"You've taken a good stab at it," U.S. Magistrate Judge Laurel Beeler told counsel for Chloe's Cafe. But Judge Beeler said she ultimately wasn't convinced by their argument and had decided to dismiss the suit once again.
Judge Beeler, who initially nixed the suit in a January order, said the cafe had not cured the problems with its previous complaint.
The direct physical loss provision in the cafe's insurance contract didn't cover lost business income or expenses from closure orders, the judge said. The cafe's owners didn't allege that the virus or any other physical impetus caused the cafe to lose functionality, the judge said, concluding that the amended complaint didn't plausibly allege a direct physical loss of property under the policy.
"As I think I said last time, this just wasn't a covered risk from my read of the cases," Judge Beeler said.
The loss of the cafe's income stemmed from San Francisco's COVID-19 lockdown orders suspending indoor dining, which are not a covered "direct physical loss," the judge said.
"At this point, I don't see how you can fix it," Judge Beeler told counsel for the cafe.
The co-owners of Chloe's Cafe, San Francisco residents Steven Baker and Melania Kang, brought their putative class action against Oregon Mutual in August 2020 asking the court to rule it is owed insurance coverage for losses due to the actions of a civil authority, extra expense coverage, business income coverage and business income from dependent properties coverage.
The cafe owners say in their action that Oregon Mutual has "systematically denied" insurance claims for coverage of losses and expenses by insured businesses due to the pandemic, constituting a breach of contract.
At a dismissal hearing in December, counsel for Chloe's Cafe, Chip Merlin of the Merlin Law Group, argued that COVID-19 contaminated the air, leading to a partial suspension of its operations, but that Oregon Mutual wrongfully refused to pay it and similarly situated policyholders for revenue loss stemming from the government-ordered closures.
Merlin argued that the cafe's business had been interrupted by physical damage in the form of COVID-19 particulates floating through the air.
The cafe contends that its insurance policy doesn't contain any exclusion that would apply to allow the insurer to completely deny coverage for losses caused by COVID-19 or actions of civil authorities taken in response to it.
Oregon Mutual, however, says the eatery has not experienced any physical damage and that it was still operating for takeout and, at times, dining, following the state and local emergency orders.
Judge Beeler dismissed the suit, granting leave to amend, in January.
At Thursday's hearing, Judge Beeler expressed her sympathy anew for the plaintiffs' dilemma but said the weight of authority in the Northern District of California and elsewhere cuts against their argument that the cafe met the standard for physical loss or damage.
Judge Beeler's rulings in the matter have been in the majority.
Just this week, U.S. District Judge Richard G. Stearns ruled that Fireman's Fund Insurance Co. and another insurer didn't have to cover coronavirus-related losses for two restaurants in Massachusetts, finding that its owners hadn't shown a "direct physical loss of or damage to" their properties from the pandemic or related government shutdowns.
Likewise, in Ohio this week, U.S. District Judge Solomon Oliver Jr. ruled that a bridal shop couldn't tap into its coverage with Owners Insurance Co. for business interruption losses tied to the COVID-19 pandemic and government shutdown orders, finding the shop failed to allege any "direct physical loss or damage."
Yet there are also judges who have allowed claims against insurers to stand, for now.
For instance, in February, U.S. District Judge Edmond E. Chang allowed a slew of restaurants, bars and theaters in Illinois to pursue claims that Society Insurance Co. wrongfully denied them coverage. The Illinois federal judge overseeing multidistrict litigation refused to toss policyholders' claims for COVID-19 business interruption losses.
This week, Society asked Judge Chang to allow it to immediately appeal his decision, saying the question of whether a loss of use of property constitutes a "direct physical loss" is a crucially important legal question that warrants quick appellate review.
Representatives for the parties did not immediately respond to requests for comment Thursday.
Chloe's Cafe is represented by William "Chip" Merlin, Daniel Jack Veroff and Victor J. Jacobellis of the Merlin Law Group and Adam Matthew Moskowitz and Adam A. Schwartzbaum of The Moskowitz Law Firm PLLC.
Oregon Mutual is represented by Clarke Benbow Holland of Pacific Law Partners LLP.
The case is Steven Baker et al. v. Oregon Mutual Insurance Co., case number 3:20-cv-05467, in the U.S. District Court for the Northern District of California.
--Editing by Jay Jackson Jr.
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