On Monday, Judge Beth Freeman issued an opinion in a case addressing business loss insurance’s limitations regarding virus exclusion clauses and the framing of claims to avoid these limits. This suit was decided in the Northern District of California.
In the suit, the dental practice of Dr. Karen Trinh, DDS, filed suit against State Farm after filing an unsuccessful business interruption claim against its policy. The second amended complaint alleged seven causes of action, including breach of contract due to unprocessed claims regarding accidental direct physical loss and loss of income under the policy, breach of covenant of good faith and fair dealing, bad faith denial, declaratory relief, unjust enrichment, unfair competition, and injunctive relief. Each of these claims was premised on COVID-19 and the limitations placed on businesses due to government stay-at-home orders. While the plaintiff “creatively attempted to reframe the cause of the loss as the risk of droplets on building surfaces rather than virus exposure at the building,” the court held that the ultimate cause of the losses was directly connected with the COVID-19 virus. Since the causation was directly linked to a virus, the insurance plan’s explicit virus exclusion rendered all claims excluded from coverage. The plaintiff also attempted to indicate that the losses should be attributed to “droplet” spread instead of directly to the virus; however, the court held that the physical property was not permanently lost due to this contamination, which was only a contamination from the virus.
In holding that the exclusion applied, the court dismissed the first four claims, as there was no breach of contract to support them; however, leave to amend would be granted if grounds that were not explicitly excluded by the policy could be alleged. Claim five for unjust enrichment was dismissed with prejudice, as the insurance policy was held to be a contract that was bargained for explicitly. Claims six and seven were dismissed with leave to amend should the plaintiff be able to allege unlawful conduct not tied to the lawful provisions of the contract.