Saddle Ranch Sunset v. Fireman's Fund Ins. Co. CA2/5 ( 2023 )

Filed 6/22/23 Saddle Ranch Sunset v. Fireman’s Fund Ins. Co. CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
SADDLE RANCH SUNSET, LLC et B313609
al.,
(Los Angeles County Super.
Plaintiffs and Appellants, Ct. No. 20STCV36531)
v.
FIREMAN’S FUND INSURANCE
COMPANY et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Steven Kleifield, Judge. Reversed and
remanded with directions.
Sinclair Braun, Nathaniel S.G. Braun and Nick S. Pelletier
for Plaintiffs and Appellants.
Covington & Burling, Rani Gupta, David B. Goodwin, and
Sabrina T. McGraw for United Policyholders as Amicus Curiae on
behalf of Plaintiffs and Appellants.
DLA Piper, John P. Phillips and Brett Solberg for
Defendants and Respondents.
Athene Law and Long X. Do for the California Medical
Association as Amicus Curiae.
___________________________
Plaintiffs Saddle Ranch Sunset, LLC, Saddle Ranch
Orange, LLC, Saddle Ranch Valencia, LLC, and Saddle Ranch
Glendale, LLC sued defendants Fireman’s Fund Insurance
Company, Allianz Global Corporate & Specialty, and Allianz
Global Risks US Insurance Company (collectively, Fireman’s
Fund) for breach of contract and breach of the implied covenant
of good faith and fair dealing. Plaintiffs alleged that Fireman’s
Fund wrongfully denied property insurance coverage for COVID-
19 pandemic-related losses incurred at their insured restaurants.
Coverage was based on a communicable disease extension that
plaintiffs had purchased. Fireman’s Fund demurred, arguing
primarily that plaintiffs failed to allege they incurred “direct
physical loss or damage.” The trial court sustained the demurrer
without leave to amend, concluding plaintiffs could not allege
direct physical loss or damage and did not allege a communicable
disease event under the policy. Plaintiffs appealed.
Our colleagues in Division Four of the First District, and
Division Seven of the Second District recently interpreted
identical Fireman’s Fund policy language and found that
allegations of COVID-19 contamination were sufficient to allege
“direct physical loss or damage” under the insureds’
communicable disease coverage extensions. (Amy’s Kitchen, Inc.
v. Fireman’s Fund Ins. Co. (2022) 83 Cal.App.5th 1062 (Amy’s
Kitchen); Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund
Ins. Co. (2022) 81 Cal.App.5th 96 (Marina Pacific).)1 We agree
1 Marina Pacific was filed a week after Fireman’s Fund filed
its the respondent’s brief. Fireman’s Fund shortly thereafter
requested permission to file a supplemental brief addressing
Marina Pacific. We granted its request, but Fireman’s Fund did
not file a supplemental brief.
2
with our colleagues that plaintiffs have sufficiently alleged the
existence of a covered communicable disease event and direct
physical loss or damage under the policy. Accordingly, we
reverse.
FACTUAL AND PROCEDURAL BACKGROUND2
1. Plaintiffs’ Insurance Policy
Plaintiffs (four corporations based in California) operated
four restaurants in close proximity to major medical centers and
sports arenas at three locations in California and one in Arizona.
In early 2020, plaintiffs obtained an insurance policy from
Fireman’s Fund, with a year-long policy period beginning on
February 25, 2020. The policy insured plaintiffs against a range
of business risks for their four restaurants.3
Amy’s Kitchen was published several days after the parties
completed briefing.
2 As this case is before us on demurrer, in “accordance with
the standard of review, we recite the facts as they are alleged in
the complaint.” (Moe v. Anderson (2012) 207 Cal.App.4th 826,
828.)
3 The insurance contract was not attached to the complaint,
but the complaint quotes relevant provisions. Fireman’s Fund
sought judicial notice of the entire insurance policy: “Policy
number USC013334200, with a policy period of February 25,
2020 through February 25, 2021, issued to Plaintiffs by
Defendant Fireman’s Fund Insurance Company.” The trial court
did not rule on the motion and it is unclear in what manner the
court relied on the document in making its decision. We informed
the parties of our intent to take judicial notice of the policy and
3
The policy included a communicable disease coverage
extension, which stated:
We will pay for direct physical loss or damage to Property
Insured caused by or resulting from a covered
communicable disease event at a location including the
following necessary costs incurred to:
(a) Tear out and replace any part of Property Insured
in order to gain access to the communicable disease;
(b) Repair or rebuild Property Insured which has
been damaged or destroyed by the communicable
disease; and
(c) Mitigate, contain, remediate, treat, clean, detoxify,
disinfect, neutralize, cleanup, remove, dispose of, test
for, Monitor, and assess the effects of the
communicable disease.
In the definition section, the contract stated:
“Communicable disease means any disease, bacteria, or virus
that may be transmitted directly or indirectly from human or
animal to a human.” “Communicable disease event” is “an event
in which a public health authority has ordered that a location be
evacuated, decontaminated, or disinfected due to the outbreak of
a communicable disease at such location.”
received no objection. We now take judicial notice. (Evid. Code,
§§ 459, 452.)
Throughout the contract, terms are printed in boldface
type. These boldface terms were separately defined in a later
section of the contract. For ease of reading and because the
boldface is not for emphasis, we have removed all bolding in the
quoted excerpts.
4
Under the subsection titled “Business Income and Extra
Expense Coverage,” the policy stated:
If a Limit of Insurance for Business Income and Extra
Expense is shown in the Declarations, then we will
pay for the actual loss of business income and
necessary extra expense you sustain due to the
necessary suspension of your operations during the
period of restoration arising from direct physical loss
or damage to property at a location, or within 1,000
feet of such location, caused by or resulting from a
covered cause of loss.
The contract defines “covered cause of loss” to mean “risks of
direct physical loss or damage not excluded or limited in this
Coverage Form.” The declarations stated plaintiffs had the
following limits of insurance: $6 million for business real
property, $1.6 million for business personal property, and $5
million for “business income, extra expense.”4
2. Beginning of the COVID-19 Global Pandemic and
Plaintiffs’ Tender to its Insurer
In early January 2020, the outbreak of COVID-19 began a
global pandemic. On March 19, 2020, California and Arizona
governors issued directives closing or limiting restaurant service
4 The policy also had a civil authority coverage extension
that insured loss of business income due necessary suspension of
operations caused by action of civil authority prohibiting access to
a location. The provision stated the prohibited access must arise
from “direct physical loss or damage to property other than at
such location,” and be “caused by or result from a covered cause
of loss.” We discuss this provision only in passing as our analysis
is based on the communicable disease extension.
5
and closing bars, impacting the four restaurants at issue in this
appeal. “In the ensuing months, California and Arizona state
and local officials and health departments . . . issued several
further orders and directives. The new orders include[d]
restrictions on the use of property and mandate[d] that
restaurants, hospitals, elder care facilities, and other businesses
modify their premises to slow or stop the spread of COVID-19,
and mitigate, contain, remediate, treat, clean, detoxify, disinfect,
neutralize, and cleanup their premises, remove and dispose-of
property that has been contaminated with COVID-19, and test
for, monitor, and assess the effects of COVID-19 at their
premises.”
As a result of these health orders, plaintiffs “suffered
hundreds of thousands of dollars in lost business income and
extra expense, losses to their covered locations, loss avoidance
and mitigation, removal of property, and loss of leasehold
interest.” In addition, Saddle Ranch Glendale was forced to close
“as a result of its suspension of operations due to the physical loss
or damage at its covered location, from civil authority shutdowns,
and from the physical loss and damage to dependent properties
like the adjacent sports stadiums, which attracted customers to
its business.”
On April 2, 2020, plaintiffs tendered Fireman’s Fund “a
claim for their losses—for damage to property insured at the
restaurants, loss avoidance and mitigation expenses, costs to
remove, mitigate, clean up, disinfect, test for, and prevent
infection from COVID-19, and for their lost business income and
extra expenses incurred from the suspension of their operations.”
Fireman’s Fund denied their claims, concluding that plaintiffs
had not suffered direct physical loss or damage, and that the
6
ongoing pandemic did not cause damage within 1,000 feet of the
restaurant locations.
3. Present Lawsuit
On September 24, 2020, plaintiffs sued Fireman’s Fund for
breach of contract and breach of the implied covenant of good
faith and fair dealing, alleging Fireman’s Fund wrongfully denied
their claims. Among the damages plaintiffs sought were
“compensation for loss of insurance benefits, damage to property,
costs for loss mitigation and avoidance, damages to leasehold
interest, costs for removal and storage of property, and lost
business income and extra expense, in an amount to be proven at
trial.”
Plaintiffs alleged that government-issued orders barred
access to the Saddle Ranch restaurants and required plaintiffs at
the Saddle Ranch locations to “mitigate, contain, remediate,
treat, clean, detoxify, disinfect, neutralize, and/or cleanup their
premises due to the COVID-19 pandemic—which the defendant
Insurers admit is a ‘global outbreak.’ ”
Plaintiffs stated, “The policy sold to Plaintiffs describes as
covered ‘physical loss or damage’ the ‘costs incurred to: . . .
Mitigate, contain, remediate, treat, clean, detoxify, disinfect,
neutralize, cleanup, remove, dispose of, test for, monitor, and
assess the effects [of] the communicable disease.’ ” Plaintiffs also
asserted “insurers, and specifically Fireman’s Fund, have
admitted in other filings and matters that the need to disinfect or
clean premises qualifies as ‘physical loss or damage’ as set forth
in the Communicable Disease Coverage extension.”
7
4. Demurrer
On October 26, 2020, Fireman’s Fund filed its demurrer.
Fireman’s Fund asserted there was no breach of contract because
plaintiffs had not suffered losses covered by the policy. First,
Fireman’s Fund argued plaintiffs cannot allege direct physical
loss or damage necessary for coverage. Citing MRI Healthcare
Center of Glendale, Inc. v. State Farm General Ins. Co. (2010)
187 Cal.App.4th 766, 779 (MRI), Fireman’s Fund claimed “the
presence of COVID-19 would not constitute physical damage to
the Properties as it would not result in a distinct, demonstrable,
physical alteration of property, or a permanent dispossession of
property.”
Fireman’s Fund also argued the communicable disease
extension was inapplicable because that “extension only covers
direct physical loss or damage caused by or resulting from a
covered communicable disease event, which ‘means an event in
which a public health authority has ordered that a location be
evacuated, decontaminated, or disinfected due to the outbreak of
a communicable disease at such location.’ [Record cite.]
(Emphasis added.) Despite these recitations of the Policy
language, Plaintiffs fail to allege that COVID-19 was ever
actually present at any of their Properties. And even if it were,
there is no allegation of and no evidence that a public health
authority ordered that any of Plaintiffs’ Properties be evacuated,
decontaminated, or disinfected due to an outbreak at the
Properties of COVID-19.” (Italics in original.)
5. Plaintiffs’ Opposition to the Demurrer
Plaintiffs’ opposition focused on the communicable disease
coverage extension, which Fireman’s Fund only briefly addressed.
8
Plaintiffs argued that the communicable disease coverage
extension’s language defines “direct physical loss or damage” to
include necessary costs to “Mitigate, contain, remediate, treat,
clean, detoxify, disinfect, neutralize, cleanup, remove, dispose of,
test for, monitor, and assess the effects of the communicable
disease.” Plaintiffs argued that Fireman’s Fund’s contention that
COVID-19 could never physically damage properties rendered
the communicable disease coverage extension illusory. Plaintiffs
also distinguished the present case from those Fireman’s Fund
cited – the policies in the Fireman’s Fund’s cases did not have a
communicable disease extension that expanded the meaning of
direct physical loss or damage.
6. Fireman’s Fund’s Reply
In its reply, Fireman’s Fund argued that “Plaintiffs try to
characterize certain government orders and related guidance as
orders issued by public health authorities that required Plaintiffs
to decontaminate or disinfect their locations, but the plain
language of these orders and purported orders makes clear they
were issued to slow the spread of COVID-19 within the respective
communities, and not because of an outbreak of COVID-19 at any
of Plaintiffs’ locations.”
7. Order Sustaining the Demurrer
At a hearing on February 8, 2021, the court concluded
plaintiffs failed to state a cause of action and could not amend to
state one. The court stated the policy required a “direct physical
loss” and adopted the definition of direct physical loss in MRI, as
Fireman’s Fund had urged. The court held that the
communicable disease extension did not apply to a “pandemic
situation.”
9
The trial court entered judgment in favor of Fireman’s
Fund on April 12, 2021. Plaintiffs appealed.
DISCUSSION
Defendant’s demurrer argued plaintiffs had no contractual
right to coverage for their COVID-19 pandemic-related losses,
and thus there was no breach of contract or breach of the implied
covenant of good faith and fair dealing. (See Love v. Fire Ins.
Exchange (1990) 221 Cal.App.3d 1136, 1151, fn. 10 [no breach of
contract or covenant of good faith where benefits were properly
denied].) We address below whether plaintiffs alleged sufficient
facts to invoke coverage.
1. Standard of Review and Applicable Law
“ ‘Because the function of a demurrer is to test the
sufficiency of a pleading as a matter of law, we apply the de novo
standard of review in an appeal following the sustaining of a
demurrer without leave to amend. [Citation.] We assume the
truth of the allegations in the complaint, but do not assume the
truth of contentions, deductions, or conclusions of law.’ ” (United
Talent Agency v. Vigilant Ins. Co. (2022) 77 Cal.App.5th 821, 829
(United Talent Agency).) We solely review the ruling and are not
bound by the trial court’s reasons for sustaining the demurrer.
(Amy’s Kitchen, supra, 83 Cal.App.5th at p. 1067.)
“The principles governing the interpretation of insurance
policies in California are well settled. ‘Our goal in construing
insurance contracts, as with contracts generally, is to give effect
to the parties’ mutual intentions. [Citations.] “If contractual
language is clear and explicit, it governs.” [Citations.] If the
terms are ambiguous [i.e., susceptible of more than one
reasonable interpretation], we interpret them to protect “ ‘the
10
objectively reasonable expectations of the insured.’ ” [Citations.]
Only if these rules do not resolve a claimed ambiguity do we
resort to the rule that ambiguities are to be resolved against the
insurer. [Citation.]’ [Citation.] The ‘tie-breaker’ rule of
construction against the insurer stems from the recognition that
the insurer generally drafted the policy and received premiums to
provide the agreed protection.” (Minkler v. Safeco Ins. Co. of
America (2010) 49 Cal.4th 315, 321 (Minkler).)
“To further ensure that coverage conforms fully to the
objectively reasonable expectations of the insured, the corollary
rule of interpretation has developed that, in cases of ambiguity,
basic coverage provisions are construed broadly in favor of
affording protection, but clauses setting forth specific exclusions
from coverage are interpreted narrowly against the insurer. The
insured has the burden of establishing that a claim, unless
specifically excluded, is within basic coverage, while the insurer
has the burden of establishing that a specific exclusion applies.”
(Minkler, supra, 49 Cal.4th at p. 322.) “The existence of a
material ambiguity in the terms of an insurance policy may not,
of course, be determined in the abstract, or in isolation. The
policy must be examined as a whole, and in context, to determine
whether an ambiguity exists.” (Ibid.)
2. Plaintiffs Have Alleged Direct Physical Loss or
Damage Under the Communicable Disease Coverage
Extension
Fireman’s Fund’s central argument is that plaintiffs cannot
allege that they suffered direct physical loss or damage, an
allegation essential to recovery under any part of the contract.
Despite the insurance policy’s “Definitions” section defining over
80 contractual terms, it does not define “direct physical loss or
11
damage.” However, as plaintiffs point out, the communicable
disease coverage extension indicates that direct physical loss or
damage includes COVID-19 contamination that requires
cleaning, disinfection, or other remediation at the insured
property.
The communicable disease coverage extension, which we
have quoted earlier in our opinion, states Fireman’s Fund will
pay for direct physical loss or damage to insured property from a
communicable disease event at a location including costs incurred
to (a) tear out and replace property, (b) repair and rebuild
property, and (c) “Mitigate, contain, remediate, treat, clean,
detoxify, disinfect, neutralize, cleanup, remove, dispose of, test
for, monitor, and assess the effects of the communicable disease.”
Fireman’s Fund argues: “the provision does not ‘define’
direct physical loss or damage at all—not for purposes of the
extension itself or for the broad Policy as a whole. Instead, the
extension states only that—in the event coverage is triggered by
a communicable disease event—Fireman’s Fund will pay for
(1) direct physical loss or damage caused by or resulting from the
communicable disease event, and (2) certain ‘necessary costs
incurred to,’ among other things, ‘mitigate, contain, remediate,
treat, clean,’ etc. the communicable disease. [Record citation.]
Naturally, mitigation, containment, and the like are not
themselves ‘direct physical loss or damage’ as Saddle Ranch
asserts. Instead, the extension states that they may be
reimbursable ‘necessary costs’ if they result from or are caused by
a communicable disease event that also causes direct physical
loss or damage to property.”
Fireman’s Fund misses the point. As our colleagues in the
First District (analyzing the identical Farmer’s Fund policy)
12
explained, “On reading the phrase ‘direct physical loss or damage’
as it appears in the extension, a reasonable layperson would
assume that the phrase includes costs incurred for each of the
three purposes specified in subparagraphs (a), (b), and (c).”
(Amy’s Kitchen, supra, 83 Cal.App.5th at p. 1070.) The “only
plausible interpretation of subparagraph (c) of the communicable
disease extension in this policy is that the need to clean or
disinfect infected or potentially infected covered property
constitutes ‘direct physical loss or damage’ of that property
within the meaning of the policy.” (Amy’s Kitchen, at p. 1071,
italics added.)
3. Fireman’s Fund’s Argument that COVID-19
Contamination Cannot Cause Direct Physical Loss or
Damage Is Unpersuasive
Citing MRI, supra, 187 Cal.App.4th at page 779, Fireman’s
Fund relies on the same argument that was successful in the trial
court, i.e., that the policy’s direct physical loss or damage
requirement means “a distinct, demonstrable, physical alteration
of the property.” Although some appellate opinions have defined
direct and physical loss that way (e.g., United Talent Agency,
supra, 77 Cal.App.5th at p. 830), the language in plaintiffs’ policy
is what controls. “An insurance policy must be construed in light
of how a reasonable layperson would read its language, not how
insurance-coverage lawyers might understand terms of art
defined not by the policy but by caselaw.” (Amy’s Kitchen, supra,
83 Cal.App.5th at p. 1070.)
As Division Seven explained in Marina Pacific when it
evaluated the identical Fireman’s Fund’s policy language,
“Fireman’s Fund’s argument and the trial court’s conclusion that
the COVID-19 virus cannot cause direct physical loss or damage
13
to property are directly undermined by the policy’s plain
language establishing communicable disease coverage.
Fireman’s Fund asserts the insureds must allege an obvious
physical alteration, for example, ‘broken chairs, dented walls, or
smashed windows,’ to adequately allege direct physical loss or
damage. Because it is undisputed the COVID-19 virus (or
presumably any communicable disease) does not cause such
damage, Fireman’s Fund argues, it cannot cause property
damage as defined in the policy.” (Marina Pacific, supra,
81 Cal.App.5th at p. 112.) And yet, the policy’s communicable
disease event extension “explicitly contemplates that a
communicable disease, such as a virus, can cause damage or
destruction to property and that such damage constitutes direct
physical loss or damage as defined in the policy. Construing the
policy provisions together, as we must, this language precludes
the interpretation that direct physical loss or damage
categorically cannot be caused by a virus. (See Civ. Code, § 1641
[‘[t]he whole of a contract is to be taken together, so as to give
effect to every part, if reasonably practicable, each clause helping
to interpret the other’].)” (Marina Pacific, at p. 112.)
The court in Amy’s Kitchen was equally unimpressed with
Fireman’s Fund’s argument. Treating “physical alteration as an
additional condition of coverage, as Fireman’s urges, would
render subparagraph (c) illusory—both redundant and
meaningless. Subparagraphs (a) and (b) address the situation in
which the presence of a communicable disease leads to physical
alteration of the insured’s property, where property must be torn
out, repaired, or replaced. If subparagraph (c) were construed to
apply only if there is a physical alteration of the property, the
provision would have no possible application not covered by
14
subparagraphs (a) and (b). As asserted in a case cited by
Fireman’s, ‘ “the presence of the virus itself . . . [does] not
constitute direct physical loss of or damage to property” ’ as
‘contaminated surfaces can be disinfected and cleaned.’
[Citation.] If that view is correct, the only possible explanation
for including subparagraph (c) would be to expand the coverage
to include the cost of mitigation and disinfection, which otherwise
would not be covered.” (Amy’s Kitchen, supra, 83 Cal.App.5th at
pp. 1070–1071.)
Fireman’s Fund cites Best Rest Motel, Inc. v. Sequoia Ins.
Co. (2023) 88 Cal.App.5th 696, Apple Annie, LLC v. Oregon
Mutual Ins. Co. (2022) 82 Cal.App.5th 919, United Talent Agency,
supra, 77 Cal.App.5th 821, Musso & Frank Grill Co., Inc. v.
Mitsui Sumitomo Ins. USA Inc. (2022) 77 Cal.App.5th 753, and
Inns-by-the-Sea v. California Mutual Ins. Co. (2021)
71 Cal.App.5th 688, arguing California courts have uniformly
held that businesses cannot allege direct physical loss or damage
resulting from the COVID-19 virus. None of the California cases
on which Fireman’s Fund relies has addressed a policy containing
a communicable disease coverage extension, like the extension at
issue here.
Fireman’s Fund also cites federal cases for support,
including Rialto Pockets, Inc. v. Beazley Underwriting Limited
(9th Cir., Apr. 20, 2022, No. 21-55196) 2022 WL 1172134, Sandy
Point Dental, P.C. v. Cin. Ins. Co. (7th Cir. 2021) 20 F.4th 327,
Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am. (9th Cir. 2021)
15 F.4th 885, Santo’s Italian Café LLC v. Acuity Ins. Co. (6th Cir.
2021) 15 F.4th 398, and Oral Surgeons, P.C. v. Cincinnati Ins.
Co. (8th Cir. 2021) 2 F.4th 1141. Not only do the insurance
policies in these cases lack a communicable disease coverage
15
extension, but “the pleading rules in federal court are
significantly different from those we apply when evaluating a
trial court order sustaining a demurrer. . . . Unlike in federal
court, the plausibility of the insureds’ allegations has no role in
deciding a demurrer under governing state law standards, which
. . . require us to deem as true . . . facts alleged in a pleading—
specifically here, that the COVID-19 virus alters ordinary
physical surfaces . . . , making them dangerous and unusable for
their intended purposes unless decontaminated.” (Marina
Pacific, supra, 81 Cal.App.5th at pp. 109-110.)
4. Plaintiffs Have Alleged a Communicable Disease
Event to Invoke Coverage
Fireman’s Fund also contends the communicable disease
extension is not applicable because plaintiffs have not and cannot
allege a communicable disease event.
The policy states, “Communicable disease event means an
event in which a public health authority has ordered that a
location be evacuated, decontaminated, or disinfected due to the
outbreak of a communicable disease at such location.”
“Communicable disease means any disease, bacteria, or virus
that may be transmitted directly or indirectly from human or
animal to a human.” “Public health authority” is defined as “the
governmental authority having jurisdiction over your operations
relative to health and hygiene standards necessary for the
protection of the public.”
Here, plaintiffs alleged the existence of a global COVID-19
outbreak. The complaint goes on to assert the existence of a
highly contagious virus’s presence throughout the community,
which we understand to include plaintiffs’ restaurants.
Plaintiffs’ complaint also alleges: (1) orders from California and
16
Arizona governors, local officials, and health departments
directed them to close bars and restrict restaurant service, and
(2) “to mitigate, contain, remediate, treat, clean, detoxify,
disinfect, neutralize, and/or cleanup their premises due to
contamination by COVID-19.” Fairly read, plaintiffs have alleged
– and we are concerned only with allegations in this appeal – that
a public health authority had ordered that their locations be
evacuated, or at minimum, decontaminated and disinfected due
to the outbreak of a communicable disease at their restaurants.
We conclude plaintiffs have pleaded sufficient facts to show the
existence of a communicable disease event.5
Fireman’s Fund argues that there was no communicable
disease event because public health authorities did not issue an
order directly and singly to Saddle Ranch restaurants. Fireman’s
Fund insists statewide orders were insufficient to invoke
coverage. We do not accept this narrow reading of the
communicable disease coverage extension. (See Minkler, supra,5 Eleven months after Division Seven filed its opinion in
Marina Pacific, the social and legal significance of Presiding
Justice Perluss’s preamble to the opinion remains true: “For
more than two years our understanding of COVID-19, the
infectious disease caused by the SARS-CoV-2 virus and its many
variants, has evolved. Today we think we know how it spreads,
how to protect against it and how best to treat those who have it.
Perhaps we do. But even so, when a pleading alleges facts
sufficient to constitute a cause of action, what we think we
know—beliefs not yet appropriately subject to judicial notice—
has never been a proper basis for concluding, as a matter of law,
those alleged facts cannot be true and, on that ground, sustaining
a demurrer without leave to amend. Yet that is precisely what
occurred here.” (Marina Pacific, supra, 81 Cal.App.5th at pp. 98–
99, fn. omitted.)
17
49 Cal.4th at p. 322 [“in cases of ambiguity, basic coverage
provisions are construed broadly in favor of affording
protection”].)
The definition of communicable disease event does not
require that a particular restaurant be singled out. We observe
the term “location” is not in boldface (and therefore has no special
contractual meaning) in the definition of communicable disease
event or in the communicable disease coverage extension. The
policy states: “Words and phrases contained within this
Coverage Form that appear in bold face have special meaning.
When words or phrases that appear below in bold face do not
appear in bold face in this Coverage Form, then those words or
phrases are to be interpreted using their common meaning.”
Contrary to Fireman’s Fund’s insistence that we apply the
defined term (which defines location as the legal parcel
boundaries of the insured properties), we must apply the common
meaning of “location” here because it was not bolded. Applying
that common meaning, the definition simply requires that a
public health order requiring evacuation, disinfection, or
decontamination apply to plaintiffs’ restaurants. That is the case
with the allegations here.
At oral argument, Fireman’s Fund cited Amy’s Kitchen for
support of its narrow interpretation of the communicable disease
event extension. Amy’s Kitchen concluded the extension applied
only where the public health authority specifically ordered
closure/decontamination of the insured location. (Amy’s Kitchen,
supra, 83 Cal.App.5th at pp. 1071–1072.) However, Amy’s
Kitchen did not analyze the meaning of “location,” or acknowledge
that “location” as used in the extension was not a bolded, defined
term in the insurance contract. Instead, Amy’s Kitchen cited
18
several federal cases, which analyzed communicable disease
provisions with different language than that at issue here. The
policies in those cases required: “an outbreak of a ‘communicable
disease’ . . . at the insured premises” (Paradigm Care &
Enrichment Ctr., LLC v. W. Bend Mutual Insurance Company
(7th Cir. 2022) 33 F.4th 417, 420), or “an actual illness at the
insured premises” (Dakota Girls, LLC v. Phila.Indem.Ins. Co.
(6th Cir. 2021) 17 F.4th 645, 648), or “the outbreak of a
communicable disease at such location” (Nguyen v. Travelers Cas.
Ins. Co. of Am. (W.D. Wash. 2021) 541 F.Supp.3d 1200, 1237).
The fourth federal case cited by Amy’s Kitchen involved a
comparable communicable disease extension, but the court’s
dismissal was based on the fact the plaintiff failed to allege that
it was required to evacuate, decontaminate, or disinfect—the
ruling was unrelated to whether government closure orders
singled out the plaintiff’s insured premises. (PS Business
Management v. Fireman’s Fund Insurance Co. (E.D. La., Oct. 27,
2021, No. CV 21-1229) 2021 WL 4989870, at p. *3.)
After consideration of the language of the extension at
issue in this appeal, we conclude the governmental orders need
not have been specifically directed at the insured premises in
order to trigger the extension. As long as the
closure/decontamination order applies to those premises, that
aspect of the extension has been operational.
DISPOSITION
The judgment is reversed and remanded with directions to
vacate the order sustaining the demurrer to the first amended
complaint without leave to amend, and to enter an order
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overruling the demurrer. Plaintiffs and appellants are awarded
costs on appeal.
RUBIN, P. J.
WE CONCUR:
BAKER, J.
MOOR, J.
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