1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 BODY XCHANGE SPORTS CLUB, LLC, Case No. 1:20-CV-01518-JLT-CDB a California Limited Liability Company, 12 ORDER GRANTING DEFENDANT’S

MOTION FOR JUDGMENT ON THE

13 Plaintiff, PLEADINGS 14 v. (Doc. 15) 15 ZURICH AMERICAN INSURANCE COMPANY, a New York corporation; and 16 DOES 1-25, inclusive, 17 Defendants. 18 19 Body Xchange Sports Club, LLC initiated this action to recover lost business income 20 caused by having to suspend operations pursuant to government closure orders issued to mitigate 21 the spread of the COVID-19 pandemic. (Doc. 1-1 at 4-25.) Body Xchange claims that Zurich 22 American Insurance Company breached its insurance contract and breached the implied covenant 23 of good faith and fair dealing by refusing coverage for the lost business income. (Id.) On May 12, 24 2021, Zurich filed a motion for judgment on the pleadings seeking dismissal of all claims. (Doc. 25 15.) For the reasons set forth below, the Court GRANTS Zurich’s motion. 26 I. FACTUAL BACKGROUND 27 Body Xchange owns and operates six fitness centers in Bakersfield, California. (Doc. 1-1 28 at 13, ¶ 36.) On March 19, 2020, in response to the rapid growing COVID-19 pandemic, the 1 governor of California issued a stay-at-home order that required the closure of any non-essential 2 businesses. (Id. at 15-16, 255-56.) On April 2, 2020, the public health officer of Kern County 3 ordered all gyms and fitness centers to remain closed as part of the government’s efforts to slow 4 the spread of COVID-19. (Id. at 16, ¶ 55, 258-60.) Body Xchange, as a non-essential business, 5 complied with these orders and ceased its operations until June 8, 2020, when the government 6 permitted the reopening of fitness centers. (Id. at 16-17.) 7 Body Xchange entered into an insurance agreement with Zurich that provided coverage 8 from September 3, 2019 to September 3, 2020. (Doc. 1-1 at 9, ¶ 20.) The insurance policy 9 included several coverage provisions, two of which Body Xchange asserts as its basis for liability. 10 First, Body Xchange alleges the Business Income provision provides coverage for lost income 11 due to the government ordered closures. (Id. at 9-11.) The Business Income provision states that 12 Zurich will pay for lost business income sustained due the suspension of operations caused by 13 “direct physical loss of or damage to property” at Body Xchange’s premises. (Id. at 171.) The 14 policy limits coverage to loss or damage caused by a “Covered Cause of Loss.” (Id.) The 15 definition of Covered Cause of Loss includes all risks except those explicitly excluded under the 16 policy. (Id. at 180.)1 Second, Body Xchange asserts coverage under the Civil Authority provision 17 which reimburses Body Xchange for actual losses sustained by an action of civil authority that 18 prohibits access to their properties if the civil authority action was taken as a result of damage 19 within one mile of Body Xchange’s property and was taken in response to dangerous physical 20 conditions resulting from damage or a Covered Cause of Loss that impedes access. (Id. at 12, 21 172.) The policy contains an exclusion for any damage or loss caused by a virus. (Id. at 192.) 22 On March 31, 2020, Body Xchange tendered a claim under its insurance policy to Zurich 23 for “business interruption loss resulting from the government-ordered closure of its fitness 24 centers.” (Doc. 1-1 at 17, ¶ 61.) After a limited exchange with a claim adjuster, Zurich sent Body 25 Xchange a letter denying coverage, explaining the risk of loss was excluded under the “Exclusion 26

27 1 The insurance policy at issue appears in three places on the record—once attached with the complaint and twice attached with Zurich’s motion for judgment on the pleadings. Because the parties do not dispute the authenticity of 28 any of these copies nor assert any inconsistency among them, the Court will refer to the version as submitted with the 1 of Loss Due to Virus or Bacteria.” (Id. at 17-20; 262-66.) Body Xchange contends Zurich’s denial 2 constitutes a breach of contract and a breach of the implied covenant of good faith and fair 3 dealing. (Id. at 20-24.) 4 II. LEGAL STANDARDS 5 Federal Rule of Civil Procedure 12(c) provides that: “After the pleadings are closed—but 6 early enough not to delay trial—a party may move for judgment on the pleadings.” A motion for 7 judgment on the pleadings “challenges the legal sufficiency of the opposing party’s pleadings and 8 operates in much the same manner as a motion to dismiss under Rule 12(b)(6).” Morgan v. Cnty. 9 of Yolo, 436 F. Supp. 2d 1152, 1154-55 (E.D. Cal. 2006), aff’d, 277 F. App’x 734 (9th Cir. 2008). 10 In reviewing a motion brought under Rule 12(c), the court “must accept all factual allegations in 11 the complaint as true and construe them in the light most favorable to the nonmoving party.” 12 Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009). 13 The same legal standard applicable to a Rule 12(b)(6) motion applies to a motion brought 14 under Rule 12(c). See Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). 15 Accordingly, “judgment on the pleadings is properly granted when, taking all the allegations in 16 the non-moving party’s pleadings as true, the moving party is entitled to judgment as a matter of 17 law.” Marshall Naify Revocable Trust v. United States, 672 F.3d 620, 623 (9th Cir. 2012) 18 (quoting Fajardo v. Cnty. of Los Angeles, 179 F.3d 698, 699 (9th Cir. 1999)); see also Fleming, 19 581 F.3d at 925 (stating that “judgment on the pleadings is properly granted when there is no 20 issue of material fact in dispute, and the moving party is entitled to judgment as a matter of law”). 21 The allegations of the complaint must be accepted as true, and any allegations made by the 22 moving party that contradict the allegations of the complaint are assumed to be false. See 23 MacDonald v. Grace Church Seattle, 457 F.3d 1079, 1081 (9th Cir. 2006). The court also draws 24 reasonable inferences in favor of the non-moving party. See Ventress v. Japan Airlines, 603 F.3d 25 676, 683 (9th Cir. 2010). However, the Court will enter judgment in favor of the movant, “when, 26 taking all the allegations in the non-moving party’s pleadings as true,” the non-moving party fails 27 to plead all required elements of the cause of action. Id. at 681; see also Student Loan Marketing 28 Assoc. v. Hanes, 181 F.R.D. 629, 634 (S.D. Cal. 1998). 1 III. REQUEST FOR JUDICIAL NOTICE 2 With its motion for judgment on the pleadings, Zurich filed a request for judicial notice of 3 Body Xchange’s insurance policy with Zurich (Doc. 15-1 at 276-524 (Exhibit B)); a hearing 4 transcript from a lawsuit regarding insurance coverage for COVID-19 losses from the Southern 5 District of New York (id. at 525-44 (Exhibit C)); a list and copies of unpublished federal and state 6 decisions regarding similar COVID-19 insurance claims (id. at 545-904 (Exhibit D)); Governor 7 Newsom’s Executive Order N-33-20 (id. at 905-08 (Exhibit E)); and Kern County’s April 2, 8 2020, Order of the Health Officer (id. at 909-13 (Exhibit F)). (Doc. 16.) Body Xchange did not 9 oppose these requests. In reaching its decision, the Court does not rely upon Exhibits C and D, 10 and therefore, will only address Zurich’s request as to the parties’ insurance policy and the two 11 government orders. 12 Federal Rule of Evidence 201 permits a court to take judicial notice of any facts not 13 subject to reasonable dispute and which may be “accurately and readily determined from sources 14 whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b)(2). Even where judicial 15 notice is not appropriate, on a motion for judgment on the pleadings, the Court may consider 16 “material which is properly submitted as part of the complaint” or incorporated by reference into 17 the complaint. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001); Coto Settlement v. 18 Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010); Special Dist. Risk Mgmt. Auth. v. Munich 19 Reinsurance Am., Inc., 562 F. Supp. 3d 989, 994 (E.D. Cal. 2021) (applying the incorporation by 20 reference doctrine to a motion for judgment on the pleadings). Documents are properly 21 incorporated into the complaint “in situations where the complaint necessarily relies upon a 22 document or the contents of the document are alleged in a complaint, the document’s authenticity 23 is not in question and there are no disputed issues as to the document’s relevance.” Coto 24 Settlement, 593 F.3d at 1038; see also United States v. Corinthian Colls., 655 F.3d 984, 999 (9th 25 Cir. 2011). 26 First, with respect to the insurance policy, the Court may take judicial notice of the 27 existence and terms contained within the agreement. Body Xchange attached the same policy 28 with its complaint and does not dispute the authenticity or relevancy of the policy. (Doc. 1-1 at 1 35-253); see also Carver v. Am. Family Mut. Ins. Co., 2022 WL 2239237, at *1 n.1 (E.D. Cal. 2 June 22, 2022) (granting request for judicial notice of insurance agreement where plaintiff did not 3 oppose the request and relied upon the agreement’s contents in its complaint); see also Granite 4 Outlet, Inc. v. Harford Cas. Ins. Co., 190 F. Supp. 3d 976, 984-85 (E.D. Cal. 2016) (taking 5 judicial notice of insurance policy attached to a motion to dismiss because plaintiff’s claims 6 “necessarily rely” on the policy, plaintiff refers to it “extensively” in the complaint, and plaintiff 7 submitted a version of the same policy with its complaint). The doctrine of incorporation also 8 permits the Court to consider the policy and its contents because Body Xchange submitted it as 9 material with the complaint and referred to extensively as part of its claims for relief. See 730 I St. 10 Invs., LLC v. Evanston Ins. Co., 2019 WL 1869851, at *1 (E.D. Cal. Apr. 25, 2019). 11 Second, with respect to Governor Newsom’s and Kern County’s closure orders, a court 12 may take judicial notice of the orders and decisions of other courts and administrative agencies. 13 Kurtcu v. U.S. Parking Inc., 2008 WL 2445080, at *2 (N.D. Cal. June 16, 2008) (citing Papai v. 14 Harbor Tug & Barge Co., 67 F.3d 203, 207 (9th Cir. 1995) (overruled on other grounds). The 15 orders issued by Governor Newsom and Kern County are “matters of public record” and properly 16 subject to judicial notice. See W. Coast Hotel Mgmt., LLC v. Berkshire Hathaway Guard Ins. Co., 17 498 F. Supp. 3d 1233, 1237-38 (C.D. Cal. 2020). Neither party disputes the existence, 18 authenticity, or relevancy of these orders. Indeed, Body Xchange attached the same orders to its 19 complaint and depends on them for the basis of its claims. (Doc. 1-1 at 255-60.) The Court may 20 consider the government closure orders as material submitted with and incorporated into the 21 complaint and may take judicial notice of their contents. Accordingly, the Court GRANTS 22 Zurich’s request for judicial notice as to Exhibits B, E, and F, and DENIES as moot the request 23 with respect to Exhibits C and D. 24 IV. DISCUSSION 25 Body Xchange’s complaint sets forth two claims: breach of contract and breach of the 26 implied covenant of good faith and fair dealing. (Doc. 1-1 at 20-24.) To allege a breach of 27 contract claim in California, Body Xchange must establish: (1) the existence of a contract, (2) 28 Body Xchange’s performance (or excuse for nonperformance) under the contract, (3) Zurich’s 1 breach of the contract, and (4) damages resulting from Zurich’s breach. See Richman v. Hartley, 2 224 Cal. App. 4th 1182, 1186 (2014). The parties’ dispute centers around the existence of a 3 contract, i.e., whether the coverages provided in the insurance policy include the losses claimed 4 by Body Xchange. (Doc. 18 at 9.) Under California law, the burden is on the insured to establish 5 that a claimed loss “is within the basic scope of insurance coverage.” Aydin Corp. v. First State 6 Ins. Co., 18 Cal. 4th 1183, 1188 (1998). “[O]nce an insured has made this showing, the burden is 7 on the insurer to prove the claim is specifically excluded.” Id. Body Xchange contends the 8 Business Income provision and the Civil Authority provision each independently provide 9 coverage for its losses. (Doc. 1-1 at 9-13.) Zurich, on the other hand, contends neither of these 10 provisions apply to the business income losses due to the government closure orders and, even if 11 they did, one of three exclusions under the policy (the Virus Exclusion, the Ordinance or Law 12 Exclusion, or the Loss of Use Exclusion) bars Body Xchange’s claims. (Doc. 15 at 26-29.) The 13 outcome of Zurich’s motion, therefore, depends on the interpretation of the coverage and 14 exclusions provisions. 15 Under California law, the “goal in construing insurance contracts, as with contracts 16 generally, is to give effect to the parties’ mutual intentions. If contractual language is clear and 17 explicit, it governs.” Montrose Chem. Corp. v. Superior Court, 9 Cal. 5th 215, 230 (2020). “The 18 terms in an insurance policy must be read in context and in reference to the policy as a whole, 19 with each clause helping to interpret the other.” Sony Comput. Ent. Am. Inc. v. Am. Home Assur. 20 Co., 532 F.3d 1007, 1012 (9th Cir. 2008) (citing Cal. Civ. Code § 1641 and Bay Cities Paving & 21 Grading, Inc. v. Lawyers’ Mut. Ins. Co., 5 Cal. 4th 854, 867 (1993)). If the terms are ambiguous, 22 i.e., susceptible of more than one reasonable interpretation, the ambiguity should be resolved in 23 favor of the insureds to protect their “objectively reasonable expectations.” Montrose, 9 Cal. 5th 24 at 230. “[I]n cases of ambiguity, basic coverage provisions are construed broadly in favor of 25 affording protection, but clauses setting forth specific exclusions from coverage are interpreted 26 narrowly against the insurer.” Minkler v. Safeco Ins. Co. of Am., 49 Cal. 4th 315, 322 (2010). 27 /// 28 /// 1 A. Business Income Coverage 2 Body Xchange claims that the Business Income Coverage provision encompasses its lost 3 income caused by the government closure orders which required Body Xchange to cease 4 operations during the COVID-19 shutdown. (Doc. 1-1 at 9-11.) The Business Income provision 5 ensures Body Xchange for: 6 the actual loss of Business Income [it] sustain[s] due to the necessary “suspension” of [its] “operations” during the “period of restoration.” The “suspension” must be 7 caused by direct physical loss of or damage to property at premises . . . . The loss or damage must be caused by or result from a Covered Cause of Loss. 8 9 (Doc. 1-1 at 172.) The parties’ primary dispute concerns the interpretation of the emphasized 10 language and whether the government closure orders caused a “direct physical loss of or damage 11 to property.”2 12 1. Plain and Ordinary Meaning 13 Because the disputed terms are not defined in the contract, they receive their plain and 14 ordinary meaning. See AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 822 (1990); Amex 15 Assurance Co. v. Allstate Ins. Co., 112 Cal. App. 4th 1246, 1252 (2003). Body Xchange argues 16 that applying the plain meaning requires consultation of dictionaries to define each term 17 individually. (Doc. 18 at 15.) However, because California courts and the Ninth Circuit have 18 articulated explicit definitions for the same insurance terms, these definitions govern. See Caribe 19 Rest. & Nightclub, Inc. v. Topa Ins. Co., 533 F. Supp. 3d 938, 943 (C.D. Cal. 2021) (adopting 20 state courts’ definition of insurance policy terms). In Mudpie Inc. v. Travelers Casualty Insurance 21 Company, the Ninth Circuit considered a nearly identical insurance provision in relation to the 22 plaintiff’s claims for lost business income resulting from COVID-19 closure orders. 15 F.4th 885 23 (9th Cir. 2021). The Mudpie policy stated that the loss of income due to a suspension of business 24 “must be caused by direct physical loss of or damage to property at the described premises.” Id. at 25

26 2 The parties’ arguments rely primarily on opinions from district court cases or persuasive authorities from courts outside this circuit and outside California. Since the parties’ submitted their initial briefs in May and June 2021, the 27 Ninth Circuit and the California courts of appeal have considered several cases with nearly identical insurance coverage provisions, asserting losses due to closures caused by COVID-19 and related government orders. (See Docs. 28 28, 33, 36.) Given the newly issued controlling authority, the Court’s analysis relies primarily on these opinions, 1 890. To construe the requirement of “direct physical loss of or damage to” the premises, the Ninth 2 Circuit relied upon the interpretation set forth in MRI Healthcare Center of Glendale, Inc. v. State 3 Farm General Ins. Co., 187 Cal. App. 4th 766 (2010). Mudpie, 15 F.4th at 890-91. Under MRI 4 Healthcare, “direct physical loss” requires “an actual change in insured property . . . occasioned 5 by accident or other fortuitous event directly upon the property causing it to become 6 unsatisfactory for future use or requiring that repairs be made to make it so.” MRI Healthcare, 7 187 Cal. App. 4th at 779. “In other words, ‘for loss to be covered, there must be a “distinct, 8 demonstrable, physical alteration” of the property.’” Mudpie, 15 F.4th at 891 (citing MRI 9 Healthcare, 187 Cal. App. 4th at 779). 10 Zurich likewise argues the MRI Healthcare standard applies to interpret the Business 11 Income provision. (Doc. 15 at 18.) Body Xchange, on the other hand, contends that neither the 12 insurance policy nor California law requires a physical alteration or a permanent loss to constitute 13 a “direct physical loss of or damage to.” (Doc. 18 at 12-15.) Body Xchange argues that, under 14 Hughes, “‘direct physical loss’ includes perils that rob real and personal property of their use, 15 often by rendering them unsafe, without necessarily altering their property’s physical structure.” 16 (Doc. 18 at 10 (citing Hughes v. Potomac Ins. Co. of D.C., 199 Cal. App. 2d 239, 248-49 17 (1962)).) In Mudpie, the Ninth Circuit considered and rejected this interpretation of the Hughes 18 standard. Mudpie, 15 F.4th at 891. The Ninth Circuit explained that Hughes does not stand for the 19 proposition that “direct physical loss” merely means rendered unsuitable, because the plaintiffs’ 20 home had in fact sustained “real and severe damage when the soil beneath it slid away.” Id. Thus, 21 a physical alteration to the ground beneath the dwelling had rendered the home “completely 22 useless to its owners.” Hughes, 199 Cal. App. 2d at 248. Accordingly, Body Xchange’s argument 23 that a direct physical loss includes rendered unsafe and unusable without a physical alteration to 24 the property is unpersuasive. 25 Body Xchange also argues that “direct physical loss” and “damage” should be afforded 26 different meaning because they are separated by the disjunctive term “or.” (Doc. 18 at 19-24.) A 27 recent California court of appeals decision rejected this argument and held that “physical loss or 28 damage” unambiguously requires “some physicality to the loss or damage of the property—e.g., a 1 physical alteration, physical contamination, or physical destruction.” Musso & Frank Grill Co. v. 2 Mitsui Sumitomo Ins. USA Inc., 77 Cal. App. 5th 753, 758-59 (2022). On the other hand, an 3 opinion from the Fourth District considered the terms “loss” and “damage” separately but 4 nonetheless held that the modifiers “direct” and “physical” apply to both loss and damage. Inns- 5 by-the-Sea v. Cal. Mut. Ins. Co., 71 Cal. App. 5th 688, 699-708 (2021). In Inns-by-the-Sea, the 6 court of appeals held that “direct physical damage” does not require “physical damage . . . where 7 the building has been rendered unusable by physical forces.” 3 Id. 702 (emphasis in original) 8 (internal quotations omitted). Under this interpretation, coverage may include instances of 9 gaseous substances or pathogens (e.g., smoke, ammonia, odor, or asbestos) that are present on the 10 premises because they are physical forces that may render the premises uninhabitable or on 11 suitable for their intended purpose. Id. at 702-03. The court of appeals reasoned that the presence 12 of these substances necessitates physical rehabilitation or restoration efforts, such as to abate 13 asbestos or remove poisonous fumes. Id. at 703-04. Even still, government closure orders issued 14 in response to the COVID-19 pandemic did not constitute a “physical force” because the 15 inhabitability or unsuitability was not due the presence of the COVID-19 virus on the property 16 such that it necessitated physical restoration. Id. Accordingly, even if the Court applied the Inns- 17 by-the-Sea standard, Body Xchange’s allegations that it closed only due to the government orders 18 and that COVID-19 was not physically present in its facilities do not constitute physical damage. 19 (Doc. 18 at 29; Doc. 1-1 at 16.) 20 Notably, the Ninth Circuit recognized that the hypothetical situation posed in Inns-By-the- 21 Sea, where the presence of COVID-19 in a facility may constitute physical damage, is not binding 22 authority. Protégé Rest. Partners LLC v. Sentinel Ins. Co., 2022 WL 14476377, at *2 (9th Cir. 23 Oct. 25, 2022). Given the Ninth Circuit’s explicit and controlling authority addressing the same 24 insurance policy terms, the Court must apply the interpretation that “direct physical loss or 25 damage” requires some physical alteration to the property. Mudpie, 15 F.4th at 891-92. Body 26

27 3 With respect to “direct physical loss,” Inns-By-the-Sea followed the Ninth Circuit’s interpretation. The words “direct” and “physical” in the policy language preclude the argument that coverage arises due to an inability to use 28 the premises without “physical impact”—i.e., “a physical alteration, physical contaminations, or physical 1 Xchange’s arguments that these terms are ambiguous and therefore should be construed in favor 2 of the insured also fail in light of these clearly articulated interpretations. See Creative Artists 3 Agency, LLC v. Affiliated FM Ins. Co., 2022 WL 3097371, at *5 (C.D. Cal. July 27, 2022) 4 (finding no ambiguity in “physical loss or damage” because the Ninth Circuit defined the terms in 5 Mudpie). 6 2. Context of Policy Affirms Physical Alteration Requirement 7 The context surrounding the Business Income provision reinforces the Court’s conclusion 8 that “direct physical loss of or damage to” requires a physical alteration to the property. 9 Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal. 3d 903, 916-17 (1986) (“An insurance 10 policy, like any other contract, must be construed in its entirety, with each clause lending 11 meaning to the other.” (Internal quotations omitted)). The policy defines the time period for 12 which lost income is recoverable by the “period of restoration.” (Doc. 1-1 at 171.) The period of 13 restoration begins either 72 hours after or immediately after (for Extra Expense Coverage) the 14 direct physical loss or damage, and ends when the property “should be repaired, rebuilt or 15 replaced with reasonable speed and similar quality” or when “business is resumed at a new 16 permanent location.” (Id. at 179.) The limitation that “coverage extends only until covered 17 property is repaired, rebuilt, or replaced, or the business moves to a new permanent location” 18 indicates the policy only provides coverage for physical alterations needing such restoration. 19 Mudpie, 15 F.4th at 892. Mere loss of use does not necessitate something “that can be physically 20 fixed.” See Inns-by-the-Sea, 71 Cal. App. 5th at 707 (emphasis in original). 21 3. Whether Government Closure Orders Caused a Direct Physical Loss or Damage 22 Having determined that the Business Income provision requires a physical alteration for 23 coverage to apply, the Court turns to whether the government closure orders caused a physical 24 alteration to Body Xchange’s premises. Body Xchange argues they suffered a direct physical loss 25 because of their inability to physically access their business. (Doc. 18 at 23.) In other words, 26 Body Xchange argues that the disjunctive form of the “direct physical loss of or damage to” 27 creates enough ambiguity that their inability to physically access their facilities constitutes a 28 direct physical loss, even without an alteration to the facilities’ physical condition. (Id. at 18-25.) 1 Its most directly relevant authority is Kingray Inc. v. Farmers Group Inc., in which the court held 2 that a policy with identical language for business income coverage could include losses due to the 3 COVID-19 pandemic and related closure orders. 523 F. Supp. 3d 1163, 1172-73 (C.D. Cal. 4 2021). The court held that “dispossession is a form of loss,” relying primarily on Hughes. 5 Although the Kingray decision and reasoning aligns squarely with Body Xchange’s argument, the 6 Ninth Circuit has since rejected this argument that temporary dispossession constitutes “physical 7 loss or damage.” Mudpie, 15 F.4th at 892 (explaining that permanent dispossession of property 8 may establish physical loss or damage, but temporary suspension of access does not). 9 More precisely, the Ninth Circuit explicitly held that an inability to operate businesses as a 10 result of government closure orders, issued to prevent the spread of COVID-19, does not cause a 11 physical alteration. Mudpie, 15 F.4th at 888, 892 (holding “direct physical loss of or damage to” 12 cannot be synonymous with “loss of use” because “California courts have carefully distinguished 13 ‘intangible,’ ‘incorporeal,’ and ‘economic’ losses from ‘physical’ ones”); see also Protégé Rest. 14 Partners, 2022 WL 14476377, at *2; Out West Rest. Grp., Inc. v. Affiliated FM Ins. Co., 2022 15 WL 4007998, at *1 (9th Cir. Sep. 2, 2022) (holding that income losses due to government closure 16 orders “do not inflict direct physical loss or damage to property”). The majority of California 17 courts of appeal have reached the same conclusion. See e.g., United Talent Agency v. Vigilant Ins. 18 Co., 77 Cal. App. 5th 821, 834 (holding loss of use from COVID-19 closures does not constitute 19 physical damage); see also Musso & Frank, 77 Cal. App. 5th at 760 (“At this point, there is no 20 real dispute. Under California law, a business interruption policy that covers physical loss and 21 damages does not provide coverage for losses incurred by reason of the COVID-19 pandemic.”). 22 At least one California court of appeals, however, has distinguished Mudpie while 23 considering similar insurance claims. Marina Pacific Hotel and Suites, LLC v. Fireman’s Fund 24 Ins. Co., 81 Cal. App. 5th 96 (2022). In Marina, the plaintiff had an identical business income 25 coverage for suspension caused by direct physical loss or damage to the property. Id. at 99. The 26 insured alleged the COVID-19 pandemic caused a physical alteration to the property because it 27 “required the closure or suspension of operations . . . and caused them to incur extra expense, 28 adopt remedial and precautionary measures ‘to attempt to restore and remediate the air and 1 surfaces at the Insured Properties, dispose of property damaged by COVID-19 and limit 2 operations at the Insured Properties.’” Id. at 102. Accepting the complaint’s allegations as true, 3 the court held the virus’s alleged impact, that it “bonds to surfaces through physicochemical 4 reactions . . . which transform the physical condition of the property” and required plaintiffs to 5 “dispose of property damaged by COVID-19,” constituted a physical alteration by an external 6 force.4 Id. at 108-09. The court recognized its conclusion was “at odds with almost all (but not 7 all) decisions considering whether business losses from the pandemic” are covered by 8 commercial property insurance. Id. at 109. Significantly, the plaintiff’s policy also included 9 specific coverage for “communicable disease event,” creating recovery for costs necessary to 10 repair or rebuild property destroyed or damaged by the communicable disease. Id. at 112. This 11 provision reinforced the court’s interpretation that a communicable disease, like a virus, could 12 cause physical damage needing repair. Id. 13 The holding in Marina creates some suggestion that, even though Body Xchange did not 14 allege the presence of COVID-19 on its premises, granting leave to amend could allow new 15 allegations under which a valid claim may arise. On the other hand, Marina is not binding on this 16 Court and is inconsistent with controlling precedent from the Ninth Circuit, in Mudpie, which 17 indicates amendment would be futile. Even so, the Court need not resolve any potential conflict 18 between these cases, because, as explained below, Body Xchange’s policy contains a virus 19 exclusion, directly contrasting the Marina plaintiff’s policy, and which conclusively precludes 20 any potential coverage. 21 B. Civil Authority Coverage 22 In the complaint, Body Xchange also alleged coverage under the Civil Authority provision 23 which insures income losses caused by the “action of civil authority that prohibits access to the 24 described premises” if both apply: (1) the civil authority prohibits access “as a result of the 25 damage, and the described premises are within that area but are not more than one mile from the 26

27 4 To distinguish the case from federal decisions reviewing similar claims, the court of appeals emphasized the differing pleading standard applied by state courts which requires the acceptance of allegations as true “however 28 improbable”; whereas the federal pleading standard considers the plausibility of the claims. Marina, 81 Cal. App. 5th 1 damaged property” and (2) the civil authority’s action is in response to “dangerous physical 2 conditions resulting from the damage or continuation of the Covered Cause of Loss that caused 3 the damage.” (Doc. 1-1 at 172.) In its opposition to the motion for judgment on the pleading, 4 Body Xchange provided no response to Zurich’s arguments that claims premised on the Civil 5 Authority provision should be dismissed. Zurich argues that Body Xchange “concedes that its 6 Complaint is deficient . . . under the Civil Authority provision.” (Doc. 22 at 12.) Body Xchange’s 7 failure to respond, standing alone, could warrant dismissal of all claims premised on the Civil 8 Authority provision. See Hartranft v. Encore Cap. Grp., Inc., 543 F. Supp. 3d 893, 913 (S.D. 9 Cal. 2021) (“[W]here a non-moving party fails to address an argument raised by the moving party 10 in the opposition brief, the Court may consider any arguments unaddressed by the non-moving 11 party as waived.”); see also Resnick v. Hyundai Motor Am., Inc., 2017 WL 1531192 at *22, (C.D. 12 Cal. Apr. 13, 2017) (“Failure to oppose an argument raised in a motion to dismiss constitutes 13 waiver of that argument.”); Tennyson v. Sacramento, 2021 WL 2142733, at *3 (E.D. Cal. May 14 26, 2021) (dismissing claim for failure to respond to defendants’ argument that the claim does not 15 maintain a valid theory of liability). 16 Even assuming Body Xchange did not intend to waive its claims under the Civil Authority 17 provision, the plain meaning of the policy terms preclude coverage. The provision provides 18 coverage for restricted access to Body Xchange’s facilities resulting from “damage” to the 19 premises or to other property within one mile. (Doc. 1-1 at 172.) As described above, damage 20 requires a physical alteration to the property, which the government closure orders did not cause. 21 Although the Civil Authority provision does not state the damage must be “physical” as appears 22 in the Business Income provision, the context of the whole provision contemplates a physical 23 change in the property or surrounding the property that renders access to it unsafe. For example, 24 the policy requires that the government order be issued in response to “dangerous physical 25 conditions” or from a “Covered Cause of Loss that caused the damage,” or to allow for the 26 government’s “unimpeded access to the damaged property.” (Id.) The access to the area must be 27 prohibited “as a result of the damage.” (Id.) In Out West, the Ninth Circuit considered a similar 28 civil authority provision that covered losses for government restrictions “provided such order is 1 the direct result of physical damage.” Out West, 2022 WL 4007998, at *1. The stated purpose of 2 the government closure order in Out West was to “protect and preserve the public health from, 3 and prevent, the increasing transmission of COVID-19 in California,” which did not qualify as an 4 order issued because of physical damage. Id. 5 Similarly, the government orders that restricted Body Xchange’s access also had a stated 6 purpose “to ensure we mitigate the impact of COVID-19,” “to bend the curve[] and disrupt the 7 spread,” “to slow the spread of COVID-19,” and “to reduce the number of individuals who will 8 be exposed.” (Doc. 1-1 at 256, 259.) The orders do not reference or otherwise imply that an event 9 occurred that caused damage to any property such that Body Xchange could not access its 10 facilities. (Id.) Although Body Xchange’s civil authority does not include the modifier “physical” 11 as seen in the Out West provision, both provisions intend coverage resulting from government 12 orders that respond to an event that caused property damage rather than contemplate government 13 action that seeks to mitigate an on-going spread of a virus. See Inns-by-the-Sea, 71 Cal. App. 5th 14 at 712 (holding no coverage under civil authority provision where government orders were issued 15 “to prevent the spread of the pandemic, not because of any direct physical loss of or damage to 16 property” (internal quotations omitted)). Given that Civil Authority provision’s plain meaning 17 does not seem to trigger coverage and Body Xchange’s lack of an argument to the contrary or to 18 support its claim, the Court finds Body Xchange does not state a valid claim under this provision. 19 C. Virus Exclusion 20 Zurich contends that even if the Business Income provision or Civil Authority provision 21 covers the losses caused by the government closure orders, the policy’s Exclusion of Loss Due to 22 Virus or Bacteria provision applies and prevents Body Xchange from maintaining any claim for 23 relief. (Doc. 15 at 26-28.) In response, Body Xchange argues that it has an “all risk” policy, and 24 Zurich carries the burden to show that any exclusion applies. (Doc. 18 at 27-30.) Body Xchange 25 further contends that under the “predominate” or “efficient” theory of proximate cause, the 26 government orders, not the COVID-19 virus caused their losses, making the Virus Exclusion 27 inapplicable. (Id.) According to Body Xchange, the California courts did not define 28 “predominate,” and therefore, the dictionary definition of predominate—“having superior 1 strength influence, or authority”—should control. (Id.) 2 Body Xchange slightly mischaracterizes California’s standard for evaluating whether an 3 exclusion applies in cases involving concurrent causes. Generally, in an all-risk insurance policy, 4 “all risks are covered unless specifically excluded in the policy.” Davis v. United Services Auto. 5 Assn., 223 Cal. App. 3d 1322, 1328 (1990). The insurer bears the burden of showing an exclusion 6 applies. Aydin Corp., 18 Cal. 4th at 1188. When a combination of covered and specifically 7 excluded risks caused the insured’s loss, the loss is covered if a covered risk (i.e., a non-excluded 8 risk) was the “efficient proximate cause.” Garvey v. State Farm Fire & Cas. Co., 48 Cal. 3d 395, 9 401-04 (1989). The efficient proximate cause means the “predominating cause” or the cause the 10 “sets others in motion.” Id. (quoting Sabella v. Wisler, 59 Cal. 2d 21, 27 (1963)). However, the 11 California Supreme Court rejected a “but for” analysis, concluding that simply because an 12 excluded risk was a contributing cause should not eliminate insurance coverage. Id. (explaining 13 an “absurd” result would occur to “deny coverage even though an insured peril ‘proximately’ 14 caused the loss simply because a subsequent, expected peril was also part of the chain of 15 causation”). “The fact that an excluded risk contributed to the loss would not preclude coverage if 16 such a risk was a remote cause of the loss.” Id. 17 In Mudpie, the Ninth Circuit applied the efficient proximate cause standard and concluded 18 that the COVID-19 virus was the predominate cause of business income loss that resulted from 19 suspending operations pursuant to government closure orders. Mudpie, 15 F.4th 893-94. Even 20 though the plaintiff, in Mudpie, argued that the government orders “most directly caused its 21 injury” and did not allege the virus was present in it is storefront, the Ninth Circuit held that the 22 COVID-19 pandemic set the stay-at-home orders in motion, and the plaintiff did not allege “an 23 attenuated causal chain between the virus and [plaintiff’s] losses.” Id. Accordingly, the policy’s 24 exclusion for “loss or damage caused by or resulting from any virus . . .” precluded coverage. Id.; 25 see also Musso & Frank, 77 Cal. Ap. 5th at 761 (holding the policy’s exclusion for loss or 26 damages caused by “any virus, bacterium or other micro-organism that induces or is capable of 27 inducing physical distress, illness or disease” precluded coverage for lost income due to COVID- 28 19 closure orders). 1 Body Xchange’s recovery is also precluded by the policy’s Virus Exclusion which 2 excludes “loss or damage caused by or resulting from any virus . . . that induces or is capable of 3 inducing physical distress, illness, or disease.” (Doc. 1-1 at 192.) Though Body Xchange alleges 4 that the State of California and County of Kern closure orders caused it to cease operations, not 5 the presence of the COVID-19 virus (Doc. 1-1 at 16), the allegations in the complaint and 6 corresponding exhibits make clear the predominate cause, which set those orders in motion, was 7 the COVID-19 virus and worldwide viral pandemic. The complaint dedicates several paragraphs 8 to the origin, rise, and public response to the COVID-19 pandemic in late 2019 and early 2020. 9 (Doc. 1-1 at 14-15, ¶¶ 38-49.) It explains that California Governor Gavin Newson proclaimed a 10 state of emergency, on March 4, 2020, “as a result of the threat of COVID 19.” (Id. at 15, ¶ 47.) 11 “On March 18, 2020, a representative from the Department of Public Health for the County of 12 Kern contacted Body Xchange and ordered its fitness centers to close.” (Id. at 16, ¶ 51.) The 13 following day, Governor Newson issued Executive Order N-33-20, requiring all California 14 residents to stay at home, excepting only essential operations. (Id. at 16, ¶ 52.) Executive Order 15 N-33-20 expressly states that its purpose is “to establish consistency across the state in order to 16 ensure that we mitigate the impact of COVID-19. Our goal is simple, we want to bend the curve, 17 and disrupt the spread of the virus.” (Id. at 256.) On April 2, 2020, Kern County issued an order 18 requiring all gyms to stay closed. (Id. at 16, ¶ 55.) The Kern County order expressly states that it 19 “is issued as a result of the World Health Organizations’ [sic] declaration of a worldwide 20 pandemic of COVID-19 disease, also known as ‘novel coronavirus’” (emphasis added) and for 21 the purpose of reducing “the number of individuals who will be exposed to COVID-10, and [] 22 thereby slow[ing] the spread of COVID-19 in the county.” (Id. at 259.) 23 Although the “the question of what caused the loss is generally a question of fact” (State 24 Farm Fire & Casualty Co. v. Von Der Lieth, 54 Cal. 3d 1123, 1131 (1991)), Body Xchange 25 cannot plausibly allege that the California and Kern County orders did not occur as a direct, 26 unattenuated result of the COVID-19 pandemic. The closure orders clearly identify the COVID- 27 19 pandemic as the reason for their issuance. Because the Ninth Circuit has determined COVID- 28 19 to be the predominate and efficient cause of lost business income when operations ceased 1 pursuant to government closure orders, no question of law or fact remains.5 Mudpie, 15 F.4th at 2 894; see also Kingray, 523 F. Supp. 3d at 1172 (“If there were no coronavirus, there would be no 3 Covid-19 pandemic, no Covid-19-related shutdowns, and no need for Kingray to close, operate at 4 a limited capacity, or modify the floor plan of its sports bar. This causal chain is straightforward 5 and unbroken.”). 6 Body Xchange’s argument that it “was not aware of the presence of any COVID-19 virus 7 at any of its facilities, nor had any customer or employee reported a COVID-19 infection” does 8 not break the straightforward causal chain between the COVID-19 virus and the closure orders. 9 (Doc. 1-1 at 16, ¶ 56.) In Mudpie, the plaintiff did not allege the presence of the COVID virus in 10 its facility but did not “dispute that the Stay at Home Orders that impacted [plaintiff’s] business 11 where issued in response to the COVID-19 pandemic, and that point is not debatable.” Mudpie, 12 15 F.4th at 894; see also Best Auto Repair, Inc. v. Travelers Cas. Ins. Co. of Am., 2022 WL 13 2912090, at *6 (C.D. Cal. July 21, 2022) (rejecting plaintiff’s argument that its claims needed to 14 relate to “decontamination of the premises and not the containment of a pandemic” and finding 15 the virus exclusion barred recovery); Vida Skin Care, Inc. v. Sentinel Ins. Co. Ltd., 2022 WL 16 1498208, at *3 (C.D. Cal. May 6, 2022) (“Plaintiffs’ suggestion that the Los Angeles and 17 California shutdown orders did not necessarily occur as a result of the COVID-19 pandemic does 18 not follow from the timeline established in their complaint and borders on ridiculous.”). Likewise, 19 Body Xchange did not allege and cannot plausibly allege the California and Kern Country orders 20 were not issued directly in response to the presence of the COVID-19 virus in the community and 21 growing pandemic. Thus, even if Body Xchange could plead facts to suggest coverage applies 22 under either the Business Income or Civil Authority provisions, the Virus Exclusion bars any 23 potential recovery. 6 24

25 5 The Court recognizes that the Eastern District of Pennsylvania, interpreting California law has held differently. See Susan Spath Hegedus, Inc. v. ACE Fire Underwriters Ins. Co., 538 F.Supp.3d 457, 470 (E.D. Penn. 2021). In this 26 case cited by Body Xchange, the court held the complaint’s allegations that the closure orders, rather than the COVID virus, predominately caused the lost business income. (Id.) The plaintiff, like Body Xchange, alleged that the 27 virus was not present on their property and reopened immediately after the order were lifted. (Id.) Although Body Xchange presents the same allegations, when persuasive authority contradicts binding case law, this Court must 28 follow the Ninth Circuit’s conclusions. 1 Because Body Xchange does not have a valid claim to benefits under the insurance policy, 2 its claim for breach of contract should be dismissed. 3 D. Implied Covenant of Good Faith and Faith Dealing 4 Body Xchange also brings a claim for breach of the implied covenant of good faith and 5 fair dealing. (Doc. 1-1 at 20-23.) It contends that Zurich breached this duty by, inter alia, 6 depriving Body Xchange benefits under the policy, failing to conduct a fair and thorough 7 investigation into Body Xchange’s coverage claim, failing to conduct an investigation to 8 determine the efficient proximate cause, and placing its own interests above Body Xchange’s 9 interests. (Id.) To adequately plead a claim for breach of the implied covenant of good faith and 10 fair dealing, Body Xchange must show: “(1) benefits under the policy were withheld; and (2) the 11 reason for withholding benefits was unreasonable or without proper cause.” Mudpie, 15 F.4th at 12 893 n.6 (citing Love v. Fire Ins. Exch., 221 Cal. App. 3d 1136, 1151 (1990)). Because Body 13 Xchange does not have a viable claim for any benefits under the insurance policy, Zurich did not 14 beach its duty of good faith and fair dealing in its actions leading up to or in the denial of 15 coverage. See Brown v. Mid-Century Ins. Co., 215 Cal. App. 4th 841, 858 (2013) (“Because the 16 policy did not cover the [insured’s] claims ... [the insured does] not have a claim for breach of the 17 implied covenant of good faith and fair dealing.”); see also Musso & Frank, 77 Cal. App. 5th at 18 761 (“Because [plaintiff] cannot establish a breach of contract, it follows necessarily that it cannot 19 prove a breach of the covenant of good faith and fair dealing.”). Accordingly, Body Xchange’s 20 claim for breach of the implied covenant of good faith and fair dealing should also be dismissed. 21 E. Leave to Amend 22 Courts have discretion both to grant a motion for judgment on the pleadings with leave to 23 amend or to simply grant dismissal of causes of action rather than grant judgment as to them. 24 Lonberg v. City of Riverside, 300 F. Supp. 2d 942, 945 (C.D. Cal. 2004) (citations omitted); see 25 also Pac. W. Group v. Real Time Solutions, 321 Fed. App’x. 566, 569 (9th Cir. 2008). Generally, 26 dismissal without leave to amend is proper only if it is clear that “the complaint could not be 27

28 1 saved by any amendment.” Intri-Plex Techs. v. Crest Grp., 499 F.3d 1048, 1056 (9th Cir. 2007) 2 | (citing In re Daou Sys., Inc., 411 F.3d 1006, 1013 (9th Cir. 2005)); see also Ascon Props., Inc. v. 3 || Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) (“Leave need not be granted where the 4 | amendment of the complaint ... constitutes an exercise in futility’). 5 Body Xchange did not request leave to amend or explain how amendment could save their 6 || claims. Regardless, given the indisputable evidence that the efficient proximate cause of Body 7 || Xchange’s loss resulted from a virus, falling squarely within the Virus Exclusion, the Court finds 8 || that any amendment would be futile. See Eur. Travel Agency Corp. v. Allstate Ins. Co., 2022 WL 9 | 1498207, at *3 (C.D. Cal. Apr. 27, 2022) (granting dismissal without leave to amend because the 10 || virus exclusion provision precludes coverage of losses “attributable to the COVID-19 virus or 11 || government orders issued in response to the COVID-19 pandemic”’). 12 V. ORDER 13 For the reasons set forth above: 14 1. Zurich’s motion for judgment on the pleadings (Doc. 15) is GRANTED. 15 2. The clerk of court is directed to enter judgment in favor of Zurich. 16 3. The clerk of court is directed to close the case. 17 18 IT IS SO ORDERED. 19 | Dated: _December 30, 2022 Charis [Tourn

TED STATES DISTRICT JUDGE

20 21 22 23 24 25 26 27 28 19