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Law360 (October 29, 2020, 4:29 PM EDT) -- A Berkshire Hathaway insurance unit does not need to cover two hotels' losses from COVID-19 shutdowns, a California federal judge has ruled, finding that the hotels fail to allege property damage and the policy's virus exclusion bars coverage.
U.S. District Judge Virginia A. Phillips refused to let West Coast Hotel Management and West Coast Orange Group LLC amend their complaint and tossed their suit against Berkshire Hathaway Guard Insurance Companies, according to an order filed Tuesday.
The judge said that the two Fresno, California-based hotel owners only showed that they suffered a temporary economic loss and failed to allege that their properties went through a physical alteration as required by the policy.
"While 'direct physical loss of or damage to property' is not defined in the policy, it plainly requires, at minimum, that the loss or damage be physical in nature," the judge said. "Under California law, however, a 'detrimental economic impact' alone [...] is not compensable under a property insurance contract."
The hotel owners sued Berkshire Hathaway and AmGUARD Insurance Co. in June, seeking a declaration that their revenue losses during the pandemic should be covered. They filed an insurance claim in January after the hotels' occupancy was hit by the pandemic and insurers subsequently denied their claim.
On Tuesday, Judge Phillips said that even though the owners alleged that COVID-19 caused physical damage, they were not able to show any facts regarding the "physical nature" of COVID-19 and how that factor caused damage to their properties or properties near their hotels.
"Plaintiffs' complaint provides only generic statements regarding the physical nature of COVID19 and the number of cases in California and Fresno Count," but does not connect those allegations with any alleged physical damage on their own properties, the judge pointed out in the order.
Additionally, Judge Philips said, while the hotels contend civil authority coverage is triggered because the government closure orders were issued based on "evidence of physical damage to property," they never demonstrated that properties nearby their hotels were physically damaged.
The judge also said that the policy's virus exclusion "is both conspicuous and clear" in precluding any losses incurred in relation to COVID-19.
"Even if Plaintiffs were to argue that their losses were caused solely by the executive orders and not 'directly or indirectly' by the virus, Plaintiffs have already admitted that the orders were issued 'to halt the physical spread of COVID-19,'" Judge Phillips said in the order.
Representatives from the parties could not be immediately reached for comment.
The hotels are represented by Darren Michael Richie and Steve M. Jang of Richie Litigation PC.
The carriers are represented by Chet A Kronenberg of Simpson Thacher and Bartlett LLP.
The case is West Coast Hotel Management LLC et al. v. Berkshire Hathaway Guard Insurance Companies et al., case number 2:20-cv-05663, in the U.S. District Court for the Central District of California.
--Editing by Gemma Horowitz.
For a reprint of this article, please contact reprints@law360.com.
