By Daphne Zhang

Law360 (October 26, 2020, 10:18 PM EDT ) A California federal judge tossed a San Francisco-based sandwich eatery's proposed class action against California Capital Insurance Co. seeking COVID-19 business interruption coverage, finding Monday that a virus exclusion plainly bars pandemic losses.

U.S. District Judge Charles R. Breyer said the insurer's virus exclusion not only applies to standalone viruses, but also pandemics. Boxed Foods Company LLC and Gourmet Provisions LLC failed to allege that the virus exclusion does not apply to losses caused by government closure orders issued in response to COVID-19, the judge said.

In the order, Judge Breyer rebuffed restaurant companies' arguments that because California Capital's virus exclusion did not include the word "pandemic," the exclusion only applied to "stand-alone viruses" instead of "viruses that escalate into a pandemic."

"The word 'pandemic' describes a disease's geographic prevalence, but it does not replace disease as the harm-causing agent," the judge said, citing case law that "the absence from a policy of a ... word ... does not by itself ... necessarily create an ambiguity."

Even if the court chooses to believe the eateries' "unreasonable" distinction between a standalone virus and a pandemic, "COVID-19 remains the 'indirect' cause of the insured's harm," so the virus exclusion expressly bars coverage, the judge said.

The San Francisco Bay Area has seen nearly 8,300 businesses close and 4,000 of them shut down permanently, and there have been nearly 1,300 federal lawsuits filed seeking business interruption coverage, Judge Breyer said, citing a local news report and data from the University of Pennsylvania Carey School of Law.

The judge said that while he "sympathizes" with the companies over their San Francisco restaurants, which were forced to shut their doors permanently in March, "the court cannot ignore that the insurance policy excludes coverage for losses caused by viruses, like COVID-19."

Boxed Food and Gourmet Provisions have argued that the virus exclusion was not intended to include pandemics because the Insurances Services Office misrepresented the exclusion to insurance regulators in 2006.

"Even if ISO misrepresented the purpose and scope of its Virus Exclusion, Plaintiffs' theory requires the Court to construe Defendant's plain, unambiguous Virus Exclusion to mean the exact opposite of its ordinary meaning," Judge Breyer said. "Neither California law nor federal courts interpreting Virus Exclusions permit such an outcome."

The judge said the companies' own complaint suggested that the exclusion was created with the intention to exclude potential pandemic diseases like the SARS outbreak, so the policyholders failed to prove that the virus exclusion does not include pandemics. Discovery is not needed to determine the scope of the exclusion.

Boxed Food and Gourmet Provisions have argued that government closure orders instead of COVID-19 caused its losses, so the virus exclusion does not apply to the policy's Civil Authority provision. The exclusion only applied to property damage caused by the virus, the restaurants said.

"Nothing in the Virus Exclusion suggests that it is limited to property damage," the judge said. "Plaintiffs seek business losses and extra expenses that stem from Civil Authority Orders, but California issued these orders as a direct response to COVID-19."

Representatives for the parties could not be immediately reached for comment on Monday. 

The restaurants are represented by David Michael Birka-White of Birka-White Law Offices and Daniel C. Levin of Levin Fishbein Sedran & Berman.

The insurer is represented by Peter Jonathan Marcus and Laurie Susan Julien of Berkes Crane Robinson & Seal LLP. 

The case is Boxed Foods Company LLC et al v. California Capital Insurance Company et al., case number 3:20-cv-04571, in the U.S. District for the Northern District of California. 

--Editing by Amy Rowe.

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