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IT’S TIME TO STOP ATTEMPTING TO FORCE INSURERS TO PAY FOR COVID CLOSING LOSSES



THE NINTH CIRCLE IS ALSO true

IN Rialto Pockets, Inc .; Brookhurst Venture, LLC; City Of Industry Hospitality Venture, Inc .; and a further 22 plaintiffs, et al. v. Beazley Underwriting Limited, and certain Lloyds London insurers, including Beazley Furlonge Ltd, Nr. 21-55196, United States Court of Appeals, Ninth Circuit (April 20, 2022), the 24 plaintiffs appealed the district court’s refusal of their operational complaint in an insurance coverage dispute.

The plaintiffs are 24 affiliated companies that operate 23 so-called “gentlemen’s” clubs and a store, and they claim coverage under a single policy issued by defendant Beazley Underwriting Ltd. (“Beazley”) to non-affiliates The Spearmint Rhino Companies Worldwide, Inc.

Plaintiffs argued that all 24 businesses were shut down as a result of Covid-19 state orders, including stay-at-home orders issued by the state of California and relevant local authorities. After Beazley denied coverage for financial losses due to the closures, the plaintiffs sued, claiming a single claim for breach of insurance. The district court upheld a request to dismiss the Plaintiff’s operationally amended complaint.

ALLEGED FACTS

The “relevant coverage provision” is referred to as the “Time Element” provision, which deals with certain financial losses due to physical damage or loss of insured property. This provision specifically states that:

“[t]his insurance insures loss of time element, as stated in the time element coverage, directly as a result of direct physical loss or physical injury insured by this insurance which occurs during the insurance period for property insured by this insurance ”(emphasis added by the court).

According to the complaint, Beazley violated this coverage obligation by failing to pay the plaintiffs for the time element losses that were directly the result of Covid-19 Governmental Orders or were caused by Covid-19 Governmental Orders.

ANALYSIS

Plaintiffs’ claims for coverage are excluded from the California Court of Appeal decision, Inns by the Sea v. California Mut. Ins. Co.286 Cal.Rptr.3d 576 (Ct. App. 2021) and the decision of the ninth circuit Ryman v. Sears, Roebuck & Co.505 F.3d 993, 995 (9th ed. 2007).

The decision in Inn by the sea the case dealt with the interpretation of analogue policy language that provides coverage for an interruption of operations caused by direct physical loss of or damage to property at [the insured’s] localand it did so in connection with comparable alleged losses based on the situation created at [Covid-19 Governmental] Order. ” 286 Cal.Rptr.3d at 582, 590 (second italics added). The court dismissed such coverage as a matter of law.

Inn by the sea considered that, under well-established California insurance law, “only loss of use of physical property to generate business income; without any other physical impact on the propertydoes not give rise to coverage for direct physical loss. ” (my italics).

Although it is assumed that the alleged physical presence of the virus in the insured’s premises can be considered to give rise to a physical impact or direct physical damage, there was still no coverage.

The relevant coverage language required that the alleged loss was “caused by“The alleged direct physical damage, but the insured’s own allegations confirmed” the lack of a causal link between the alleged physical presence of the virus on [the insured’s] premises and shutdown of [its] “Even if the insured” had carefully sterilized his premises to remove all traces of the virus “, the insured” still has continued to incur a downtime because the order would do so still has been in force and the normal function of society still would have been restricted. “

The complaint explicitly states that the losses are “direct results[ed] from the Covid-19 Governmental Orders “or were” caused by the Covid-19 Governmental Orders. “The plaintiffs, because there was no way they could, did not claim direct physical damage to their property. Inn by the seathe alleged losses do not “direct results[] from directly. . . physical injury. . . to property ”according to the relevant policy language.

Since the plaintiff’s alleged damages do not fall within the scope of the insurance, the district court rightly granted the defendant’s claim for inadmissibility.

When even the notoriously liberal Ninth Circuit refuses to ignore the clear and unambiguous language of an insurance policy that requires direct physical damage to property to recover during a time element protection (business interruption) due to orders from the state closing down the business , it’s time for lawyers and litigation to stop trying. They may want to consider that their losses are due to the state taking their property in violation of the Fifth and Fourteenth Amendments to the US Constitution.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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About Barry Zalma

An author, consultant and expert witness for insurance coverage and claims management with more than 48 years of practical experience and experience in the courtroom.




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