1 2 3 4 5 6 7 8 9 UNITED STATES DISTRICT COURT 10 SOUTHERN DISTRICT OF CALIFORNIA 11 12 UNMASKED MANAGEMENT, INC, Case No.: 3:20-cv-01129-H-MDD

LUCHA LIBRE GOURMET TACO

13

SHOP #1 LP, LUCHA LIBRE ORDER GRANTING DEFENDANT’S

14 GOURMET TACO SHOP #2 LP, MOTION TO DISMISS

LUCHA LIBRE GOURMET TACO

15 SHOP #3 LP, individually and on behalf [Doc. No. 16.] 16 of all others similarly situated,

17 Plaintiffs, 18 v. 19 CENTURY-NATIONAL INSURANCE

COMPANY,

20 Defendant. 21

22 On June 19, 2020, Plaintiffs Unmasked Management, Inc, Lucha Libre Gourmet 23 Taco Shop #1 LP, Lucha Libre Gourmet Taco Shop #2 LP, and Lucha Libre Gourmet Taco 24 Shop #3 LP (collectively, “Plaintiffs”) filed a class action complaint against Defendant 25 Century-National Insurance Company (“Defendant”). (Doc. No. 1.) On October 22, 2020, 26 Defendant filed a motion to dismiss the complaint for failure to state a claim. (Doc. No. 27 11.) In lieu of responding to Defendant’s motion to dismiss, Plaintiffs filed a first amended 28 1 complaint (the “FAC”) on November 9, 2020. (Doc. No. 14.) Accordingly, the Court 2 denied Defendant’s motion to dismiss as moot. (Doc. No. 15.) 3 On November 20, 2020, Defendant filed a motion to dismiss the FAC. (Doc. No. 4 16.) Plaintiffs filed a response in opposition to Defendant’s motion to dismiss on 5 December 9, 2020. (Doc. No. 22.) Defendant filed a reply on December 14, 2020. (Doc. 6 No. 23.) Defendant also filed a notice of supplemental authority in support of its motion 7 to dismiss on January 8, 2021. (Doc. No. 25.) On January 15, 2021, and then again on 8 January 21, 2020, Plaintiffs filed their own notices of supplemental authority in support of 9 their opposition. (Doc. Nos. 27, 28.) The Court, pursuant to its discretion under Local 10 Rule 7.1(d)(1), submitted the motion on the parties’ papers. (Doc. No. 26.) For the 11 following reasons, the Court grants Defendant’s motion to dismiss. 12 Background1 13 Plaintiffs own and operate several restaurants in San Diego and Carlsbad, California. 14 (Doc. No. 14 ¶ 1.) Plaintiff Unmasked Management, Inc. (“Unmasked”) is the manager 15 and managing agent for the remaining named plaintiffs in this action, Lucha Libre Gourmet 16 Taco Shop #1 LP, Lucha Libre Gourmet Taco Shop #2 LP, and Lucha Libre Gourmet Taco 17 Shop #3 LP (collectively, the “Limited Partnership Plaintiffs”). (Id. at 1 n.1.) Unmasked 18 purchased an insurance policy (the “Policy”) from Defendant for its three restaurants, with 19 a policy period spanning from July 14, 2019 to July 14, 2020. (Id. ¶ 14; see also Doc. No. 20 14-1, Ex. A.)2 The Policy lists the named insured as “Unmasked Management, Inc. DBA: 21 Lunch Libre Gourmet Taco Shop #1, #2, & #3.” (Doc. No. 14-1, Ex. A.) The Limited 22 Partnership Plaintiffs were later added as named insureds to the Policy on May 26, 2020. 23 (Doc. No. 14-2, Ex. B.) 24 The Policy contains the following four provisions pertinent to this lawsuit. First, the 25 policy includes a “Business Income” provision, which provides that Defendant “will pay 26

27 1 The following allegations are taken from Plaintiffs’ FAC unless otherwise provided. 28 2 The Court may consider the Policy in ruling on Defendant’s motion to dismiss because Plaintiffs 1 for the actual loss of business income . . . sustain[ed] due to the necessary ‘suspension’ of 2 [Plaintiffs’] ‘operations.’” (Doc. No. 14-1, Ex. A.) Under this provision, coverage will 3 only attach if the suspension was “caused by direct physical loss of or damage to” the 4 covered property. (Id.) Second, the Policy includes an “Extra Expense” provision, which 5 provides coverage for certain expenses incurred during the “suspension” of Plaintiffs’ 6 operations. (Id.) This provision only applies, however, if the Business Income coverage 7 provision applies in the first place. (Id.) Third, the Policy includes a “Civil Authority” 8 provision, which provides that Defendant “will pay for the actual loss of Business Income 9 . . . sustain[ed] and necessary Extra Expense caused by [an] action of civil authority that 10 prohibits access to the [covered] premises due to direct physical loss of or damage to 11 property, other than at the [covered] premises.” (Id.) Fourth, the Policy provides that, in 12 the event of a covered cause of loss, Plaintiffs must “[t]ake all reasonable steps to protect 13 the Covered Property from further damage and keep a record of your expenses necessary 14 to protect the Covered Property, for consideration in the settlement of the claim.” (Id.) 15 Plaintiffs refer to this coverage provision as a “Sue and Labor” provision. (Doc. No. 14 ¶ 16 6.) 17 In early 2020, both the State of California and the County of San Diego issued 18 various orders in response to the COVID-19 pandemic (the “Closure Orders”). (Id. ¶¶ 27- 19 32.) On March 4, 2020, Governor Gavin Newsom issued an executive order declaring a 20 state of emergency and requiring that California residents follow further guidance related 21 to social distancing promulgated by the California Department of Health. (Id. ¶ 28.) On 22 March 16, 2020, San Diego County issued an order that prohibited dine-in eating and 23 closed all bars in the county. (Id. ¶ 29.) On March 19, 2020, Governor Newsom issued 24 another executive order requiring all individuals who do not participate in “Essential 25 Critical Infrastructure” to stay in their respective residences. (Id. ¶ 30.) Plaintiffs’ 26 restaurants were considered essential under these orders, allowing them to remain open in 27 28 1 a limited capacity. (Id.) 2 Plaintiffs allege that they suffered losses resulting from the COVID-19 outbreak, the 3 Closure Orders, and the presence of COVID-19 in their restaurants. (Id. ¶ 33.) Plaintiffs 4 contend that the Closure Orders prohibited Plaintiffs from using their indoor dining rooms. 5 (Id. ¶ 36.) Further, Plaintiffs allege that they had to alter their premises in several ways to 6 socially distance their guests and otherwise limit the potential spread of COVID-19. (Id. 7 ¶¶ 34-36.) For example, Plaintiffs expanded their outdoor dining areas, installed plexiglass 8 to separate guests and employees, re-arranged their furniture and salsa bars, added custom 9 signage and hand sanitizing stations, and installed shelving to accommodate take-out 10 orders, among other things. (Id.) 11 Plaintiffs filed a claim under the Policy to recover their losses caused by the Closure 12 Orders and COVID-19. (Id. ¶ 41.) Defendant denied that claim on April 21, 2020. (Doc. 13 No. 16, App’x, at 27-29.)4 Defendant took the position that Plaintiffs were not covered 14 because: (1) “[t]he Suspension of [their] business was not caused by a ‘Direct Physical 15 Loss of or Damage to Property’ at [the] designated premises”; and (2) “[t]he Government 16 Directives at issue did not ‘Prohibit Access’ to [the] designated premises and did not result 17 from a Loss or Damage at a premises ‘Other Than’ [the] designated premises.” (Id. at 28- 18 19 20 3 Defendant requested judicial notice of the Closure Orders. Under Federal Rule of Evidence 201, a court “may take judicial notice of the records of state agencies and other undisputed matters of the public 21 record,” Disabled Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 861, 866 (9th Cir. 2004), including actions or orders of the California Governor, Armstrong v. Newsom, No. CV 20-3745-GW- 22 ASX, 2020 WL 5585053, at *1 (C.D. Cal. Aug. 3, 2020). Accordingly, the Court grants Defendant’s request for judicial notice of the Closure Orders. The Court notes, however, that it also may rely on the 23 Closure Orders because “(1) the [FAC] refers to the [them]; (2) the [Closure Orders are] central to the 24 plaintiff's claim; and (3) no party questions the authenticity of the[m].” Corinthian Colleges, 655 F.3d at 999. 25 Further, both parties request judicial notice of various unpublished judicial orders in support of their moving papers. (Doc. No. 16-1, at 2-3; Doc. No. 22 at 18 n.5.) Since the Court does not rely on any 26 of these orders, the Court denies these requests as moot. 4 The Court can consider Defendant’s denial of Plaintiffs’ insurance claims, even though it was not 27 attached to the FAC, because “(1) the [FAC] refers to the document; (2) the document is central to the 28 plaintiff's claim; and (3) no party questions the authenticity of the document.” Corinthian Colleges, 655 1 29.) Plaintiffs then filed the instant putative class action against Defendant, alleging breach 2 of contract and declaratory judgment claims against Defendant arising out of the Business 3 Income, Extra Expense, Civil Authority, and Sue and Labor provisions of the Policy. (Doc. 4 No. 14, FAC.) On November 20, 2020, Defendant moved to dismiss the FAC under Rule 5 12(b)(6). (Doc. No. 14.) 6 Discussion 7 I. Legal Standards 8 A. Motion to Dismiss 9 A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint. 10 Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A complaint must provide “a short 11 and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. 12 P. 8(a)(2), and “enough facts to state a claim to relief that is plausible on its face,” Bell Atl. 13 Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the 14 plaintiff pleads factual content that allows the court to draw the reasonable inference that 15 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 16 (2009). A court must assume the plaintiff’s factual allegations as true and construe all 17 reasonable inferences in favor of the plaintiff. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 18 337-38 (9th Cir. 1996). That being said, the court is “not bound to accept as true a legal 19 conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678 (citation omitted). 20 Where a motion to dismiss is granted, “leave to amend should be granted ‘unless the 21 court determines that the allegation of other facts consistent with the challenged pleading 22 could not possibly cure the deficiency.’” DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 23 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 24 F.2d 1393, 1401 (9th Cir. 1986)). In other words, where leave to amend would be futile, 25 the Court may deny leave to amend. See DeSoto, 957 F.2d at 658. 26 B. California Insurance Law 27 Since federal jurisdiction in this action is based on diversity of citizenship, the 28 substantive law of California governs. Stanford Univ. Hosp. v. Fed. Ins. Co., 174 F.3d 1 1077, 1083 (9th Cir. 1999); Humboldt Bank v. Gulf Ins. Co., 323 F. Supp. 2d 1027, 1032 2 (N.D. Cal. 2004). In California, the interpretation of an insurance policy is a question of 3 law for the court. Powerine Oil Co., Inc. v. Superior Court, 118 P.3d 589, 597 (Cal. 2005). 4 Such interpretation must give effect to “the mutual intention of the parties at the time the 5 contract is formed . . . .” Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 627 (Cal. 1995). 6 To determine the intent of the parties behind an insurance contract, the Court “look[s] first 7 to the language of the contract in order to ascertain its plain meaning,” reading the language 8 in its “ordinary and popular sense, unless used by the parties in a technical sense or a special 9 meaning is given to them by usage.” Id. (internal citations and quotation marks omitted). 10 Language in an insurance contract “must be interpreted as a whole, and in the 11 circumstances of the case, and cannot be found to be ambiguous in the abstract.” Id. 12 “Insurance coverage is interpreted broadly so as to afford the greatest possible 13 protection to the insured.” MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1213 (Cal. 14 2003) (citations omitted). When there is ambiguity in an insurance policy, the policy’s 15 exclusions and exceptions are strictly construed against the insurer and liberally interpreted 16 in favor of the insured to protect the insured’s reasonable expectation of coverage. La Jolla 17 Beach & Tennis Club, Inc. v. Indus. Indem. Co., 884 P.2d 1048, 1053 (Cal. 1994); see also 18 Delgado v. Heritage Life Ins. Co., 203 Cal. Rptr. 672, 677 (Ct. App. 1984). Any limitation 19 of coverage must be “stated precisely and understandably, in words that are part of the 20 working vocabulary of the average layperson.” Haynes v. Farmers Ins. Exch., 89 P.3d 381, 21 385 (Cal. 2004). Nevertheless, “[a]n insurance company can choose which risks it will 22 insure and which it will not, and coverage limitations set forth in a policy will be 23 respected.” Fidelity & Deposit Co. v. Charter Oak Fire Ins. Co., 78 Cal. Rptr. 2d 429, 432 24 (Ct. App. 1998) (citing Legarra v. Federated Mutual Ins. Co., 42 Cal. Rptr. 2d 101, 105 25 (Ct. App. 1995)). 26 // 27 // 28 // 1 II. Whether the Policy Covers Plaintiffs’ Losses 2 A. Business Income and Extra Expense Coverage 3 The Court first turns to whether Plaintiffs have adequately stated a claim under the 4 Business Income and Extra Expense coverage provisions of the Policy. In relevant part, 5 the Policy’s Business Income coverage provision provides the following: “We will pay for 6 the actual loss of Business Income you sustain due to the necessary ‘suspension’ of your 7 ‘operations’ during the ‘period of restoration.’ The ‘suspension’ must be caused by direct 8 physical loss of or damage to property at [the covered premises] . . . .” (Doc. No. 14, Ex. 9 A.) The Extra Expense coverage provision applies only if the Business Income coverage 10 provision applies in the first place. (Id.) In pertinent part, it provides the following: 11 We will pay Extra Expense (other than the expense to repair or replace property) to: (1) Avoid or minimize the “suspension” of business and to 12 continue operations at the described premises or at replacement premises or 13 temporary locations, including relocation expenses and costs to equip and operate the replacement location or temporary location. (2) Minimize the 14 “suspension” of business if you cannot continue “operations.” We will also 15 pay Extra Expense to repair or replace property, but only to the extent it reduces the amount of loss that otherwise would have been payable under this 16 Coverage Form. 17 (Id.) 18 Defendant argues that neither coverage provision applies here because Plaintiffs 19 have failed to allege that their losses were caused by a “direct physical loss of or damage 20 to” property. (Doc. No. 16 at 6-7.) Plaintiffs, on the other hand, allege that the Closure 21 Orders and the spread or presence of the COVID-19 virus caused the loss of the use and 22 functionality of their property, (Doc. No. 14 ¶ 34), which they argue meets the Policy’s 23 “direct physical loss of or damage to” requirement, (Doc. No. 22 at 5-14). 24 Physical loss or damage coverage limitations are commonplace in modern insurance 25 policies. MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., 115 Cal. Rptr. 26 3d 27, 37 (2010). Under California law, they generally require that there be a “distinct, 27 demonstrable, physical alteration” to the property for coverage to attach. Id. at 38. “A 28 1 direct physical loss ‘contemplates an actual change in insured property then in a 2 satisfactory state, occasioned by accident or other fortuitous event directly upon the 3 property causing it to become unsatisfactory for future use or requiring that repairs be made 4 to make it so.’” Id. at 38 (citation omitted). In other words, “some external force must 5 have acted upon the insured property to cause a physical change in the condition of the 6 property, i.e., [the property] must have been ‘damaged’ within the common understanding 7 of that term.” Id. 8 The loss of use or functionality of the covered property alone is not sufficient to 9 trigger coverage. See id. at 37; see also Doyle v. Fireman's Fund Ins. Co., 229 Cal. Rptr. 10 3d 840, 844 (Ct. App. 2018) (“[W]hen it comes to property insurance, diminution in value 11 is not a covered peril, it is a measure of a loss.”) For example, in MRI Healthcare, the 12 California Court of Appeal held that an MRI machine’s inability to function properly after 13 it was powered down did not constitute a “direct physical loss.” 115 Cal.Rptr.3d at 38-39. 14 Similarly, Ward Gen. Ins. Servs., Inc. v. Employers Fire Ins. Co., 7 Cal. Rptr. 3d 844, 850- 15 51 (2003), as modified on denial of reh’g (Jan. 7, 2004), held that the loss of electronic 16 information in a database did not to qualify as a direct physical loss absent a showing that 17 there was damage to tangible property. Further in Doyle, the court held that an insured’s 18 financial loss resulting from the purchase of counterfeit wine was not covered by his 19 property insurance policy because the wine was never stolen, destroyed, or physically 20 altered. 229 Cal. Rptr. 3d at 843-44. 21 Here, “Plaintiff[s’] FAC attempts to make precisely this substitution of temporary 22 impaired use or diminished value for physical loss or damage in seeking Business Income 23 and Extra Expense coverage.” 10E, LLC v. Travelers Indem. Co. of Connecticut, No. 2:20- 24 CV-04418-SVW-AS, 2020 WL 5359653, at *4–5 (C.D. Cal. Sept. 2, 2020). Plaintiffs are 25 not the first to contend that their temporary and partial loss of use or functionality of their 26 property resulting from the Closure Orders and the COVID-19 pandemic constitutes a 27 “direct physical loss of or damage to” that property. Courts applying California law have 28 all but universally rejected these attempts as lacking the requisite “distinct, demonstrable, 1 physical alteration” necessary to show physical loss or damage. See, e.g., Travelers Cas. 2 Ins. Co. of Am. v. Geragos & Geragos, No. CV 20-3619 PSG (EX), 2020 WL 6156584, at 3 *4-5 (C.D. Cal. Oct. 19, 2020); Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., No. 20- 4 CV-03213-JST, 2020 WL 5525171, at *3-5 (N.D. Cal. Sept. 14, 2020); Pappy’s Barber 5 Shops, Inc. v. Farmers Grp., Inc., No. 20-CV-907-CAB-BLM, 2020 WL 5500221, at *4 6 (S.D. Cal. Sept. 11, 2020); 10E, 2020 WL 5359653, at *4-5. In fact, Plaintiffs point to no 7 citable authority applying California law holding these allegations are sufficient to state a 8 claim under a policy with a similar physical loss clause. Accordingly, to the extent that 9 Plaintiffs argue that they are entitled to coverage for the loss of use or functionality of their 10 property as a result of the Closure Orders or the COVID-19 pandemic at large, they fail to 11 plead a “distinct, demonstrable, physical alteration,” as required under the Policy and 12 California law. See MRI Healthcare, 115 Cal.Rptr.3d at 38. 13 Plaintiffs attempt to evade this physical alteration requirement expounded in MRI 14 Healthcare, relying on a federal district court’s interpretation of a similar policy in Total 15 Intermodal Servs. Inc. v. Travelers Prop. Cas. Co. of Am., No. CV 17-04908 AB (KSX), 16 2018 WL 3829767 (C.D. Cal. July 11, 2018). (Doc. No. 22 at 8.) In Total Intermodal, as 17 here, the insurance policy provided for coverage only if the insured could show a “direct 18 physical loss of or damage to [the covered premises].” 2018 WL 3829767, at *3-4. The 19 district court distinguished this language from that of the policy involved in MRI 20 Healthcare, which required “direct physical loss to business personal property,” because 21 the preposition “of” and the addition of the words “or damage to” in the clause in the Total 22 Intermodal case rendered the provisions materially different. Total Intermodal, 2018 WL 23 3829767, at *4. As the court reasoned, coverage would attach either if the plaintiff could 24 show a “direct physical loss of” or “direct physical damage to” the covered premises. See 25 id. at *3-4; see also Ward, 7 Cal. Rptr. 3d at 849 (construing “‘direct physical’ to modify 26 both ‘loss of’ and ‘damage to’”). The Total Intermodal court then explained that the “direct 27 physical loss of” requirement could be met absent any physical alteration to the covered 28 1 property if the insured was “permanent[ly] disposess[ed]” of that property. 2018 WL 2 3829767, at *4. 3 Even if the Court were to adopt Total Intermodal’s reading, however, Plaintiffs’ 4 claims would nonetheless not be saved from dismissal because Plaintiffs do not allege a 5 permanent deprivation of their property in this case. Plaintiffs allege that only portions of 6 their business premises became unusable for certain purposes for a temporary period. (See 7 Doc. No. 14 ¶¶ 30, 36.) After all, their restaurants were considered “Essential Critical 8 Infrastructure” and were, therefore, allowed to remain open and serve customers in a 9 limited capacity. (Id.) Notably, the judge who authored the Total Intermodal decision 10 likewise distinguished Total Intermodal on the grounds that a permanent deprivation of 11 property was not alleged in a similar COVID-19 insurance action. See Mark's Engine Co. 12 No. 28 Rest., LLC v. Travelers Indem. Co. of Connecticut, No. 2:20-CV-04423-AB-SK, 13 2020 WL 5938689, at *4-5 (C.D. Cal. Oct. 2, 2020). For these reasons, Total Intermodal 14 does not apply under the circumstances. See, e.g., Jonathan Oheb MD, Inc. v. Travelers 15 Cas. Ins. Co. of Am., No. 220CV08478JWHRAOX, 2020 WL 7769880, at *3 (C.D. Cal. 16 Dec. 30, 2020) (refusing to apply Total Intermodal in COVID-19 business interruption case 17 where no permanent deprivation was alleged); Mudpie, 2020 WL 5525171, at *3-5 (same); 18 Pappy’s Barber Shops, 2020 WL 5500221, at *5 (citation omitted) (same); 10E, 2020 WL 19 5359653, at *4-5 (same). Accordingly, Plaintiffs must show a “distinct, demonstrable, 20 physical alteration” to property for coverage to attach. 21 Plaintiffs finally argue that, even if a physical alteration is required, the physical 22 presence of COVID-19 in the air and on the surfaces of their property is sufficient to meet 23 such a requirement. (Doc. No. 22 at 10.) Plaintiffs allege that at least one of their 24 employees tested positive for COVID-19, which, according to Plaintiffs, makes it 25 “medically certain” that the virus would have been present on their property. (Doc. No. 14 26 ¶ 37.) And, as they explain, this physically altered their property because “COVID-19 27 particles, though unseen, structurally alter their environment in a manner that causes loss 28 1 and damage by rendering affected premises dangerous to human health.” (Doc. No. 22 at 2 10.) 3 Even assuming, arguendo, that these allegations demonstrate the presence of 4 COVID-19 in Plaintiffs’ businesses, the Court is not persuaded that such allegations 5 demonstrate a physical alteration to Plaintiffs’ property, as is required by the Policy. 6 Notably, Plaintiffs rely almost entirely on cases that do not involve California law in 7 making this argument. (Doc. No. 22 at 10-12.) Critically, too, the Court is aware of no 8 authority wherein a court applying California law has held that the mere presence of 9 COVID-19 in or on one’s business premises is sufficient to constitute physical loss or 10 damage. In fact, at least two federal district courts applying California law have held the 11 opposite. Pappy’s Barber Shops, Inc. v. Farmers Grp., Inc., No. 20-CV-907-CAB-BLM, 12 2020 WL 5847570, at *1 (S.D. Cal. Oct. 1, 2020) (“[T]he presence of the virus itself, or of 13 individuals infected the virus, at Plaintiffs’ business premises or elsewhere do not 14 constitute direct physical losses of or damage to property.”); O’Brien Sales & Mktg., Inc. 15 v. Transp. Ins. Co., No. 20-CV-02951-MMC, 2021 WL 105772, at *4 (N.D. Cal. Jan. 12, 16 2021) (same). 17 The Court agrees with Defendant that allegations showing the alleged presence of 18 COVID-19 in or on the covered property are not sufficient to trigger coverage when direct 19 physical loss of or damage to property is required. If, for example, a sick person walked 20 into one of Plaintiffs’ restaurants and left behind COVID-19 particulates on a countertop, 21 it would strain credulity to say that the countertop was damaged or physically altered as a 22 result. After all, disinfectant and other cleaning methods can be used to remove or lessen 23 the virus from surfaces. O’Brien, 2021 WL 105772, at *4 (holding that COVID-19 does 24 not physically alter property merely by being present on it because it can be easily 25 disinfected); Uncork & Create LLC v. Cincinnati Ins. Co., No. 2:20-CV-00401, 2020 WL 26 6436948 (S.D.W. Va. Nov. 2, 2020) (“[E]ven [the] actual presence of the [COVID-19] 27 virus would not be sufficient to trigger coverage for physical damage or physical loss to 28 the property. Because routine cleaning, perhaps performed with greater frequency and care, 1 eliminates the virus on surfaces, there would be nothing for an insurer to cover . . . .”); see 2 also Mama Jo’s, Inc. v. Sparta Ins. Co., No. 17-CV-23362-KMM, 2018 WL 3412974, at 3 *9 (S.D. Fla. June 11, 2018), aff’d, 823 F. App’x 868 (11th Cir. 2020) (“The fact that the 4 restaurant needed to be cleaned more frequently does not mean Plaintiff suffered a direct 5 physical loss or damage . . . .”). The presence of COVID-19, therefore, could not have 6 “damaged” Plaintiffs’ property “within the common understanding of that term.” MRI 7 Healthcare, 115 Cal.Rptr.3d at 38. The FAC, accordingly, fails to allege sufficient 8 allegations demonstrating that Plaintiffs’ business losses resulted from a “direct physical 9 loss of or damage to” property, which is necessary for Busines Income and Extra Expense 10 coverage under the Policy. Thus, the Court grants Defendant’s motion to dismiss 11 Plaintiffs’ various claims under these provisions. 12 B. Civil Authority Coverage 13 The Court then turns to the Policy’s Civil Authority provision. This provision 14 appears within the Policy’s Business Income and Extra Expense coverage form under the 15 heading “Additional Coverages.” (Doc. No. 14, Ex. A.) It provides the following: 16 We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the 17 described premises due to direct physical loss of or damage to property, other 18 than at the described premises, caused by or resulting from any Covered Cause of Loss. 19 20 Id. The parties appear to agree that the Closure Orders constitute acts of civil authority. 21 Thus, at issue here is (1) whether Plaintiffs have demonstrated that the Closure Orders 22 “prohibit[ed] access” to the covered premises and (2) whether this prohibition was “due to 23 direct physical loss or damage to property, other than at the [covered] premises.” 24 Here, Plaintiffs have not adequately alleged that the Closure Orders were issued “due 25 to” the loss of or damage to other properties. In the first place, for the same reasons that 26 the FAC fails to allege a direct physical loss of or damage to Plaintiffs’ own property, the 27 FAC also fails to allege physical loss or damage to property elsewhere. Further, even 28 assuming that damage or loss did occur to other properties as a result of the COVID-19 1 pandemic, Plaintiffs fail to allege facts showing a plausible causal link between that 2 property loss and the Closure Orders. Plaintiffs’ FAC merely states that the “Closure 3 Orders were issued in response to the rapid spread of COVID-19 throughout California.” 4 (Doc. No. 14 at ¶ 31.) Nowhere in any of the Closure Orders themselves is property loss 5 or damage discussed as a rationale for their issuance. To the contrary, the Closure Orders 6 repeatedly provide that they were issued to preserve the health and safety of California and 7 San Diego residents, respectively, by limiting the spread of COVID-19. (See, e.g., Doc. 8 No. 16-1, Ex. 2 (“This Order will reduce the likelihood that many individuals will be 9 exposed to COVID-19 and will thereby slow the spread of COVID-19 in the county.”); id. 10 Ex. 3 (stating, repeatedly, that the order was intended “[t]o preserve the public health and 11 safety”).) Accordingly, Plaintiffs fail to allege sufficient facts to show that they are entitled 12 to Civil Authority coverage. Mudpie, 2020 WL 5525171, at *7 (“Because the [closure] 13 orders were preventative—and absent allegations of damage to adjacent property—the 14 complaint does not establish the requisite causal link between prior property damage and 15 the government’s closure order.”). The Court, therefore, grants Defendant’s motion to 16 dismiss Plaintiffs’ claims arising under the Civil Authority provision of the Policy. 17 C. Sue and Labor Coverage 18 Defendant also argues that Plaintiffs fail to allege facts showing their entitlement to 19 coverage under the Policy’s Sue and Labor provision. (Doc. No. 16 at 22.) This provision 20 creates a duty on the part of Plaintiffs to preserve the covered property should a covered 21 cause of loss occur. (Doc. No. 14, Ex. A.) Thus, because Plaintiffs failed to state a claim 22 for coverage under the Business Income, Extra Expense, and Civil Authority provisions of 23 the Policy, Plaintiffs likewise fail to state a claim under the Sue and Labor provision. The 24 Court, therefore, grants Defendant’s motion to dismiss Plaintiffs’ Sue and Labor claims.5 25 // 26

27 5 Because the Court ultimately dismisses each of Plaintiffs’ claims in this action, it need not 28 separately rule on the issue of whether the Limited Partnership Plaintiffs have standing to assert these 1 Conclusion 2 The Court sympathizes with Plaintiffs and other businesses that suffered financial 3 || hardships in the wake of the COVID-19 pandemic. Nevertheless, the issue before the Court 4 whether Plaintiffs’ alleged losses are covered by the Policy, which they are not. The 5 Court, therefore, grants Defendant’s motion to dismiss and dismisses the action. Because 6 ||the allegations of additional facts would not cure the FAC’s deficiencies, the Court’s 7 || dismissal is with prejudice and without leave to amend. The Court directs the Clerk to 8 close the case. 9 IT IS SO ORDERED. 10 || DATED: January 22, 2021 | | | l | | | . J MARILYN UN. HUFF, Distric ge 12 UNITED STATES DISTRICT COURT 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28