Zurich American Insurance Company v. WM Bolthouse Farms, Inc. ( 2023 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 ZURICH AMERICAN INSURANCE Case No. 1:21-CV-00783-JLT-CDB COMPANY, et al., 12 ORDER STAYING ALL PROCEEDINGS 13 Plaintiffs, 14 v. (Doc. 65) 15 WM. BOLTHOUSE FARMS, INC., 16 Defendant. 17 18 WM. Bolthouse Farms, Inc. is a farming, food and beverage company that held insurance 19 policies from each of the Plaintiffs. (Doc. 36 at 12.) Bolthouse submitted insurance claims to 20 Plaintiffs following losses due to the COVID-19 pandemic and government-ordered closures. 21 (Doc. 7 at 22 ¶ 48.) Plaintiffs initiated this action for declaratory judgment seeking a declaration 22 that no insurance coverage exists under their policies. (Doc. 7 at 2 ¶ 1.) With its answer to the 23 complaint, Bolthouse filed a cross-complaint containing affirmative defenses of unclean hands, 24 waiver, estoppel, laches, failure to state a claim, breach of contract, and bad faith. (Doc. 13 at 17- 25 19.) On September 10, 2021, Plaintiffs filed a motion for judgment on the pleadings asking the 26 Court to find that none of the insurance policies cover Bolthouse’s claimed losses and its cross- 27 complaint fails to state a claim upon which relief can be granted. (Doc. 36.) 28 On January 11, 2023, the Court issued an order requesting a joint status report from the 1 parties in consideration of the Ninth Circuit’s certified question to the California Supreme Court: 2 “Can the actual or potential presence of the COVID-19 virus on an insured’s premises constitute 3 ‘direct physical loss or damage to property’ for purposes of coverage under a commercial 4 property insurance policy?” (Doc. 63); Another Planet Entm’t, LLC v. Vigilant Ins., Co., 56 F.4th 5 730, 734 (9th Cir. 2022). As explained in the Court’s prior order, many of the provisions at issue 6 in Bolthouse’s insurance policies contain the same “direct physical loss or damage to property” 7 requirement, and its claims similarly rest on the theory that the physical presence of COVID-19 8 caused business income losses. (See Doc. 63 at 2.) 9 In the joint status report, Bolthouse urges the Court to stay the matter pending a decision 10 from the California Supreme Court on the Ninth Circuit’s certified question in Another Planet 11 because the Court cannot resolve the entirety of the motion without answering the certified 12 question. (Doc. 65 at 5.) Conversely, Plaintiffs argue the Court need not reach the question of 13 whether COVID-19 may constitute a direct physical loss or damage because the Contamination 14 Exclusion unambiguously applies. (Id. at 2-4.) The Contamination Exclusion, however, does not 15 apply when the contamination “results from direct physical loss or damage not excluded by this 16 Policy.” (Doc. 13-1 at 26.) Plaintiffs contend this exception to the exclusion is irrelevant because 17 Bolthouse does not assert “that the viral contamination of its property resulted from direct 18 physical loss or damage,” but rather alleges the “viral contamination of its property caused (or 19 constituted) direct physical loss or damage.” (Doc. 65 at 3-4 (emphasis in original).) Plaintiffs 20 rely on a Sixth Circuit decision arising from an insurance policy with a nearly identical 21 contamination exclusion. Dana Inc. v. Zurich Am. Ins. Co., 2022 WL 2452381, at *1, 3 (6th Cir. 22 July 6, 2022). The Sixth Circuit concluded that because the plaintiff’s claims were “exclusively 23 based on damage and loss related to COVID-19, not other physical damage,” the exception to the 24 exclusion could not apply. Id. at 3. 25 Although the Sixth Circuit’s decision provides relevant insight into a possible 26 interpretation of Bolthouse’s policy and claims, it is not binding on this Court. Moreover, 27 Bolthouse’s policy contains a Decontamination Provision not discussed in the Dana opinion. 28 (Doc. 13-1 at 39.) The Decontamination Provision provides coverage for costs if the property is 1 “Contaminated from direct physical loss of or damage by a Covered Cause of Loss to the 2 Covered Property” and a law or ordinance regulates that contamination causing increased costs. 3 (Id.) On the one hand and reading the policy as a whole, the reference to the “Covered Cause of 4 Loss” suggests that if the cause for contamination is excluded under the policy, i.e., a virus under 5 the Contamination Exclusion, decontamination costs would not be covered. On the other hand, if 6 the presence of COVID-19 in the facilities constitutes a direct physical loss or damage such that it 7 may qualify as a “Covered Cause of Loss” and excepted under the Contamination Exclusion, the 8 Decontamination Provision may arguably provide coverage. 9 At the very least, California law requires exclusions to coverage to be sufficiently 10 conspicuous, plain, and clear to be enforceable. MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 11 639 (2003), as modified on denial of reh’g (Sept. 17, 2003) (quoting Gray v. Zurich Ins. Co., 65 12 Cal. 2d 263, 271 (1966)); see also Minkler v. Safeco Ins. Co. of Am., 49 Cal. 4th 315, 322 (2010) 13 (“[I]n cases of ambiguity, basic coverage provisions are construed broadly in favor of affording 14 protection, but clauses setting forth specific exclusions from coverage are interpreted narrowly 15 against the insurer.”). The cross-referencing in the provisions and somewhat contradictory nature 16 of the explicit coverage for decontamination costs but exclusion for costs associated with 17 contamination poses at least some concern about the clarity of these provisions. 18 If the California Supreme Court accepts the certified question in Another Planet, it will 19 likely provide relevant guidance for whether COVID-19 may constitute direct physical loss or 20 damage impacting whether Bolthouse’s has a claim of business income loss, regardless of the 21 interpretation of the policies’ exclusions. The California Supreme Court may also give additional 22 guidance for interpreting seemingly contradictory provisions relating to the coverage and 23 exclusion of virus-related costs. See French Laundry Partners, LP v. Hartford Fire Ins. Co., 2023 24 WL 1772152 (9th Cir. Feb. 6, 2023) (certifying question to California Supreme Court to 25 determine whether the “Virus Exclusion” provision renders illusory the coverage provision for 26 “Fungus, Wet Rot, Dry Rot, Bacteria and Virus – Limited Coverage”). Although Plaintiffs argue 27 the certified question in French Laundry is irrelevant because it contains different policy 28 language (Doc. 65 at 4), an opinion from the California Supreme Court may provide relevant 1 | guidance regarding the necessary clarity of exclusion provisions in the context of COVID-19 2 | business losses under California law. 3 In the interest of conserving judicial resources and to ensure comity and consistency of 4 | judgments, the Court finds a stay of this action is appropriate pending the outcome of the Ninth 5 | Circuit’s certified question to the California Supreme Court. Recognizing the Court may issue a 6 | stay on their motion for judgment on the pleadings, Plaintiffs requested a stay of discovery, which 7 | Bolthouse did not oppose. (Doc. 65 at 4.) Accordingly, all proceedings in this action, including all 8 | discovery, is STAYED until the California Supreme Court decides whether to accept the certified 9 | question in Another Planet and, if it accepts, until an opinion issues. Within 30 days of the 10 || California Supreme Court’s decision or, if it accepts the certified question, subsequent opinion, 11 | the parties SHALL file a status report with the Court detailing their positions on the pending 12 | motion for judgment on the pleadings (Doc. 36), taking into consideration the California Supreme 13 |} Court’s decision. If necessary, the Court may order additional briefing at that time. 14 15 IT IS SO ORDERED. 16 Dated: _ February 15, 2023 Charis [Tourn TED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 27 28