In a response filed Monday, Caribe Restaurant & Nightclub Inc. took aim at Topa Insurance Co.'s bid to dismiss the suit, saying the insurer is misinterpreting the "physical loss of or damage" clause in the policy to require a structural alteration when no such requirement is in its language.
"Although the words are ordinary, the impact of any decision on the merits by this court will be extraordinary," the restaurant told the court.
According to the brief, the plain meaning of the words "direct physical loss of or damage" supports coverage, as courts have taken "loss" to include loss of use even when the property did not suffer structural alteration.
The word "physical," the restaurant argued, only aims to exclude tangential damages like depreciation in value, but should include things like loss of use.
Caribe's suit is one of six class actions launched by attorneys from DiCello Levitt Gutzler LLC, the Lanier Law Firm PC, Burns Bowen Bair LLP and Daniels & Tredennick in April, with Caribe alleging like the others that it paid premiums to its insurer for business interruption insurance for situations in which it could be forced to close through no fault of its own, but its claim has been denied.
In Monday's brief, the restaurant further argued that even if structural alteration was needed, the COVID-19 pandemic satisfies that requirement because Caribe pled that it is infested with a harmful agent and that the virus diminished its space and ability to use the property.
The restaurant cited another case, in the Northern District of California, that found that E. coli in a restaurant's well constituted direct physical damage, saying that COVID-19 likewise should be found to cause physical damage.
In addition, courts have found that losing habitability or functionality constitutes physical loss, the restaurant said, referring to one case in which a nightclub owner got coverage because the club could no longer operate after losing its license following a shooting.
The restaurant also pointed to several recent decisions supporting businesses seeking COVID-19 coverage, including cases in Missouri and Florida in the past two months in which judges found that policy language regarding physical loss did not bar coverage.
The restaurant said various civil orders causing shutdowns bolster its argument, as they make clear that COVID-19 causes direct physical loss, with some containing language saying the virus "is physically causing property damage."
And because the virus is causing that property damage to other businesses around Caribe, the restaurant argued, the civil authority coverage is likewise valid, adding that the policy does not require that Caribe's business be entirely stopped.
Caribe also urged the court to find it can be reimbursed by Topa for any expenses it paid trying to mitigate its losses from the virus, as those are covered under the policy as well.
Finally, the restaurant took aim at the two exclusions Topa cited, saying that the "Nuclear, Biological, Bio-Chemical and Radiation Exclusion" is intended for intentional acts, not the natural spread of a virus, and the "Ordinance or Law" exclusion doesn't apply because that's exclusively concerned with compliance with building and land use codes.
An attorney for Topa said the insurer plans to file its reply, but otherwise declined to comment.
Representatives for Caribe could not immediately be reached for comment Tuesday.
Caribe is represented by C. Moze Cowper and Noel E. Garcia of Cowper Law LLP, Adam J. Levitt, Daniel R. Ferri, Mark Hamill, Mark A. DiCello, Kenneth P. Abbarno and Mark Abramowitz of DiCello Levitt Gutzler LLC, Timothy Burns, Jeff Bowen, Freya Bowen and Jesse Bair of Burns Bowen Bair LLP, Mark Lanier and Alex Brown of the Lanier Law Firm PC and Douglas Daniels of Daniels & Tredennick.
Topa is represented by Gordon A. Greenberg, Jason D. Strabo, Margaret H. Warner and Joshua B. Simon of McDermott Will & Emery LLP.
The case is Caribe Restaurant & Nightclub Inc. v. Topa Insurance Company, case number 2:20-cv-03570, in the U.S. District Court for the Central District of California.
--Additional reporting by Jeff Sistrunk. Editing by Amy Rowe.
For a reprint of this article, please contact reprints@law360.com.