Tennessee; and “Location 002, ” located in Vista, California. (Id. at 41, 43.) The Policy includes “Special Property Coverage” for “loss of Business Income that occurs within 12 consecutive months after the date of direct physical loss or physical damage, ” and this coverage is not subject to the Limits of Insurance. (Id. at 61, 70 (Form SS 00 07 07 05 ¶ A.5.o. (3)).) As “optional coverages applicable” to the insured property, the Policy lists, among others: (1) “Limited Fungi, Bacteria or Virus Coverage: Form SS 40 93, ” capped at $50, 000 (id. at 42, 44); and (2) “Actual Loss Sustained Business Income & Extra Expense - Specified Limit Coverage: Form SS 40 60, ” capped at $500, 000 (id. at 45).

2. The Special Property Coverage Form

The Special Property Coverage Form, Form SS 00 07 07 05, provides, in relevant parts:

A. COVERAGE

We will pay for direct physical loss of or physical damage to Covered Property at the premises described in the Declarations . . . caused by or resulting from a Covered Cause of Loss.

. . .

3. Covered Causes of Loss

RISKS OF DIRECT PHYSICAL LOSS unless the loss is:

a. Excluded in Section B., EXCLUSIONS; OR

b. Limited in Paragraph A.4. Limitations; that follow.

5. Additional Coverages q. Civil Authority

(1) This insurance is extended to apply to the actual loss of Business Income you sustain when access to your “scheduled premises” is specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate area of your “scheduled premises.” . . .

r. Extended Business Income

(1) If the necessary suspension of your “operations” produces a Business Income loss payable under this policy, we will pay for the actual loss of Business Income you incur . . .

Loss of Business Income must be caused by direct physical loss or physical damage at the “scheduled premises” caused by or resulting from a Covered Cause of Loss[.]

(Id. at 61-62, 71.)

3. The Actual Loss Sustained Business Income & Extra Expense - Specified Limit Coverage

The endorsement on Actual Loss Sustained Business Income & Extra Expense - Specified Limit Coverage, Form SS 40 60 10 12, provides that the insurer

will pay for the actual loss of Business Income [the insured] sustain[s] due to the necessary suspension of [the insured's] “operations” during the “period of restoration.” The suspension must be caused by direct physical loss of or physical damage to property at the “scheduled premises, ” including personal property in the open (or in a vehicle) within 1, 000 feet of the “scheduled premises, ” caused by or resulting from a Covered Cause of Loss.

(The Policy, ECF No. 1-2 at 162.) This coverage is limited to $500, 000, and to any “loss of Business Income that occurs within 12 months after the date of direct physical loss or physical damage.” (Id. at 45, 162.) // 4. Virus Exclusion and Limited Fungi, Bacteria, or Virus Coverage a. Virus Exclusion

The Policy includes an endorsement on Limited Fungi, Bacteria, or Virus Coverage, Form SS 40 93 07 05, under which the insured can claim a maximum of $50, 000 for specified losses caused by fungi, bacteria, or viruses. (The Policy, ECF No. 1-2 at 42.) The endorsement modifies the Special Property Coverage Form, among others. (Id. at 164.) The endorsement sets forth an exclusion (“Virus Exclusion”), which states that “regardless of any other cause or event that contributes concurrently or in any sequence to the loss, ” the insurer “will not pay for loss or damage caused directly or indirectly by . . . [p]resence, growth, proliferation, spread or any activity of . . . bacteria or virus.” (Id.)

“But if . . . bacteria or virus results in a ‘specified cause of loss' to Covered Property, [the insurer] will pay for the loss or damage caused by that ‘specified cause of loss.'” (Id.) The Special Property Coverage Form defines “Specified Cause of Loss” as follows: “[f]ire; lightning; 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.” (Id. at 85.)

The Virus Exclusion does not apply when the “bacteria or virus results from fire or lightning” or “[t]o the extent that coverage is provided in the Additional Coverage - Limited Coverage for ‘Fungi,' Wet Rot, Dry Rot, Bacteria and Virus with respect to loss or damage by a cause of loss other than fire or lightning.” (Id.) Otherwise, the Virus Exclusion “applies whether or not the loss event results in widespread damage or affects a substantial area.” (Id.)

b. Limited Coverage for Virus

The endorsement states that the insurer will pay for “loss or damage” caused by viruses only when the viruses “[are] the result of . . . a ‘specified cause of loss' other than fire or lightning . . . or Equipment Breakdown Accident[, ]” where any of those causes “occurs during the policy period[.]” (The Policy, ECF No. 1-2 at 165.) “Loss or damage” is defined as:

(1) Direct physical loss or direct physical damage to Covered Property caused by “fungi”, wet rot, dry rot, bacteria or virus, including the cost of removal of the “fungi”, wet rot, dry rot, bacteria or virus;

(2) The cost to tear out and replace any part of the building or other property as needed to gain access to the “fungi”, wet rot, dry rot, bacteria or virus; and

(3) The cost of testing performed after removal, repair, replacement or restoration of the damaged property is completed, provided there is a reason to believe that “fungi”, wet rot, dry rot, bacteria or virus are present.

(Id.)

C. Procedural History

On or about March 16, 2020, Mostre submitted a claim with Sentinel “for loss of business income due to the community spread and infection of coronavirus” at its properties. (Compl., ECF No. 1-2 at ¶ 36.) In a letter dated March 16, 2020, Sentinel notified Mostre that the claim is denied for the following reasons:

No direct physical loss or damage has occurred to property at the scheduled premises listed in your policy or at any location that would qualify as a dependent property. Additionally, no business personal property owned by you suffered any direct physical loss or damage from this event.

(Id. ¶ 37; id., Ex. C, ECF No. 1-2 at 203.)

Following the denial of coverage, Mostre filed the present action on May 6, 2020, in the Superior Court of the State of California, raising four causes of action: breach of contract (First Cause of Action), tortious breach of the implied covenant of good faith and fair dealing (Second Cause of Action), declaratory relief (Third Cause of Action), and professional negligence (Fourth Cause of Action). (Compl ECF No. 1-2.) Sentinel timely removed the action to federal court. (Notice of Removal, ...