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granting insurer's motion to dismiss because loss of use did not constitute "direct physical loss of or damage to" property
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Case No. 20-cv-03750-WHO
2020-11-09
WATER SPORTS KAUAI, INC., Plaintiff, v. FIREMAN'S FUND INSURANCE COMPANY, et al., Defendants.
Alexandra Louise Foote, Wendel, Rosen, Black & Dean LLP, Oakland, CA, Fabrice Nijhof Vincent, Jacob Henry Polin, Robert Jay Nelson, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, CA, Judith Ann Pavey, Pro Hac Vice, Starn O'Toole Marcus and Fisher, Honolulu, HI, Gabriel August Panek, Pro Hac Vice, Lieff Cabraser Heimann and Bernstein, LLP, New York, NY, for Plaintiff. John Paul Phillips, Paul Hastings LLP, San Francisco, CA, Gregory George Sperla, DLA Piper LLP, Sacramento, CA, Robert M. Hoffman, DLA Piper LLP, Dallas, TX, for Defendants.
Alexandra Louise Foote, Wendel, Rosen, Black & Dean LLP, Oakland, CA, Fabrice Nijhof Vincent, Jacob Henry Polin, Robert Jay Nelson, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, CA, Judith Ann Pavey, Pro Hac Vice, Starn O'Toole Marcus and Fisher, Honolulu, HI, Gabriel August Panek, Pro Hac Vice, Lieff Cabraser Heimann and Bernstein, LLP, New York, NY, for Plaintiff.
John Paul Phillips, Paul Hastings LLP, San Francisco, CA, Gregory George Sperla, DLA Piper LLP, Sacramento, CA, Robert M. Hoffman, DLA Piper LLP, Dallas, TX, for Defendants.
ORDER GRANTING THE MOTION TO DISMISS
Re: Dkt. No. 39
William H. Orrick, United States District Judge
Plaintiff Water Sports Kauai, Inc., a Hawaii corporation, dba Sand People ("Sand People"), shut down its businesses (twelve stores on three islands that sell gifts, artwork, décor, jewelry, glassware, coastal furnishing, apparel, soaps, lotions, candles, and books) six months ago due both to the spread of the coronavirus and to directives from Hawaii's Governor limiting the operation of non-essential businesses, including Sand People's stores. Amended Complaint ("AC"), Dkt. No. 38, ¶ 56. It submitted a claim for coverage under an insurance policy (Policy) issued by defendants Fireman's Fund Insurance Company, National Surety Corporation, and Allianz Global Risks US Insurance Co. (collectively, "defendants") under the "Lost Business Income" and "Civil Authority" provisions. AC ¶ 4. That claim was denied, and Sand People filed suit.
I agree with the vast majority of cases that have addressed materially similar policy provisions and facts. Sand People has failed to plausibly plead Business Income or Civil Authority coverage. Its claims are dismissed with limited leave to amend.
BACKGROUND
The Policy provides that the defendants will "pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss." AC, Ex. 9 at 30. In relevant part, the Policy states:
3. Covered Causes of Loss
RISKS OF DIRECT PHYSICAL LOSS unless the loss is [excluded].
Id. at 31.
g. Business Income
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 the described premises, including personal property in the open (or in a vehicle) within 100 feet, caused by or resulting from any Covered Causes of Loss.
Id. at 33.
h. Extra Expense
We will pay necessary Extra Expense you incur during the period of restoration that you would not have incurred if there had been no direct physical loss or damage to property at the described premises, including personal property in the open (or in a vehicle) within 100 feet of the described premises, caused by or resulting from a Covered Cause of Loss
Id. at 34.
i. Civil Authority
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 due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss. This coverage will apply for a period of up to two consecutive weeks from the date of that action.
Id. at 35.
15. Period of Restoration means the period of time that:
a. Begins with the date of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at the described premises; and
b. Ends on the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality.
Id. at 63.
Based on the spread of the coronavirus, directives from Hawaii's Governor limiting the operation of non-essential businesses, including Sand People's stores, and government closure orders issued in 49 other states/jurisdictions as a result of the coronavirus pandemic, and defendants’ denial of requests for coronavirus coverage under similarly worded policies, Sand People asserts the following claims on behalf of a class and a subclass: (1) Breach of Contract; (2) Breach of Covenant of Good Faith and Fair Dealing; (3) Unfair or Deceptive Business Practices; and (4) Declaratory Relief.
The class and subclass are defined as:
Class
All persons or entities in the United States (including its territories and the District of Columbia) who own an interest in a business that was insured by Defendants in March 2020 and made (or attempted to make) a claim with Defendants arising from lost business income (or other losses related to business interruption) at that business related to COVID-19, and did not receive coverage for that claim.
Hawaii Subclass
All persons or entities in Hawaii who own an interest in a business that was insured by Defendants in March 2020 and made (or attempted to make) a claim with Defendants arising from lost business income (or other losses related to business interruption) at that business related to COVID-19, and did not receive coverage for that claim.
AC ¶ 123.
LEGAL STANDARD
In Hawaii, " ‘because insurance policies are contracts of adhesion and are premised on standard forms,’ " the contracts must be "construed liberally" in favor of the insured and based on the reasonable expectations of a layperson, with any ambiguities being resolved against the insurer. Hart v. Ticor Title Ins. Co., 126 Hawai'i 448, 456, 272 P.3d 1215 (2012) (quoting Dairy Road Partners v. Island Ins. Co., Ltd. , 92 Hawai'i 398, 411-414, 992 P.2d 93 (2000) ); see also Great Divide Ins. Co. v. AOAO Maluna Kai Estates , 492 F. Supp. 2d 1216, 1226–27 (D. Haw. 2007) ("A policy provision is not ambiguous just because the insurer and insured disagree over the interpretation of the terms of a policy.... Ambiguity exists only when the policy ‘taken as a whole, is reasonably subject to differing interpretation.’ ") (quoting Oahu Transit Servs., Inc. v. Northfield Ins. Co. , 107 Hawai'i 231, 236 n. 7, 112 P.3d 717 (Haw. 2005) ).
DISCUSSION
Defendants move to dismiss Sand People's claims because the mere threat of coronavirus is insufficient to show a "direct physical loss of or damage to" its covered property and the government closures orders are likewise insufficient to show the same. Defendants note that district courts around the country – including ones in this District and throughout the Ninth Circuit – have rejected identical claims under similar policies and that the only two federal cases Sand People identifies in support of their claims – both from the Western District of Missouri – are distinguishable or wrongly decided. Sand People responds that this case is different from the bulk of district court cases relied on by defendants because (i) it specifically alleges that it had to close its properties due directly to the coronavirus’ rapid spread and imminent threat to its businesses, and (ii) the vast majority of district court cases dismissing for lack of coverage also had virus exclusions limitations in their policies.
As described below, I will follow the overwhelming majority of courts that have determined that the mere threat of coronavirus cannot cause a "direct physical loss of or damage to" covered property as required under the Policy. That resolves the issue of coverage under the Business Income and Civil Authority provisions as a result of both the spread of coronavirus and the government closure orders.
I. LOST BUSINESS INCOME
Sand People contends that "lost business income" coverage was triggered by both the "physical" spread of the coronavirus and, independently, the government closure orders. I will address each argument in turn.
A. Spread of Coronavirus
Sand People asserts that it adequately alleged closure because of the "imminent" threat of coronavirus at their properties. AC ¶ 69 ("The Coronavirus and its pernicious spread created inherently dangerous conditions where the stores and property within them were at immediate and imminent risk of exposure to the Coronavirus. This caused them to suspend operations and lose access to the stores, which rendered them untenantable."); ¶ 76 ("Because, inter alia, the spread of Coronavirus rendered Sand People's facilities no longer usable for their intended purpose(s), and in many cases impossible to operate safely, it directly caused them to suffer physical damage and loss."). It claims that the explosive spread of coronavirus and the imminence of the threat it presented is sufficient to show a "direct physical loss" because the closure is alleged to have resulted from a physical event "the spread of the virus" and potential exposure to a disease.
Sand People relies on a series of cases where courts found coverage because asbestos, arsenic, and e-coli contamination were present on covered property. For example, in Port Auth. of New York and New Jersey v. Affiliated FM Ins. Co. , 311 F.3d 226 (3d Cir. 2002), the Third Circuit interpreted a "physical loss or damage" policy with respect to asbestos and concluded, "[w]hen the presence of large quantities of asbestos in the air of a building is such as to make the structure uninhabitable and unusable, then there has been a distinct loss to its owner. However, if asbestos is present in components of a structure, but is not in such form or quantity as to make the building unusable, the owner has not suffered a loss." Id. at 236. The court explained, " ‘physical loss or damage’ occurs only if an actual release of asbestos fibers from asbestos containing materials has resulted in contamination of the property such that its function is nearly eliminated or destroyed, or the structure is made useless or uninhabitable, or if there exists an imminent threat of the release of a quantity of asbestos fibers that would cause such loss of utility. The mere presence of asbestos, or the general threat of future damage from that presence, lacks the distinct and demonstrable character necessary for first-party insurance coverage." Id.
That case confirms that there must be sufficient evidence of the presence of the contaminant at the property plus an imminent threat from it. Id. at 236 ("We thus find ourselves in agreement with the District Court's ruling that plaintiffs’ inability ‘to produce evidence concerning the manifestation of an imminent threat of asbestos contamination’ forecloses the existence of a viable claim. Although the plaintiffs demonstrated that many of its structures used asbestos-containing substances, those buildings had continuous and uninterrupted usage for many years. The mere presence of asbestos or the general threat of its future release is not enough to survive summary judgment or to show a physical loss or damage to trigger coverage under a first-party ‘all risks’ policy."); see also In Assn. of Apt. Owners of Imperial Plaza v. Fireman's Fund Ins. Co. , 939 F. Supp. 2d 1059, 1069 (D. Haw. 2013) ("direct physical loss or damage" to property satisfied where plaintiff demonstrates "that an event had a direct impact and proximately caused a loss related to the physical matter of the Property" and arsenic seeping into the "concrete slab, carpet, and interior objects are physical matter within the ordinary use of those words."); Motorists Mut. Ins. Co. v. Hardinger , 131 Fed. Appx. 823, 826–27 (3d Cir. 2005) (unpublished) ("we believe there is a genuine issue of fact whether the functionality of the Hardingers’ property was nearly eliminated or destroyed, or whether their property was made useless or uninhabitable" by presence of e-coli in well). For that reason, it does not help Sand People.
Defendants do not dispute that actual presence of a contaminant at a covered property might trigger coverage. They argue that what is alleged here – the "mere threat" of exposure – is categorically insufficient to trigger coverage as a direct physical loss of or damage to Sand People's property. They contend that there must be an incident of a direct physical impact to covered property to trigger coverage and a mere threat does not suffice. That distinction is supported by Port Authority , 311 F.3d at 236, where even though asbestos was in the property – and thus there was some threat of exposure in the future – plaintiff's claims failed because there was insufficient "evidence concerning the manifestation of an imminent threat of asbestos contamination." Id. at 236 (emphasis added). Sand People pleads that coronavirus was rapidly spreading and feasibly in Hawaii but fails to allege both its presence in any of its properties and a manifestation of imminent threat of contamination in any of its properties.
That manifestation is significant because the Policy requires a "direct physical loss of or damage to" property that has not been alleged. See, e.g., Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am. , 20-CV-03213-JST, 487 F.Supp.3d 834, 841 (N.D. Cal. Sept. 14, 2020) (dismissing claim for failure to allege COVID-19 or any other physical impetus caused the loss of functionality "where plaintiff "does not allege that ‘Covid-19 entered the [property] through any employee or customer" and did not allege that store was closed "because its employees became sick or coronavirus was discovered on the property"). For this reason alone, Sand People's reliance on Studio 417, Inc. v. Cincinnati Ins. Co. , 20-CV-03127-SRB, 478 F.Supp.3d 794, 797–98 (W.D. Mo. Aug. 12, 2020) and Blue Springs Dental Care, LLC v. Owners Ins. Co. , 20-CV-00383-SRB, 488 F.Supp.3d 867, 875–77 (W.D. Mo. Sept. 21, 2020), is unhelpful. Unlike in those cases – where a hair salon, restaurant, and dental practice alleged the actual presence of the coronavirus in their establishments – Sand People only pleads an "imminent threat." See also Mudpie, Inc. , 487 F.Supp.3d at 842 (distinguishing Studio 417 because "Mudpie makes no similar allegation here. It does not allege, for example, that the presence of the COVID-19 virus in its store created a physical loss."). There are no facts plausibly alleging an actual exposure at one or more Sand People stores, much less that an actual physical exposure caused them to close a particular store or set of stores.
During the oral argument, Sand People's counsel admitted that it would not be able to plead facts that coronavirus actually entered or was otherwise found in one of the Sand People's stores. I also note that at least one court has dismissed coverage claims despite plaintiff's allegation that coronavirus had entered a property. See, e.g. Uncork and Create LLC v. The Cincinnati Insurance Company, et al. , No. 2:20-cv-00401, 498 F.Supp.3d 878 (S.D.W. Va. November 2, 2020) (granting motion to dismiss for lack of "physical loss" and concluding that "even when present, COVID-19 does not threaten the inanimate structures covered by property insurance policies, and its presence on surfaces can be eliminated with disinfectant. Thus, even actual presence of the virus would not be sufficient to trigger coverage for physical damage or physical loss to the property.").
Instead of alleging actual physical exposure, Sand People broadly claims that closing the stores to avoid imminent exposure is "indistinguishable" from actual exposure in the context of an insurance contract because it was under a duty to mitigate losses. Oppo. at 5. But Sand People cites no cases finding that similar coverage provisions were triggered without some physical and direct occurrence on the property in the first instance. See, e.g. , Hampton Foods, Inc. v. Aetna Cas. and Sur. Co. , 787 F.2d 349, 352 (8th Cir. 1986) (plaintiff suffered "direct, concrete and immediate loss due to extraneous physical damage to the building," and because of "the unquestioned danger of reentering the building" at risk of collapse, plaintiff was entitled to attempt to mitigate its damages by "removing and salvaging as much property as it could before the building's destruction."); see also Armstrong World Industries, Inc. v. Aetna Cas. & Sur. Co. , 45 Cal. App. 4th 1, 92, 52 Cal.Rptr.2d 690 (Cal. App. 1st Dist. 1996) ("remedial costs incurred in cleaning up contaminated waste sites are covered by CGL policies, but ‘prophylactic’ costs-costs incurred in advance of any release of hazardous waste, to prevent threatened future pollution-are not incurred because of property damage.").
Cases confirming coverage where there was physical contamination of properties, therefore, do not aid plaintiff. See Oppo. at 6-7.
Sand People also contends that the significant "gravity of the risk" from coronavirus, as confirmed by the March 2020 government closure orders and which they intend to prove through discovery and expert testimony, "will demonstrate how, in the midst of a global pandemic, Plaintiff's traveler-focused Stores in touristic centers of Hawai'i would have been exposed to Coronavirus had they not closed down." Oppo. 8-9. But it cites no case finding coverage based only on a "would have been exposed" allegation because of a contaminant's rapid spread.
Finally, Sand People asserts that coverage is independently required because of "exposure" to coronavirus on other properties in Hawaii that were in the "same tourism and supply chains" as its stores and that third party exposure establishes coverage. Oppo. at 9. However, no specific "income support property" in Sand People's supply chain is identified in the Amended Complaint. Even if one was, Sand People would still need to allege facts showing that the identified income support property itself suffered a direct physical loss, which then caused Sand People a specific loss.
The Policy provides: "j. Income Support Properties. We will pay for the actual loss of Business Income you sustain due to direct physical loss or damage at the premises of an income support property not described in the schedule caused by or resulting from any Covered Cause of Loss. Income Support Property means property operated by others on whom you depend to: (1) Deliver material or services to you, or to others for your account; (2) Accept your products or services; (3) Manufacture products for delivery to your customers under contract of sale; or (4) Attract customers to your business." AC, Ex. 9 at 35.
B. Government Closure Orders
Sand People also contends that the government closure orders independently triggered coverage because (i) it suffered a "loss of" its property and "material alteration" of the property is not required and (ii) deprivation of the functionality of the property triggers coverage. It argues that "loss" broadly includes a deprivation, dispossession, and impairment of property, similar to what it suffered here due to the government orders shutting down non-essential businesses like Sand People's. It asserts that there is no need, under the "loss" prong, to show a "material alteration" of its property (that might otherwise be required under the "damage to" prong). Sand People relies on Total Intermodal Services Inc. v. Travelers Prop. Cas. Co. of Am., CV 17-04908 AB (KSX), 2018 WL 3829767 (C.D. Cal. July 11, 2018). There the court recognized that the separate "loss of " property clause "contemplates that the property is misplaced and unrecoverable, without regard to whether it was damaged," but could include the permanent dispossession of something; there the loss of a shipping container. Id. at *3-4. The Total Intermodal court distinguished "loss of" from "loss to" property, where "loss to" suggests an external force acting on property, and "loss of" connotes simple dispossession or similar harm not "localized" on a segment of property. Id. at 3-4, 52 Cal.Rptr.2d 690 ; see also Oppo. at 10-11.
In the Mudpie case, the Hon. Jon S. Tigar of this District accepted the distinction drawn by Total Intermodal and rejected the alleged requirement – suggested by defendants here – that there be some physical alteration to the covered property. Mudpie, Inc. , 487 F.Supp.3d at 839–41. However, Judge Tigar concluded Total Intermodal did not help plaintiffs because while
Mudpie has been dispossessed of its storefront, it will not be a "permanent dispossession" as with the lost cargo in Total Intermodal. See 2018 WL 3829767, at *4. When the Stay at Home orders are lifted, Mudpie can regain possession of its storefront. Mudpie's physical storefront has not been "misplaced" or become "unrecoverable," and neither has its inventory.
The same is true here. As Judge Tigar noted, applying the broader "loss of" coverage, the surrounding provisions within the policy at issue there "suggest that Mudpie's inability to occupy its storefront does not fall within the Business Income and Extra Expense coverage of this policy" given the "period of restoration" definition limits the period of coverage to when the property is "repaired, rebuilt or replaced with reasonable speed and similar quality." Id. He stated that there was "nothing to fix, replace, or even disinfect for Mudpie to regain occupancy of its property" because its loss was "caused by state closure orders and thus will last for however long those restrictions remain." Id. The period of restoration provisions in this case are materially identical and likewise support a conclusion that there has been no covered disposition or "loss of" property because Sand People identifies nothing it needs to fix or replace at any of its properties.
Sand People takes issue with those two conclusions, arguing that a covered "disposition" does not have to be "permanent" and cites to multiple cases where "removeable substances" like asbestos and mold have been found to trigger a "direct physical loss." But, as noted above, those cases do not help Sand People because it has not alleged any direct physical anything that happened to or at its specific properties. Moreover, it has not been dispossessed or deprived of any specific property; its inventory and equipment remain. Instead, it complains of loss of use, meaning its inability to operate its stores.
Numerous courts have found that materially identical allegations do not trigger coverage under similarly worded policies as a result of government closure orders. The cases consistently conclude that there needs to be some physical tangible injury (like a total deprivation of property) to support "loss of property" or a physical alteration or active presence of a contaminant to support "damage to" property. See, e.g., Mudpie, Inc. , 487 F.Supp.3d at 839 ("Although Mudpie has been dispossessed of its storefront, it will not be a "permanent dispossession" as with the lost cargo in Total Intermodal .... When the Stay at Home orders are lifted, Mudpie can regain possession of its storefront."); Real Hospitality, LLC d/b/a Ed's Burger Joint v. Travelers Casualty Insurance Company of America , No. 2:20-cv-00087, 499 F.Supp.3d 288 (S.W.D. Ms. November 4, 2020) (interpreting "loss of" prong in "direct physical loss of or damage to" to mean total dispossession of property); 10E, LLC v. Travelers Indem. Co. of Connecticut , 2:20-CV-04418-SVW-AS, 483 F.Supp.3d 828, 835–36 (C.D. Cal. Sept. 2, 2020) ("Under California law, losses from inability to use property do not amount to ‘direct physical loss of or damage to property’ within the ordinary and popular meaning of that phrase. Physical loss or damage occurs only when property undergoes a ‘distinct, demonstrable, physical alteration.’ [ ] ‘Detrimental economic impact’ does not suffice." (internal citations omitted)); see also Travelers Cas. Ins. Co. of Am. v. Geragos and Geragos , CV 20-3619 PSG (EX), 483 F.Supp.3d 828, 835–36 (C.D. Cal. Oct. 19, 2020) (dismissing claim under "loss of or damage to" language where insured "fails to allege that there was physical damage to the property and concedes that Coronavirus ‘has never been detected at [its] property.’ "); Henry's Louisiana Grill, Inc. v. Allied Ins. Co. of Am. , 1:20-CV-2939-TWT, 495 F.Supp.3d 1289, 1296 (N.D. Ga. Oct. 6, 2020) (dismissing claims because the "range of contemplated harms aligns with an understanding that ‘loss of’ means total destruction while ‘damage to’ means some amount of harm or injury.").
Sand People argues that these cases (and the dozens of other cases that have been similarly decided by district courts) are not persuasive because some of them also addressed virus exclusions in the policies at issue. The majority of these courts reasonably determined, first, that coverage was not implicated given the lack of a direct physical event causing loss of or damage to property. See, e.g., Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am. , 20-CV-03213-JST, 487 F.Supp.3d 834, 844 n. 9 (N.D. Cal. Sept. 14, 2020) ("Because Mudpie is not entitled to Civil Authority coverage, the Court need not consider Travelers's additional argument that the virus exclusion bars such coverage."); 10E, LLC v. Travelers Indem. Co. of Connecticut, 2:20-CV-04418-SVW-AS, 483 F.Supp.3d 828, 837 (C.D. Cal. Sept. 2, 2020) ("Plaintiff's FAC does not articulate a theory of Civil Authority coverage clearly enough to allow the Court to adjudicate at this stage whether and how the Policy's virus exclusion applies."); Henry's Louisiana Grill, Inc. v. Allied Ins. Co. of Am ., 1:20-CV-2939-TWT, 495 F.Supp.3d 1289, 1297 n. 3 (N.D. Ga. Oct. 6, 2020) ("Because the Plaintiffs have not pleaded sufficient facts to support a claim for coverage here, this Court will not proceed to analyze the parties' arguments regarding the Virus or Bacteria exclusion."). These courts’ initial coverage determinations are persuasive here.
Sand People's "deprivation of functionality" argument – namely its inability to operate the stores during the duration of the government closure orders, triggering coverage – fares no better. There is no allegation of any direct physical contact that caused a tangible loss to their property (as in Total Intermodal ) or the direct physical presence of a contaminant that creates an inability to use or need for remediation (like the actual presence of coronavirus, asbestos, mold, etc.). See, e.g., Assn. of Apt. Owners of Imperial Plaza v. Fireman's Fund Ins. Co. , 939 F. Supp. 2d 1059, 1068 (D. Haw. 2013) ("arsenic concentrated and posed a health risk that required abatement").
Finally, as in Mudpie , viewing the language of the Policy as a whole, the "Period of Restoration" language (during which the Policy covers lost business income and extra expenses) shows the strength of defendants’ argument and the weakness of Sand People's. Mudpie, Inc. , 487 F.Supp. 3d at 839–41 ; AC, Ex. 9 at 63 (defining the restoration period as beginning on the "date of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at the described premises" and ending when "the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality."). As in Mudpie , here there is nothing on any of Sand People's premises that allegedly needs to be repaired, rebuilt or replaced.
In post-briefing submissions, plaintiff submits a pair of North Carolina Superior Court decisions from October 9, 2020, granting summary judgment to plaintiffs on policies that require only a "direct loss" to Property. Dkt. No. 45. Those decisions are not persuasive. Defendants provide four additional district court cases as supplemental authority, including two that are very similar to this case and highly persuasive. In the first, W. Coast Hotel Mgmt., LLC v. Berkshire Hathaway Guard Ins. Cos. , No. 2:20-cv-05663-VAP-DFMx, 498 F.Supp.3d 1233 (C.D. Cal. Oct. 27, 2020), a Central District judge granted defendants’ motion to dismiss on a policy requiring a "direct physical loss of or damage to property" for Business Income coverage and Civil Authority coverage. Similarly, in Uncork and Create LLC v. The Cincinnati Insurance Company, et al. , No. 2:20-cv-00401, 498 F.Supp.3d 878 (S.D.W. Va. November 2, 2020), the district court dismissed with prejudice claims materially identical to the ones asserted here. Id. (rejecting Business Income and Civil Authority coverages under a "direct physical damage or loss to property" policy despite plaintiffs’ assertions of closure due to (1) a direct threat/exposure to coronavirus and (2) government closure orders). See also In Raymond H. Nahmad DDS PA v. Hartford Cas. Ins. Co. , No. 1:20-cv-22833-BB, 499 F.Supp.3d 1178 (S.D. Fla. Nov. 2, 2020) (dismissing Business Income and Civil Authority claims under a "direct physical damage or loss to property" policy); Real Hospitality, LLC d/b/a Ed's Burger Joint v. Travelers Casualty Insurance Company of America , No. 2:20-cv-00087, 499 F.Supp.3d 288 (S.W.D. Miss. November 4, 2020) ("When all of the provisions are read together it makes logical sense that the property that is insured, i.e., the building and/or personal property in or on the building, must first be lost or damaged before Business Income coverage kicks in." ... "Plaintiff never specifically alleges that the virus is/was present on the restaurant premises.").
Therefore, Sand People has failed to allege a plausible basis for Lost Business Income coverage under either of its theories (the threat of rapidly spreading coronavirus or the Hawaii government closure orders). This claim is DISMISSED. Sand People is given limited leave to amend. It is unlikely to be able to allege the physical presence of coronavirus in any of its covered properties, but it may be able to allege the physical presence of coronavirus and additional facts in support of its "supply chain" theory.
II. CIVIL AUTHORITY LOSS
Sand People also argues that under the plain language of the Policy, it is entitled to coverage under the Civil Authority provision because the closure orders in Hawaii "prohibited" access to its stores and the orders themselves were issued "in response" to physical loss and damage elsewhere. Numerous judges, including Judge Tigar in Mudpie, have addressed and rejected this argument in this identical posture:
Mudpie's allegations establish that the government closure orders were intended to prevent the spread of COVID-19. See ECF No. 1 ¶ 24 (California's Safer at Home Order was issued "to control the spread of COVID-19."). Because the orders were preventative – and absent allegations of damage to adjacent property – the complaint does not establish the requisite causal link between prior property damage and the government's closure order.
Mudpie, Inc. , 487 F.Supp.3d at 844. The same result is required here. The preventative closure orders cannot support a causal link of direct physical loss of or damage to property for the reasons discussed above. In the absence of any allegation that any specific neighboring property to a Sand People property in Hawaii had actual coronavirus exposure, this coverage has not plausibly been triggered. See Sandy Point Dental, PC v. Cincinnati Ins. Co. , 20 CV 2160, 488 F.Supp.3d 690, 694 (N.D. Ill. Sept. 21, 2020) ("the policy's civil authority coverage applies only if there is a Covered Cause of Loss, meaning a direct physical loss, to property other than the plaintiff's property. Even then, there is coverage only if the civil authority order, (1) prohibits access to the premises due to (2) direct physical loss to property, other than plaintiff's premises, caused by or resulting from any Covered Cause of Loss."); In Raymond H. Nahmad DDS PA v. Hartford Cas. Ins. Co. , No. 1:20-cv-22833-BB, 499 F.Supp.3d 1178 (S.D. Fla. Nov. 2, 2020) (same).
This claim is likewise dismissed with limited leave to amend.
III. REMAINING CLAIMS
Given the failure to plead plausible coverage under any of the provisions of the Policy, I need not reach plaintiff's remaining claims (Unfair or Deceptive Trade Practices, under HI Rev. Stat. § 480-1 et seq., Breach of Covenant of Good Faith and Fair Dealing, and declaratory relief) because they all fail if the underlying breach of contract claim based on coverage fails.
An unfair conduct claim could be premised on defendants’ alleged "misrepresentation" of the scope of coverage. Oppo. at 22. However, there are no "how and what and where" facts alleged identifying any alleged misrepresentations in the Amended Complaint. The only time "misrepresent" is used is in paragraph 155 (alleging unfair conduct as "promising coverage to Plaintiffs and the Subclass that was not provided, and that Defendants had no intention of providing"). No specific facts regarding alleged fraudulent acts or misrepresentations are provided. Sand People is given limited leave to amend this claim to identify the specific misrepresentations it allegedly received regarding the coverage provided by defendants.
The other unfair acts – categorically denying claims and failing to investigate claims – fail if no coverage has been plausibly triggered.
CONCLUSION
For the foregoing reasons, defendants’ motion is GRANTED. Sand People is given limited leave to amend as described above. Any amended complaint should be filed within twenty days of the date of this Order.