NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS APR 20 2022

MOLLY C. DWYER, CLERK

FOR THE NINTH CIRCUIT U.S. COURT OF APPEALS

RIALTO POCKETS, INC.; BROOKHURST No. 21-55196

VENTURE, LLC; CITY OF INDUSTRY

HOSPITALITY VENTURE, INC.; D.C. No. 2:20-cv-07709-DSF-JPR

FARMDALE HOSPITALITY SERVICES,

INC.; HIGH EXPECTATIONS

HOSPITALITY, LLC; INLAND MEMORANDUM*

RESTAURANT VENTURE I, INC.;

KENTUCKY HOSPITALITY VENTURE,

LLC; K-KEL, INC.; L.C.M., LLC;

MIDNIGHT SUN ENTERPRISES, INC.;

NITELIFE, INC.; OLYMPIC AVENUE

VENTURE, INC.; THE OXNARD

HOSPITALITY SERVICES, INC.; PENN

AVE HOSPITALITY, LLC; PLATINUM SJ

ENTERPRISE; PNM ENTERPRISES, INC.;

ROUGE GENTLEMENS CLUB, INC.;

SANTA BARBARA HOSPITALITY

SERVICES, INC.; SANTA MARIA

RESTAURANT ENTERPRISES, INC.;

SARIES LOUNGE, LLC; THE SPEARMINT

RHINO ADULT SUPERSTORE, INC.;

WORLD CLASS VENUES, LLC;

WASHINGTON MANAGEMENT, LLC;

W.P.B. HOSPITALITY, LLC,

Plaintiffs-Appellants, v.

BEAZLEY UNDERWRITING LIMITED,

Defendant-Appellee,

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. and

CERTAIN UNDERWRITERS AT

LLOYDS LONDON, INCLUDING

BEAZLEY FURLONGE LTD,

Defendant.

Appeal from the United States District Court for the Central District of California Dale S. Fischer, District Judge, Presiding Submitted April 20, 2022** San Francisco, California

Before: W. FLETCHER and COLLINS, Circuit Judges, and FEINERMAN,*** District Judge.

Plaintiffs appeal the district court’s dismissal of their operative complaint in

this insurance coverage dispute. We have jurisdiction under 28 U.S.C. § 1291.

Reviewing de novo the grant of a motion to dismiss for failure to state a claim on

which relief can be granted, Mudpie, Inc. v. Travelers Cas. Ins. Co., 15 F.4th 885,

889 (9th Cir. 2021); FED R. CIV. P. 12(b)(6), we affirm.

Plaintiffs are 24 affiliated companies who operate 23 so-called

“gentlemen’s” clubs and a retail store, and they claim coverage under a single

policy issued by Defendant Beazley Underwriting Ltd. (“Beazley”) to non-party

affiliate The Spearmint Rhino Companies Worldwide, Inc. Plaintiffs allege that all

** The panel unanimously concludes that this case is suitable for decision without oral argument. See FED. R. APP. P. 34(a)(2)(C). *** The Honorable Gary Feinerman, United States District Judge for the Northern District of Illinois, sitting by designation.

2 24 businesses “were closed as a result of the Covid-19 Governmental Orders,”

including stay-at-home orders issued by the State of California and relevant local

governments. After Beazley denied coverage for economic losses resulting from

the closures, Plaintiffs filed this civil action asserting a single claim for breach of

the insurance policy. The district court granted a motion to dismiss Plaintiffs’

operative amended complaint. This timely appeal followed.

As alleged in the complaint, the “relevant coverage provision” is referred to

as the “Time Element” provision, which addresses certain economic losses

resulting from physical damage or loss to insured property. Specifically, that

provision states that “[t]his Policy insures Time Element loss, as set forth in the

Time Element Coverages, directly resulting from direct physical loss or physical

damage insured by this Policy occurring during the Period of Insurance to

Property Insured by this Policy” (emphasis added). According to the complaint,

Beazley breached this coverage obligation by failing “to pay Plaintiffs for the Time

Element losses” that “directly result[ed] from the Covid-19 Governmental Orders”

or were “caused by the Covid-19 Governmental Orders.”

Plaintiffs’ claim of coverage is foreclosed by Inns by the Sea v. California

Mut. Ins. Co., 286 Cal. Rptr. 3d 576 (Ct. App. 2021). See Ryman v. Sears,

Roebuck & Co., 505 F.3d 993, 995 (9th Cir. 2007) (“Where there is no convincing

evidence that the state supreme court would decide differently, a federal court is

3 obligated to follow the decisions of the state’s intermediate appellate courts.”)

(simplified). Inns by the Sea addressed the interpretation of analogous policy

language providing coverage for a suspension of operations “caused by direct

physical loss of or damage to property at [the insured’s] premises,” and it did so in

the context of comparable alleged losses based “on the situation created by the

[Covid-19 Governmental] Orders.” 286 Cal. Rptr. 3d at 582, 590 (second

emphasis added). The court rejected such coverage as a matter of law, and its

reasoning is fully applicable here.

Inns by the Sea held that, under well-settled California insurance law, the

“mere loss of use of physical property to generate business income, without any

other physical impact on the property, does not give rise to coverage for direct

physical loss.” Id. at 591 (emphasis added). The court further held that, even

assuming arguendo that the “alleged physical presence of the virus on [the

insured’s] premises” might be thought to give rise to a “physical impact” or to

“direct physical damage,” there still was no coverage. Id. at 590–91. The relevant

coverage language required that the alleged loss be “caused by” the claimed direct

physical damage, but the insured’s own allegations confirmed “the lack of causal

connection between the alleged physical presence of the virus on [the insured’s]

premises and the suspension of [its] operations.” Id. at 590 (emphasis added). As

the court explained, even if the insured “had thoroughly sterilized its premises to

4 remove any trace of the virus,” the insured “would still have continued to incur a

suspension of operations because the Orders would still have been in effect and the

normal functioning of society still would have been curtailed.” Id.

So too here. The complaint expressly alleges that the losses “directly

result[ed] from the Covid-19 Governmental Orders” or were “caused by the Covid-

19 Governmental Orders.” Consequently, under Inns by the Sea, the claimed

losses did not “directly result[] from direct . . . physical damage . . . to Property,”

as required by the relevant policy language. Further, in the absence of any such

loss caused by direct physical damage, the inability to use the property that

resulted from the Orders is not covered by the policy language concerning losses

“directly resulting from direct physical loss . . . to Property.”

Plaintiffs point to various other provisions in the policy that more precisely

define the amounts that will be paid when a covered loss occurs, but none of these

provisions provides any basis for evading Inns by the Sea’s construction of the

operative coverage language here. Moreover, Plaintiffs’ reliance upon policy

exclusions in an effort to expand the policy’s coverage violates firmly established

California law. Inns by the Sea, 286 Cal. Rptr. 3d at 594 (“[B]efore even

considering exclusions, a court must examine the coverage provisions to determine

whether a claim falls within the policy terms.”) (simplified).

Because Plaintiffs’ asserted losses do not fall within the scope of the

5 insurance policy, the district court correctly granted Defendant’s motion to

dismiss.

AFFIRMED.

6