By Daphne Zhang

Law360 (September 24, 2020, 7:43 PM EDT ) A California magistrate judge said a waxing salon's theory that its income loss was caused by state closure orders instead of COVID-19 is "nonsense," freeing Sentinel Insurance Co. and Hartford Financial Services Group from their alleged coverage duty.

U.S. Magistrate Judge Jacqueline Scott Corley recommended tossing a suit from Franklin EWC, Inc., saying Tuesday that the business has repeatedly alleged that its physical injuries were caused by COVID-19, while the policy's virus exclusion clearly bars coverage.

"The complaint unambiguously alleges that any covered cause of loss was directly or indirectly caused by COVID-19," the judge said. "The virus exclusion applies under its plain and unambiguous language."

In the order, Judge Corley said that the government shutdown orders were issued in direct response to COVID-19, a virus expressly precluded by the policy. "Under plaintiff's theory, the loss is created by the closure orders rather than the virus, and therefore the virus exclusion does not apply. Nonsense," the judge said.

Franklin EWC of Fresno, California, operates a European Wax Center with over 30 employees. The salon said it was forced to close and lay off its staff in March due to state-mandated closures. The salon sued Sentinel and Hartford in April seeking business interruption coverages after the insurers denied payment.

In Tuesday's order, Judge Corley said that government closure orders were not the direct cause of the salon's revenue loss but instead pointed to the novel coronavirus. The policy's civil authority provision does not create coverage but rather extends coverage when government orders are issued "as the direct result of a covered cause of loss to property in the immediate area" of a policyholder's property, the judge said.

"There is nothing in the complaint that supports an inference … that the closure orders themselves caused damage to neighboring property," he added.

The waxing salon previously argued that even if the virus exclusion applies, it is entitled to $50,000 coverage under the policy's "limited virus exception," which offers payment if the insured's loss is caused by fire, explosion, hail, vehicle or aircraft, among others.

Judge Corley disagreed, pointing out that the salon failed to show that COVID-19 has caused any of the specified losses on its property, and it only argued that the policy exception requirement is absurd and "factually impossible to satisfy."

Additionally, the judge agreed with Hartford's position that claims against it should be dropped because Hartford was never a party in the policy. The salon has argued that the insurer is responsible for coverage duty because its policy language referenced the term "The Hartford" throughout.

Judge Corley said that "The Hartford' is only a trade name and not a legal entity. The brand name is "used by multiple, distinct entities, including Sentinel," he said.

"Unlike Sentinel, HFSG did not have a contract with plaintiffs. Further, HFSG offers evidence that it was not involved with plaintiffs' contract or claims in any way," the judge added

Counsel for the parties did not immediately respond to requests to comment.

The insurers are represented by Sarah D Gordon, Cody Austin DeCamp and Anthony John Anscombe of Steptoe & Johnson LLP.

Franklin EWC is represented by Nanci Eiko Nishimura, James Gerard Beebe Dallal, Anya N. Thepot, Brian Danitz and Andrew F Kirtley of Cotchett Pitre & McCarthy LLP

The case is Franklin EWC, Inc. v. Hartford Financial Services Group et al, case number 3:20-cv-04434, in the U.S. District for the Northern District of California.

--Editing by JoVona Taylor.

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