By Mike Curley

Law360 (October 20, 2020, 1:47 PM EDT) -- A California federal judge has thrown out a set of counterclaims by Geragos & Geragos in its dispute with Travelers Casualty Insurance Co. of America over COVID-19 business interruption coverage, finding a virus exclusion in its policy bars coverage.

In a Monday order, U.S. District Judge Philip S. Gutierrez dismissed with prejudice all four of Geragos' counterclaims against the insurer, saying the virus exclusion was brought into play by the firm's own allegations that the government orders that limited its business were based on "dire risks of exposure with the contraction of COVID-19."

While Geragos had argued against the dismissal by saying it was "unclear" whether the government orders stemmed from the virus, the judge said that argument is undermined by the text of the firm's counterclaims.

The civil authority provision in the policy applies only to covered causes of loss, and the virus exclusion puts diseases like COVID-19 outside of that umbrella, the judge said, so the insurer does not have a duty to provide coverage.

Geragos sued Travelers in state court on April 10, accusing the insurer of failing to honor its losses during the COVID-19 pandemic. According to the firm, the coverage should have been triggered when Los Angeles Mayor Eric Garcetti issued an order closing nonessential businesses on March 15. Travelers removed the suit to federal court in May.

Travelers filed its own federal court case 10 days after Geragos' original filing, asserting the firm's policy simply does not cover the outbreak and has exclusions specifically for business losses resulting from a virus.

In August, Judge Gutierrez opted to keep both suits in federal court, denying bids by Geragos to dismiss Travelers' suit and remand its own suit to state court. The judge then consolidated the cases under Travelers' federal suit, and Geragos refiled its allegations as counterclaims.

In Monday's order, the judge also threw out Geragos' claims for business income and extra expense coverage, finding the counterclaim does not allege any physical loss of or damage to Geragos' property.

Judge Gutierrez cited other, similar decisions, such as a suit by Mark's Engine Co. No. 28 Restaurant against another Travelers unit, in which the judge similarly held the virus did not cause physical loss or damage.

In addition, the judge noted Geragos acknowledged it was "exempted as an 'essential business'" under Garcetti's shutdown order.

And because Geragos did not contest Travelers' bid to dismiss its other causes of action — breach of contract, breach of implied covenant of good faith and violation of California's Business and Professions Code — and because those claims derive from the question of Travelers' coverage, the judge dismissed those counts as well.

"We are not deterred in our fight to hold Travelers and other Insurers responsible for taking insureds' premium hard-earned money for decades and then abandoning those insureds when they most need it," Mark J. Geragos of Geragos & Geragos told Law360 on Tuesday. "It is also unfortunate that [motions to dismiss] have morphed into motions for summary judgment. This is a trend that should frighten anyone looking to federal courts for redress against corporate interests."

Representatives for Travelers could not immediately be reached for comment Tuesday.

Travelers is represented by Theodore J. Boutrous Jr., Richard J. Doren and Deborah L. Stein of Gibson Dunn & Crutcher LLP and Stephen E. Goldman and Wystan M. Ackerman of Robinson & Cole LLP.

Geragos & Geragos is represented by its own Mark J. Geragos, Ben J. Meiselas and Matthew M. Hoesly and Harmeet K. Dhillon and Nitoj P. Singh of Dhillon Law Group Inc.

The case is Travelers Casualty Insurance Co. of America v. Geragos & Geragos APC, case number 2:20-cv-03619, in the U.S. District Court for the Central District of California.

--Additional reporting by Jeff Sistrunk and Hailey Konnath. Editing by Marygrace Murphy.

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