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EUROPEAN TRAVEL AGENCY CORP., et al., Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.
Order GRANTING Defendant's Motion to Dismiss (Dkt. 22)
Plaintiffs European Travel Agency Corp., Gilbert Gevorgian, Classic Modern Tailoring, LLC, Diana G. Lesgart, CPA, Noravian Family Trust, and Roland L. Elazegui DMD, Inc. sued Defendant Allstate Insurance Company, seeking, among other things, coverage under insurance policies issued by Defendant. Dkt. 1-1 (FAC). Defendant moves to dismiss. Dkt. 22 (Mot.). Plaintiffs oppose the motion.1 Dkt. 23 (Opp'n). The Court deems this matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78; Local Rule 7-15. For the reasons stated below, the motion is GRANTED.
Plaintiffs are California businesses. FAC ¶¶ 4–9. Defendant is an Illinois insurance company. Id. ¶ 10. Plaintiffs allege that, during the relevant time period, they were each covered by an insurance policy issued by Defendant. Id. ¶¶ 4–9. The relevant portions of the policies contain near-identical language, and Plaintiffs refer to only one of the policies in their complaint. Id. ¶ 4, Ex. A (Policy). Because the minor differences in the policies do not change the Court's analysis, see dkt 22-3, the Court quotes only from the policy that Plaintiffs’ complaint refers to.
The Policy contains a Business Income Provision, which states in relevant part:
We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration”. The “suspension” must be caused by direct physical loss of or damage to property at premises described in the Declarations ․
Policy at 75.2
The Policy also contains a Civil Authority Provision, which states in relevant part:
When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises ․
Policy at 76.
The Policy also contains a Virus Exclusion Provision, which states in relevant part:
We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducting physical distress, illness or disease.
Policy at 94.
Plaintiffs allege that the COVID-19 virus has physically altered their properties, resulting in physical loss and/or damage. FAC ¶ 37. They further allege that the presence of the COVID-19 virus, as well as government mandates enacted in response to the COVID-19 pandemic, forced them to shut down their businesses for several months. Id. ¶¶ 40, 45, 67, 72. Plaintiffs claim that since re-opening, they have continued to incur additional expenses implementing infection control procedures. Id. ¶¶ 41–44.
Plaintiffs sought, and Defendant denied, coverage for the above-mentioned losses. Id. ¶ 59. Plaintiffs now bring claims for (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) violation of California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 et seq.; (4) unjust enrichment; (5) negligent misrepresentation; and (6) declaratory relief.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6) allows an attack on the pleadings for failure to state a claim on which relief can be granted. “[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint.” Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007). However, a complaint must “state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This means that the complaint must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.
Allegations of fraud are excepted from the “notice pleading” standard of Rule 8(a)(2). Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 513, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002). “Rule 9(b) requires that, when fraud is alleged, a party must state with particularity the circumstances constituting fraud.” Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (alterations, citations, and internal quotation marks omitted). “Rule 9(b) demands that the circumstances constituting the alleged fraud be specific enough to give defendants notice of the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.” Id.
As a general rule, leave to amend a claim that has been dismissed should be freely granted. Fed. R. Civ. P. 15(a). However, “[f]utility of amendment can, by itself, justify the denial of a motion for leave to amend.” Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995).
A. Breach of Contract
Plaintiffs allege that Defendant breached the terms of the policies by denying coverage for their COVID-19 related claims. FAC ¶¶ 77–81. Because the policies cover only lost business income arising from “direct physical loss of or damage to property,” the parties dispute whether Plaintiffs have adequately alleged such loss or damage. See Mot. 15–21; Opp'n 11–20.
The Court need not, and does not, address the parties’ competing interpretations of the phrase “direct physical loss of or damage to property.” Whether or not the presence of the COVID-19 virus in Plaintiffs’ properties caused the physical loss of or damage to the properties, the policies’ Virus Exclusion Provision precludes Plaintiffs from recovering damages “caused by or resulting from” the virus. Policy at 94.
The Ninth Circuit has already interpreted a virus exclusion provision almost identical to the one in Plaintiffs’ insurance policies. See Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885, 893–94 (9th Cir. 2021). In Mudpie, the relevant exclusion provision stated that “[Travelers] will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” Id. at 893. The Ninth Circuit held that, under California law, the provision excluded from coverage not only those losses directly attributable to the COVID-19 virus, but also those losses caused by government orders issued in response to the COVID-19 pandemic. Id. at 893–84.
Although Plaintiffs do not identify the specific government orders that caused their alleged losses, Plaintiffs state that the orders were enacted “to mitigate the spread of COVID-19.” FAC ¶ 71. The holding in Mudpie thus bars Plaintiffs’ claims for coverage.
Plaintiffs nevertheless contend that the Virus Exclusion Provision does not apply to the effects of the government orders because the COVID-19 virus was not the proximate cause of the orders. See Opp'n 20–22. In support of this assertion, Plaintiffs allege that the government orders they complain of applied even to those businesses that did not have the COVID-19 virus on their premises. See id. at 20–21. However, the government orders at issue in Mudpie also applied to businesses without a confirmed COVID-19 virus presence. See Mudpie, 15 F.4th at 888 (describing California's Stay at Home Orders as applying to “all businesses”). The Ninth Circuit explained that California courts broadly interpret the term “resulting from” in insurance contracts, and it was enough that the virus prompted the issuance of the relevant government orders. See id. at 894.
Because the Virus Exclusion Provision excludes from coverage “loss or damage caused by or resulting from any virus ․ that induces or is capable of inducting physical distress, illness or disease,” Policy at 94 (emphasis added), Defendant did not breach the terms of the insurance policies by denying coverage for Plaintiffs’ losses attributable to the COVID-19 virus or government orders issued in response to the COVID-19 pandemic. As leave to amend would be futile, the motion is GRANTED with prejudice as to the first claim.
B. Breach of the Covenant of Good Faith and Fair Dealing
Plaintiffs’ second cause of action for Defendant's alleged breach of the covenant of good faith and fair dealing is predicated on Defendant's breach of the insurance policies. See FAC ¶¶ 82–90. “California law is clear, that without a breach of the insurance contract, there can be no breach of the implied covenant of good faith and fair dealing.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1034 (9th Cir. 2008). Because the Court has determined that Defendant has not breached the insurance policies, and because leave to amend would be futile, the motion is GRANTED with prejudice as to the second claim.
C. Violation of the Unfair Competition Law
The UCL prohibits “unfair competition,” including “any unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. Plaintiffs base their UCL cause of action on Defendant's alleged “unlawful or unfair” denial of their insurance claims. See FAC ¶ 91–100. Because Defendant appropriately denied Plaintiffs’ insurance claims, Plaintiffs fail to adequately allege an unlawful or unfair act on that basis.
In their opposition, Plaintiffs additionally argue that if the insurance policies do not cover their COVID-19 related losses, Defendant committed an unlawful or unfair act by issuing insurance policies that provide only illusory coverage. See Opp'n 25–27. Far from being illusory, however, the insurance policies provide coverage for the loss of business income attributable to “direct physical loss of or damage to property.” Policy at 75. Because physical loss of or damage to property can occur in a variety of scenarios that do not involve “any virus, bacterium or other microorganism,” Policy at 94, the Court finds Defendant's issuance of the insurance policies to be neither “unlawful” nor “unfair.”
Because it is possible that Plaintiffs may state a claim by alleging other unlawful, unfair, or fraudulent acts, the motion is GRANTED with leave to amend as to the third claim.
D. Unjust Enrichment
Defendant argues that Plaintiffs may not pursue an equitable claim for unjust enrichment because they are already pursuing an available legal claim for breach of contract. Mot. 28. However, even if Plaintiffs’ breach of contract and unjust enrichment theories are inconsistent, “Rule 8(d) of the Federal Rules of Civil Procedure expressly permits a plaintiff to plead claims in the alternative, and courts ․ have permitted unjust enrichment and breach of contract claims to proceed simultaneously.” Longest v. Green Tree Servicing LLC, 74 F. Supp. 3d 1289, 1302 (C.D. Cal. 2015) (citing cases). The Court therefore considers the sufficiency of Plaintiffs’ unjust enrichment claim independently of their breach of contract claim.
“The elements of an unjust enrichment claim are the receipt of a benefit and the unjust retention of the benefit at the expense of another.” Peterson v. Cellco P'ship, 164 Cal. App. 4th 1583, 1593, 80 Cal.Rptr.3d 316 (2008) (simplified). Plaintiffs allege that Defendant received and unjustly retained Plaintiffs’ insurance premium payments. See FAC ¶¶ 101–109. Specifically, Plaintiffs claim that Defendant's receipt of the payments was unjust on the grounds that the insurance policies Defendant provided contained “absurd requirements that are impossible to satisfy” and “will never cover a loss.” Id. ¶¶ 107–108. However, that the insurance policies do not cover Plaintiffs’ COVID-19 related losses does not mean the policies would not have covered losses in numerous other circumstances, e.g., losses caused by fire or flooding. Because Plaintiffs have received the benefit of the bargain in the form of insurance for some, but not all, risks of loss, Plaintiffs have failed to plead sufficient facts demonstrating that Defendant's receipt of their insurance premium payments was unjust.
Because it is possible that Plaintiffs may state a claim by alleging additional facts demonstrating unjust enrichment, the motion is GRANTE D with leave to amend as to the fourth claim.
E. Negligent Misrepresentation
Although the Ninth Circuit has yet to weigh in, a “majority of the district courts in California ․ consider negligent misrepresentation a species of fraud and apply Rule 9(b).” Giglio v. Monsanto Co., No. 15-cv-02279 BTM (NLSx), 2016 WL 1722859, at *4 (S.D. Cal. Apr. 29, 2016). Because Plaintiffs do not argue against the application of Rule 9(b) in this context and instead assert that they have met its heightened pleading standard, see Opp 28–29, the Court applies Rule 9(b) to Plaintiffs’ negligent misrepresentation claim.
“The elements of negligent misrepresentation are (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” Apollo Cap. Fund, LLC v. Roth Cap. Partners, LLC, 158 Cal. App. 4th 226, 243, 70 Cal.Rptr.3d 199 (2007). A claim of negligent misrepresentation does not require knowledge of falsity on the part of the defendant. Id. “However, a positive assertion is required; an omission or an implied assertion or representation is not sufficient.” Id.
Plaintiffs state the following: “Defendant[ ] represented that the policies contained coverage for their businesses under all circumstances, or Defendant[ ] failed to explain that certain situations, such as a virus, would not be covered and completely failed to explain virus exclusions.” FAC ¶ 62. Because the second part of Plaintiffs’ disjunctive allegation accuses Defendant of an omission rather than a positive assertion, it cannot support a claim for negligent misrepresentation. See Apollo, 158 Cal. App. 4th at 243, 70 Cal.Rptr.3d 199. The Court therefore turns to the first part of Plaintiffs’ allegation.
To satisfy Rule 9(b), a complaint must identify “the who, what, when, where, and how of the misconduct charged,” as well as “what is false or misleading about a statement, and why it is false.” Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010) (citations and internal quotation marks omitted). Here, Plaintiffs have not identified the individual or individuals who made the alleged misrepresentations, or the person or persons to whom the alleged misrepresentations were made.3 Plaintiffs have also failed to specify the time, place, or specific content of the alleged misrepresentations. Plaintiffs have therefore failed to plead negligent misrepresentation with the particularity required by Rule 9(b).
Because it is possible that Plaintiffs may amend to state a claim by providing the additional required details and omitting the claim of an omission, the motion is GRANTED with leave to amend as to the fifth claim.
F. Declaratory Relief
Plaintiffs ask the Court to declare that the insurance policies cover their COVID-19 related losses. The Court declines to do so for the reasons stated above. As leave to amend would be futile, the motion is GRANTE D with prejudice as to the sixth claim.
Defendant's motion to dismiss is GRANTED. The first and second claims a re dismissed with prejudice. Plaintiffs may amend the third through fifth claims consistent with this Order by May 24, 2022 if they can do so consistent with Rule 11 of the Federal Rules of Civil Procedure. Failure to amend by that date will result in dismissal with prejudice of those claims. No new claims or parties may be added. Plaintiffs must seek leave to amend to add claims or parties by a properly notice motion.
IT IS SO ORDERED.
1. Plaintiffs submit their opposition brief as a scanned document in contravention of Local Rule 5-4.3.1, which requires documents filed with the Court to be “created using word-processing software, then published to PDF from the original word-processing file (to permit the electronic version of the document to be searched).” Local Rule 5-4.3.1. Future non-compliant briefs will be stricken and disregarded.
2. These page numbers are the numbers assigned by the CM/ECF system.
3. Plaintiffs contend that “[t]he specific identities of the employees [who made the representations] cannot possibly be determined prior to discovery.” Opp'n 28. Even if Plaintiffs cannot provide the names of those who made the allegedly false representations, Plaintiffs should still be able to identify the persons to whom the representations were made, the circumstances in which they were made, and additional specific details about the representations to “give [Defendant] notice of the particular misconduct so that [it] can defend against the charge and not just deny that [it has] done anything wrong.” Kearns, 567 F.3d at 1124.
Dale S. Fischer, United States District Judge
Response sent, thank you
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Docket No: CV 22-01141 DSF (KSx)
Decided: April 27, 2022
Court: United States District Court, C.D. California.
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