Law360 (January 21, 2021, 9:11 PM EST) -- A California federal judge granted Travelers Indemnity Co.'s bid to toss a Los Angeles restaurant's suit seeking COVID-19-related loss coverage, ruling that the eatery failed to allege a "direct physical loss" and that coverage is barred by the policy's virus exclusion.
U.S. District Judge Dolly M. Gee refused to give Pez Seafood DTLA LLC another chance to amend its complaint alleging that Travelers breached the insurance contract by not covering its business losses, saying such an effort would be futile.
"Plaintiff cannot escape that a virus is the root cause of the [government closure] orders," the judge said. "'Pandemic' merely describes the geographical scope and effect of the virus on the population. Whether a global pandemic or a single infection, the Virus Exclusion clearly and unambiguously applies."
Pez is the owner of Pez Cantina, a restaurant in Los Angeles. The eatery shut down its business last March due to the COVID-19 outbreak and state-mandated closures. Last April, the restaurant operator sued Travelers, seeking coverage for its lost business income. Travelers denied coverage 10 days later, asserting that the policy's virus and bacteria exclusion applies.
Pez has argued it suffered a "direct physical loss" to its property because the closure orders prohibited its customers from eating in the restaurant. Judge Gee disagreed on Wednesday, saying there "must be some physical intrusion that compromises the physical integrity of property."
The restaurant owner failed to allege that COVID-19 physically appeared on its properties at the time it was forced to close, so there was no direct physical loss, the judge said. Courts have routinely held that for a loss of use to constitute a direct physical loss, "there must be a nexus between the loss and a physical change," she added.
Additionally, while "the court can reasonably infer that the virus entered property within 100 miles of the restaurant, which … constitutes a direct physical loss," the virus exclusion precludes coverage, Judge Gee said.
The judge also rebuffed Pez's argument that although a virus is barred by the policy, a pandemic is not. Even if the COVID-19 pandemic could be distinguished from the virus, Pez still failed to allege physical loss because it could not show the virus ever entered its property or caused physical intrusion, she explained.
Representatives for the parties could not be immediately reached for comment on Thursday.
Pez is represented by Marina Renee Pacheco, Nineli Sarkissian, Brian S. Kabateck and Christopher B. Noyes of Kabateck LLP.
Travelers is represented by Richard Joseph Doren, Deborah L. Stein and Theodore J. Boutrous Jr. of Gibson Dunn & Crutcher LLP and Wystan M. Ackerman and Stephen E. Goldman of Robinson & Cole LLP.
The case is Pez Seafood DTLA LLC v. The Travelers Indemnity Company et al., case number CV 20-4699, in the U.S. District Court for the Central District of California.
--Editing by Ellen Johnson.
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