Insurance Co. Beats Calif. Nightclub's Virus Coverage Suit

By Shawn Rice
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Law360 (April 12, 2021, 2:22 PM EDT) -- A California federal judge on Friday tossed La Luz Ultralounge's proposed class suit against Topa Insurance Co. over coverage for pandemic-driven business closures, saying the California restaurant and nightclub's losses weren't caused by "direct physical loss of or damage to" the property.

Caribe Restaurant & Nightclub Inc. claimed losses from COVID-19 restrictions under orders stopping its Bonita, California, club's normal operations. But U.S. District Judge Otis D. Wright II said the shutdowns by the California and San Diego County governments weren't enough to show a physical loss.

"While the court is sympathetic that Caribe is suffering economically from the unprecedented COVID-19 pandemic, an economic business impairment does not qualify as a physical loss or damage to the premises," the judge said, dismissing the suit without leave a year after it was filed.

Caribe's suit was one of six class actions launched by attorneys from DiCello Levitt Gutzler LLC, the Lanier Law Firm PC, Burns Bowen Bair LLP and Daniels & Tredennick. It alleged that Topa, like other insurers, wrongly denied coverage for losses stemming from the COVID-19 pandemic.

In Friday's ruling, Judge Wright sided with Topa, rejecting Caribe's argument that its nightclub was infested with a harmful agent and the virus diminished use of the club. He found a growing consensus in the jurisdiction that business income losses caused by COVID-19 safety orders aren't covered.

For California businesses, this past month saw multiple losses based on an inability to show a "direct physical loss" caused by the pandemic and related shutdown orders. A California federal judge tossed a casual dining eatery's suit, finding the "physical loss or damage" requirement is not ambiguous.

Two Barbizon acting and modeling schools couldn't prove to a California federal magistrate judge that their West and East Coast locations were covered for the pandemic-related losses. A San Diego jewelry store likewise couldn't show a covered loss but was given another chance to rework the suit.

A California federal judge tossed a San Francisco cafe's proposed class action, finding the owners didn't allege that the coronavirus or any other physical alteration caused the inability to use the cafe. Finally, a franchisee of 100 Outback Steakhouse restaurants had its business interruption suit kicked.

Margaret H. Warner of McDermott Will & Emery LLP, counsel for Topa, told Law360 on Monday that the insurer "mourned the loss of life and disruption to many businesses" caused by the pandemic.

"However, Topa's policy did not provide insurance coverage for these circumstances and we are pleased that Judge Wright's order dismissing the case without leave to amend upholds Topa's policy language and its handling of Caribe's claim," Warner said in the emailed statement.

Representatives for Caribe didn't respond to requests for comment.

Caribe is represented by C. Moze Cowper and Noel E. Garcia of Cowper Law LLP, Adam J. Levitt, Daniel R. Ferri, Mark Hamill, Mark A. DiCello, Kenneth P. Abbarno and Mark Abramowitz of DiCello Levitt Gutzler LLC, Timothy W. Burns, Jeff J. Bowen, Jesse J. Bair and Freya K. Bowen of Burns Bowen Bair LLP, Mark Lanier and Alex Brown of the Lanier Law Firm PC, and Douglas Daniels of Daniels & Tredennick PLLC.

Topa is represented by Gordon A. Greenberg, Jason D. Strabo, Margaret H. Warner and Joshua B. Simon of McDermott Will & Emery LLP.

The case is Caribe Restaurant & Nightclub Inc. v. Topa Insurance Co., case number 2:20-cv-03570, in the U.S. District Court for the Central District of California.

--Additional reporting by Mike Curley, Dave Simpson, Lauren Berg and Hannah Albarazi. Editing by Vincent Sherry. 

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