Susan Spath Hegedus, Inc. v. ACE Fire Underwriters Ins. Co.

Susan Spath Hegedus, Inc. v. ACE Fire Underwriters Ins. Co.

Opinion

 [*459]  MEMORANDUM

Schiller, J.

Presently before the Court is Defendant ACE Fire Underwriters Insurance Company's ("ACE") motion to dismiss Plaintiff's Complaint for failure to state a claim upon which relief can be granted. Plaintiff filed a claim for, inter alia, business income coverage from ACE after its retail furniture business was forced to close in March 2020 pursuant to an order issued by the Governor of California in the early days of the COVID-19 pandemic. ACE denied Plaintiff's claim for coverage, and Plaintiff filed suit. This case requires the Court to interpret an "all risk" Businessowners' Insurance Policy to determine whether Plaintiff has suffered a loss that ACE must cover.

The over-100-page Policy at issue here can only be described [**2]  as a labyrinth of pages, paragraphs, and pronouncements. The terms of the Policy require the insured to fall down a rabbit hole and wander through a vast thicket of verbiage that would leave even the most careful reader mystified by the mazes of pages to be pieced together and deciphered in order to determine if there is coverage on the other side. For the reasons that follow, Defendant's motion will be denied.

I. FACTUAL BACKGROUND

Plaintiff is a California corporation that operates an interior design/retail furniture business with two locations in California. Plaintiff purchased an "all risk" commercial policy of insurance from Defendant ("the Policy"). (Compl. ¶¶ 13, 16.)

A. Plaintiff's Losses and Claim

In response to the COVID-19 pandemic, on March 4, 2020, Governor Gavin Newsom declared a state of emergency for California. On March 19, 2020, he issued a statewide stay-at-home order, shuttering non-essential businesses. (Id. ¶ 31.) The stay-at-home order permitted exceptions for 16 critical infrastructure sectors identified by the federal government, but Plaintiff's business did not fall within those exceptions. (Id. ¶ 32.) On April 10, 2020, the County of San Diego entered a stay-at-home [**3]  order, which stated "the actions required by this Order are necessary to reduce the number of individuals who will be exposed to COVID-19, and ... will help preserve critical and limited healthcare capacity in the county and will save lives." (Id. ¶ 33.) On May 7, 2020, Governor Newsom issued an order permitting gradual  [*460]  reopening of the state. (Id. ¶ 34.) Plaintiff's two locations, each located in San Diego County, remained closed from March 20, 2020 until May 22, 2020. (Id. ¶ 42).

Plaintiff filed a claim under the Policy for lost business income and related coverages, and Defendant denied Plaintiff's claim by letter dated April 24, 2020. (Compl. Ex. B [Denial Letter].) Defendant stated that Plaintiff's losses were not covered by the Policy because they did not arise from any direct physical loss or damage and were barred by the Policy's Virus Exclusion. (Compl. ¶ 45.) Here, Plaintiff seeks a declaration that coverage exists under the Policy and seeks damages for Defendant's alleged breach of contract. Plaintiff alleges that the Policy "provides broad property insurance coverage for all non-excluded, lost business income[.]" (Id. ¶ 3.) The Complaint alleges that Plaintiff "has incurred, [**4]  and continues to incur, among other things, a substantial loss of business income and extra expenses covered under the Policy." (Id. ¶ 43.) Specifically, Plaintiff's allegations are primarily related to coverage for Business Income and Extra Expense, but the Complaint also contains allegations related to the Policy's Additional Coverages for Action of Civil Authority and Business Income from Dependent Properties as "additional bas[e]s for coverage under the Policy[.]" (Compl. ¶¶ 43-49.) Plaintiff's Complaint alleges that the government orders, in and of themselves, caused a loss of business income for which Defendant must pay. (Id. ¶ 46.) Alternatively, Plaintiff alleges, "to the extent the orders themselves are not found to be a Covered Cause of Loss, the COVID-19 pandemic and ubiquitous nature of the coronavirus caused direct physical loss of or damage to the Covered Property." (Id. ¶ 47.) Finally, Plaintiff alleges that the Virus Exclusion does not apply, and/or "does not preclude coverage for Plaintiff's claim under the Policy." (Id. ¶¶ 51-52.)

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