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Law360 (June 15, 2021, 3:51 PM EDT) -- A commercial landlord in Los Angeles sued a Travelers unit in a California federal court for refusing to help cover more than $1.8 million in rental losses sustained because of the coronavirus pandemic.
The owner, JC/SC LLC, accused Travelers Indemnity Co. of Connecticut of breaching its insurance agreements by refusing coverage on the grounds that the virus did not cause direct physical loss or damage to the company's properties. Travelers also declined coverage on the basis of a virus exclusion, a Monday complaint showed.
JC/SC asserted in the complaint that government shutdown orders and restrictions limiting the use of its properties constituted physical loss if not physical damage. The landlord is seeking coverage for properties along Melrose Avenue, a popular shopping destination, as well as Sunset Boulevard and other tony Los Angeles neighborhoods.
"JC/SC expected the 'business income' coverage to cover the loss of 'rental value' when its tenants could not pay rent — exactly what the policy was designed to insure," the landlord said. "Instead of honoring its obligations, Travelers has paid nothing for JC/SC's losses, thereby depriving JC/SC of the insurance to which it is entitled."
Travelers should have been aware of the risks posed by a pandemic, JC/SC said. It argued that its insurer should have known "for decades" that its policies could be invoked in order to cover losses stemming from the airborne or surface presence of a virus.
The landlord offered the 1962 case of an otherwise undamaged house hanging off the edge of a cliff following a landslide as an example of a building that was found to be insured despite there being no outward evidence of physical damage to the building.
JC/SC also suggested that the virus exclusion in its policy didn't bar it coverage because it was written to apply narrowly — only if a virus was the "efficient proximate cause of loss or damage," it said. Travelers chose not to include broader language in the policy that would be more encompassing than the language it did use, JC/SC said.
"Travelers made no meaningful investigation of the causes of JC/SC's losses, let alone the thorough investigation that it is legally required to make into bases supporting JC/SC's claim for coverage, including whether the efficient proximate cause of the loss was something other than the presence of SARS-CoV-2," the landlord argued.
Policyholders have not fared well litigating coronavirus coverage disputes in federal court. More than 82% of such cases have been permanently dismissed, according to data compiled by University of Pennsylvania Carey Law School. And out of more than 200 federal suits concerning a virus exclusion, only 10 have survived a motion to dismiss.
Representatives for JC/SC could not immediately be reached for comment.
Spokespersons for Travelers could not immediately be reached for comment.
JC/SC is represented by Kirk Pasich and Anamay M. Carmel of Pasich LLP.
Counsel information for Travelers was not immediately available.
The case is JC/SC LLC v. Travelers Indemnity Co. of Connecticut, case number 2:21-cv-04835, in the U.S. District Court for the Central District of California.
--Editing by Neil Cohen.
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