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Despite improper application of California law, Federal Court recognizes that viruses can cause physical alteration of property

On August 28, Judge Stephen V. Wilson of the Central District of California entered into the latest decision in the ongoing case of COVID-19 business interruption litigation between celebrity lawyer Mark Geragos and the insurance travelers.

fall, 10E, LLC v. The Traveling Indemnity Co. in Connecticut was transferred to state court. Travelers moved to federal court, where the Geragos sought detention and travelers moved to dismissal. Judge Wilson denied the arrest and granted the motion to dismiss, finding that the plaintiff did not satisfactorily assert the actual presence of COVID-19 on insured property or physical damage to its property. This holding is inconsistent with long-standing principles of California insurance law and erroneously appears to improve the minimum threshold for Ashcroft v. Iqbal 556 US 662, 678 (2009) (To survive a motion to dismiss, a.

After rejecting Gerago's attempt to remand the case on the grounds that Gerago had fraudulently joined a defendant to avoid removal, the judge proceeded to the Motion to Dississ, which raised three issues: (1

) the effect of virus exclusion in the passenger policy; (2) whether the plaintiff did not claim that the state decisions prohibited access to its property, and (3) whether the plaintiff could "" likely argue that it suffered "direct physical loss or damage to property" required for civilian coverage. "Rather than to address the effect of exclusion, which would be the narrowest question (this exception does not exist in all courts proceeded directly to the third question, which has the broadest m appropriate application.

Courts that apply California law to insurance litigation typically review the basic principles of insurance construction. These principles are, as the most basic principle, that any reasonable ambiguity must be interpreted in favor of achieving the objective of the insurance contract – to provide insurance. However, the Court did not refer to this principle, but instead briefly stated that it "must give terms their usual and popular use, unless the parties use it in a technical sense or a specific sentence is given to them through use." (on page 6).

After asking an incomplete and incorrect prism to look at the questions, the court proceeded to what it saw as the core question – whether the policyholder's inability to use his restaurants amounted to "direct physical loss or damage to real estate." The Court held that it did not do so and argued that the phrase required the property to undergo a "clear, demonstrable, physical change" rather than "aggravation of an economically valuable loss of use of property", referring to MRI Healthcare Ctr by Glendale , Inc. v. State Farm 187 Cal. App. 4,766,779 (2010) for this proposal. MR involved an MR machine that stopped working when it was switched off, and the policyholder had tried to attribute this error to a rain event that occurred much earlier. The court's reliance on MR Healthcare was incorrect for several reasons, including the fact that the wording is key and MR's policy language only covered "loss" not "loss or damage", a difference that is essential for the political construction problems here

Apply this erroneous standard, and the court then held that "The plaintiff claims only that personal restrictions are likely to interfere with the use or value of its property – not that the restrictions caused direct physical loss or damage." (on page 7.) The Court stated:

The plaintiff's FAC seems to suggest that the plaintiff's business difficulties were due to the physical effect of the new coronavirus itself, which 'infects and remains on surfaces of objects or materials. . . for up to twenty-eight days. ” Id. kl. 4. However, the plaintiff does not claim that the virus "infects [ed]" or "stays [ed] on surfaces of" its insured property. Regardless of the physical change that the virus can cause property in general, nothing in the FAC probably supports a conclusion that the virus physically altered the plaintiff's property. . . . (emphasis added)

In other words, although sufficient allegations of injury may have met the court's (erroneous) view of the threshold, the plaintiff did not make the necessary allegations and failed to meet the (erroneous) standard (a conclusion that can probably

The Court further wrote that although the plaintiff could have established physical loss or injury, it failed to show "direct" causation, but "direct" is another way of referring to "immediate cause", which In California courts routinely find that it is a jury issue and cannot be resolved by a dismissal decision.

Finally, the court rejected the policyholder's argument that the presence of the disjunctive "or" in the phrase "direct physical loss of or damage to" required various meanings for the two terms, one of which would be impaired use, an argument that relies on Intermodal Services, Inc. Travelers Prop Cas. Co. of Am., 2018 WL 3829767 (C.D. cal. 2018). The court marked the case as limited to the situation where there was a "permanent abolition of something" which was not the present case where "the Plaintiff remained in his dining room, etc." (on page 8.)

By rejecting this argument, the court reads the error in Intermodal which at its core deals with the loss of the use of the property. While Intermodal meant that property was lost during transit, other cases have achieved the same result where property was stolen, [1] unavailable, [2] or loss of functionality for its intended purpose, [3] or unavailable by anyone for another reason, this is just a different way of stating the overall concept that what matters to the policyholder is that it cannot use the property. It is reiterated that the policyholder does not have to establish that one or other of these meanings is the only meaning but only that it is a reasonable sentence.

Since these are all reasonable meanings of the term "loss", and the court's approach created a redundancy that courts strive to avoid (here physical loss equivalent to physical damage), it is clear how the court's adoption of an incorrect standard necessarily led to a wrong conclusion.

Although the court may not have been aware of the recent District Court decision in My Choice Software, LLC. v. Traveling Cas. Ins. Co ., 2020 WL 4814235 (9th circ. 19 August 2020), this decision provides an independent basis for demanding a different result. The fact that another district court judge achieved a different result under the same policy formulation makes the policyholders' interpretation reasonable, in itself. Specifically, while a court is not bound by decisions in other jurisdictions, the fact that other judges have interpreted a term in some way supports the reasonableness of that view. [4] Insurers are hard pressed to oppose this principle, as they often cite it when defending their own behavior in cases of bad faith. [5]

In short, the Court's view of how the California courts would resolve the issue is fundamentally flawed in many respects. . Summary:

  1. The court considered the case through an incorrect prism, which ignored the basic principles of California insurance construction.
  2. Insurance cases activate the wording of the contract and the court incorrectly based its analysis on a case in another language (only with the phrase "loss", not "loss or damage"), leading it in a direction contrary to California law.
  3. Although the Court correctly held that the discriminatory requires that "loss" means something other than "injury". it continued to interpret the terms as synonymous, effectively making the two phrases redundant, which is also contrary to California law. It ignored many cases from across the country that gave meaning to "loss", that differed from "injury" and that did not require any physical change.
  4. Under California law, "direct" is synonymous with the immediate cause and should be a jury issue.
[1] See e.g. Mangerchine v. Reaves 63 So.3rd 1049, 1056 (La. 2011); Corbian v. U.S. Auto Ass’n, 20 So. 3rd 601, 612 (Miss. 2009).

[2] See e.g. Murray v. State Farm 509 S.E.2nd 1 (W. Va. 1998); Manpower Inc. v. ICSOP 2009 U.S. Pat. Dist. Lexis 108626 (E.D. Wis. November 3, 2009); Western Fire Ins. Co. v. First Presbyterian Church, 165 Colo. 34 (1968); Matzner v. Seaco Ins. Co., 1998 WL 566658 (Mass. Super. August 12, 1998).

[3] See e.g. Wakefern vs. Liberty Mutual Fire Ins. Co ., 968 A.2d 724 (N.J. 2009); Hughes v. Potomac Ins. Co., 18 cal. Rptr. 650 (1962); Southeast Mental Health Ctr., Inc. v Pacific Ins. Co ., 439 F. Supp. 2d 831 (W.D. Tenn. 2006); General Mills, Inc. v. Gold Medal Ins. Co., 622 N.W. 2d 147, 152 (Minn. Ct. App. 2001); Pepsico, Inc. v. Winterthur Int & # 39; l Am. Ins. Co., 806 N.Y.S. 2d 709, 711 (2005); Dundee Mut. Ins. Co. v. Marifjeren, 587 N.W.2d 191, 194 (N.D. 1998).

[4] See e.g. ., Thomas v. Mut. Ben Health & Acc Ass & # 39; n 123 F. Supp. 167, 171 (S.D.N.Y. 1954), aff’d sub nom Thomas v. Mut. Benefit Health & Accident Ass’n 220 F.2d 17 (2d Cir. 1955); Walker vs. Fireman & # 39 ;s Fund Ins. Co. 268 F. Supp. 899, 901 (D. Mont. 1967).

[5] See e.g. Aetna Cas. & Sour. Co. against Super. Ct. av Ariz ., 778 P.2d 1333, 1336 (Ariz. Ct. App. 1989); Abercrombie & Fitch Co. against the Fed. Ins. Co. 2011 WL 1237611, at * 7 (S.D. Ohio March 30, 2011).

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