By Daphne Zhang

Law360 (March 9, 2021, 4:45 PM EST) -- A California federal court has rejected two flower importers' suits seeking $2 million in coverage from Travelers Property Casualty Co. for pandemic-induced losses, finding that their insurance policy's governmental action exclusion clearly bars all losses resulting from state lockdown orders.

U.S. District Judge Janis Lynn Sammartino of the Southern District of California sided with Travelers on Monday, ruling that Florexpo LLC and its subsidiary Kendal Floral Supply's policy excludes coverage for losses caused by government decisions. The importers failed to identify any other causes that resulted in their losses, the judge said. 

"Plaintiffs have not pled a plausible alternative to the government action that caused their loss of stock. The stock perishing and being disposed of is not a 'new hazard or phenomenon, separate and independent' from the government action to restrict access," Judge Sammartino said.

But the judge allowed the flower distributors to amend their complaint within 30 days. 

In June, the Carlsbad, California-based flower importers said they were "prevented by government authorities" from accessing their flower warehouses last March. Despite efforts to relocate their inventory before the warehouses closed, a significant number of the flowers died. The importers argued that the damaged flower stock represented a direct physical loss covered under their policy.

The importers filed a $2 million physical loss insurance claim in April, and Travelers rejected it nine days later, according to the suit. The distributors contended that their "all perils" policy, which covers up to $5.4 million of property loss of their flower stock, should pay for all losses unless expressly excluded.

Travelers told the court in July that the policy's "acts or decisions exclusion" precludes coverage for losses resulting from a government act or decision. The flower distributors have argued that the exclusion is ambiguous and should be read to include only negligent government conduct.

Judge Sammartino disagreed on Monday, saying that the importers' interpretation is overly narrow and that they are asking the court to insert "negligence" or "intentional" into the exclusion definition when it clearly does not include those terms.

The policy's exclusion is "plainly stated and free of jargon," the judge said.

She also rebuffed the flower importers' contention that Travelers failed to properly investigate their claim, holding that the insurer's denial of coverage was "justified under a valid exclusion" and that the importers failed to show that the insurer's decision was unreasonable.

According to the suit, Florexpo and Kendal Floral Supply's fresh-cut flowers, which are imported from South America, are highly perishable and time-sensitive. And since they routinely hold "many millions" of dollars' worth of flowers in warehouses, they specifically purchased the one-year commercial property policy from Travelers to protect themselves from potential physical damages, the flower importers said.

Representatives for the parties could not be immediately reached for comment on Tuesday.

Florexpo LLC and Kendal Floral Supply LLC are represented by Marc D. Halpern and Douglas J. Brown of Halpern May Ybarra Gelberg LLP.

Travelers is represented by Randy M. McElvain and Edmond Sung of Weston & McElvain LLP and Gregory P. Varga and J. Tyler Butts of Robinson & Cole LLP.

The case is Florexpo LLC et al. v. Travelers Property Casualty Co. of America, case number 3:20-cv-01024, in the U.S. District Court for the Southern District of California.

--Additional reporting by Dave Simpson. Editing by Karin Roberts.

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