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Law360 (March 5, 2021, 3:45 PM EST ) A California federal judge permitted a beauty salon's proposed class action seeking COVID-19-related insurance coverage to proceed, ruling that it's "plausible" the salon experienced "direct physical loss" after not being able to use its property due to government closure orders.
U.S. District Judge Jesus Gilberto Bernal on Thursday allowed Nora's Style Salon Inc.'s suit against Farmers Insurance Group to go forward, ruling that although the salon did not incur "direct physical damage," it did likely suffer direct physical loss — another precondition for coverage — in the form of physical dispossession of its property.
"It is plausible that 'direct physical loss of' property includes physical dispossession because of dangerous conditions (a virus in the air) or a civil authority order requiring Nora's to close," the judge said, pointing out that Nora's was not able to use its property for its only purpose — the operation of a business — due to the closure orders.
Kingray Inc., which owns a sports bar and grill in La Quinta, California, brought the proposed class action against Farmers last May, and Nora's joined the suit as a second plaintiff in September. The two have alleged breach of insurance contracts after Farmers refused to cover their COVID-19 related losses.
Kingray's policy contains virus exclusions while Nora's policy does not. Kingray and Nora's both seek to represent a nationwide class of all Farmers policyholders who suffered loss from government closure orders during the pandemic. Nora's also looks to represent a subclass of Farmers' insureds whose policy does not have a virus exclusion and suffered losses related to COVID-19.
On Thursday, Judge Bernal said Kingray cannot get coverage because its policy's virus exclusion precludes coverage. It is indisputable that government closure orders were issued as a result of the virus outbreak, the judge said, finding that the causal chain between COVID-19 and state closure orders was clear and straightforward.
"If there were no coronavirus, there would be no Covid-19 pandemic, no Covid-19-related shutdowns, and no need for Kingray to close, operate at a limited capacity, or modify the floor plan of its sports bar."
However, he ruled that Nora's has alleged a likelihood that its property suffered a direct physical loss from not being able to function as intended.
"It is possible that either the coronavirus which causes Covid-19 or New York's stay at home orders caused "direct physical loss" to Nora's," the judge said. "If Plaintiff was not allowed to operate or invite others onto its property, it was dispossessed of it in some way. Dispossession is a form of loss."
Counsel for the parties could not be immediately reached for comment.
Nora's and Kingray are represented by Robert G. Loewy of Law Offices of Robert Loewy PC.
Farmers is represented by Jordan D. Teti of Hogan Lovells LLP.
The case is Kingray Inc. v. Farmers Group Inc. et al., case number 5:20-cv-00963, in the U.S. District Court for the Central District of California.
--Editing by Ellen Johnson.
For a reprint of this article, please contact reprints@law360.com.
