We are pleased to share with the insurance world a very positive development of COVID-19 business interruption cases – from Orange County, a conservative jurisdiction. Thanks to this victory goes to our friends at Covington & Burling LLP, with whom we have worked closely to promote justice for policyholders. David Goodwin and Jad Khazem owe a special cry for this victory, as the specific accusations of physical change were the driving force behind the victory and are instructive for future success.
The court also took seriously the law which doubts whether coverage is resolved in favor of the insured, and that the actual item was not developed sufficiently to grant demurrer and close the case this because this order came across a breaker ( ie. The order is also a reprimand against federal court decisions to the contrary. 1
The case, Goodwill Industries of Orange Cty. v. Philadelphia Indemnity Ins. Co. Case No. 2020-01169032, involves the classic scenario – a loss of business revenue due to COVID-19. Goodwill's complaint "explicitly states that the coronavirus and COVID-19 caused direct physical loss and damage to its property", claiming that the virus "is found in breath droplets called aerosols that stay on surfaces and in the air for up to a month, physically altering the air and surfaces it attaches to and making them unsafe, deadly a and dangerous. The complaint also cites new research and notes that "researchers have begun to develop technology to test for the presence of COVID-19 on the building's surfaces" and that the virus "was present on [Goodwill’s] properties at the time of the state and Provisions on closure of the county, that when the plaintiff reopened his property, tested his employees positively, and that it was obliged to carry out further cleaning and remediation to respond to and remove the "virus" from physical surfaces in his insured premises and properties with public health orders requiring such measures to protect against The virus.
According to the Court, these allegations are sufficiently substantiated. Importantly, the court continued to criticize how federal courts have approached these cases, noting that “federal cases in California have interpreted MRI Healthcare 2 to require physical alteration of the property and permanent dispossession [.] Judge Wilson dismissed the application of MRI Healthcare and noted that the federal cases were "decided according to a different standard" and that although they are "instructive", the allegations in these cases could be largely distinguished from these. " Judge Wilson noted that cases such as 10E 3 Mudpie 4 West Coast Hotel Management 5 and Pappys 6 are distinguishable because they did not claim any physical change of ownership.
"Even more importantly," Judge Wilson explained, "given the high standard that must be met in order to indemnify an insurance policy, all doubts must be resolved in favor of the plaintiff. The court is not convinced that there are sufficiently complete data at this cut-off stage to make a statutory assessment that coronavirus and COVID-19 have in no way caused physical damage to property. ”
The decision's emphasis on joining policyholders is in doubt a well-established principle in California law and many other states. For example:
- Cal. Civ. Code 1649: "If the terms of a promise in any respect are ambiguous or uncertain, it must be interpreted in the sense that the promiser at the time made to make the promising one understand This rule, which applies to a promise of cover in an insurance, does not protect the insurer's subjective beliefs, but rather the objectively reasonable expectations of the insured. tningar. " 7
- " Uncertainties in coverage clauses are normally resolved by enforcing the insured's reasonable expectations: "[W] generally interprets the coverage clauses in insurance broadly, [in order to protect] the insured's objectively reasonable expectations." 8
- Conversely, exceptions and limitations of coverage in an insurance policy "are interpreted strictly against the insurer and are interpreted liberally in favor of the insured." 9
- Where the insurance provision has no "clear and unambiguous meaning " and the insured had no "objectively reasonable expectations" regarding coverage – then and only then will the court " to invoke the principle that ambiguities are generally interpreted against the party who caused the uncertainty to exist ( ie the insurer) in order to protect the insured's reasonable expectation of coverage. ' 10
- This "tie- breaker "design rule against the insurer derives from the recognition that the insurer generally prepared the policy and received premiums to provide the agreed protection. 11
- The result is that" [i] in the insurance context we generally resolve ambiguities in favor of the insured ". 12
- There is a strong need to protect reasonable expectations of insurance buyers. 13
- "[A] agreements entered into between two parties with unequal bargaining power, expressed in the language of a standardized agreement, in writing by the more powerful negotiator to meet their own needs, and offered to the weaker party on a "take it or leave it" carries certain consequences that extend beyond orthodox consequences … [I] n view of the different negotiating status of parties we must ensure the significance of the contract that the insured would reasonably expect. ” 14
- Provisions that remove or limit coverage that is reasonably expected of the insured must be“ conspicuous, clear and distinct ”in order to be enforceable. 15 “An insurer cannot evade its basic obligation to insure itself with an unclear exclusion clause … The burden rests on the insurer to express exceptions in clear and unmistakable language … The exclusion clause must be conspicuous, clear and unambiguous. 16 Even an unequivocal exclusion will not cover the coverage unless it is "conspicuous" and understandable to a layman. 17
- Standard form insurances are adhesion agreements between parties in unequal bargaining power. General policy requires that the reasonable expectations of the weaker party be protected. Therefore, clauses denying reasonably expected coverage must be "conspicuous, clear and distinct." 18
We look forward to the law continuing to develop in this positive way.
1 Click here for a copy of the preliminary decision adopted by the Court in its entirety.
2 MRI Healthcare Center of Glendale v. State Farm Gen. Ins. Co. (2010) 187 Cal.App.4th 766.
3 10E, LLC v. Travelers Indemn. Co. of Connecticut (CD cal. September 2, 2020, Case No. 2: 20-cv-04418-SVW-AS) __ F.Supp.2d __, 2020 WL 5359653.
4 Mudpie, Inc. v. Travelers Casualty Ins. Co. of America (ND Cal. 14 September 2020) 2020 WL 5525171.
5 West Coast Hotel Management, LLC v Berkshire Hathaway Guard Insurance Companies (CD Cal. 27 October, 2020, case no. 2: 20-cv-05663-VAP-DFMx) ___ F. Supp.3d ___, 2020WL 6440037.
6 Pappy & # 39; s Barber Shops, Inc.v. Farmers Group, Inc. (S.D. Cal. September 11, 2020, Case No. 20-cv-907-CAB-BLM) 2020 WL 5500221.
7 Bank of the West v. Sup.Ct. (Industrial Indem. Co.) (1992) 2 Cal.4th 1254, 1264-1265.
8 Montrose Chem. Corp. of Calif. V. Admiral Ins. Co. (1995) 10 Cal.4th 645, 667.
9 Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 271.
10 Powerine Oil Co., Inc. v Sup.Ct. (Central Nat’l Ins. Co. of Omaha) (2005) 37 cal.4: e 377, 391; Cal. Civ. Code § 1654.
11 Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 321.
12 AIU Ins. Co. v. Sup.Ct. (FMC Corp.) (1990) 51 Cal.3d 807, 822.
13 Id. kl. 22.
14 Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 269-270; see also Abellon v. Hartford Ins. Co. (1985) 167 Cal.App.3d 21, 31.
15 De May mot Interinsurance Exchange 38 Cal.Rptr.2d 581, 32 Cal.App.4th 1133 (Cal. App 1995); Travelers Cas. & Sour. Co. v. Transcontinental Ins. Co. (2004) 122 Cal.App.4th 949, 958.
16 State Farm Mut. Car. Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 201-202; Haynes v. Farmers Ins. Exch. (2004) 32 kal. 4th 1198, 1204; Essex Ins. Co. v. City of Bakersfield (2007) 154 Cal.App.4th 696, 705.
17 Steven v. Fidelity & Cas. Co. in New York (1962) 58 Cal.2d 862, 878; Ponder v. Blue Cross in Southern California. (1983) 145 Cal.App.3d 709, 719.
18 Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 271.