LA Restaurant Can't Get COVID-19 Coverage From Travelers

By Mike Curley
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Law360 (October 5, 2020, 2:17 PM EDT) -- A California judge has thrown out a Los Angeles eatery's suit seeking coverage from The Travelers Indemnity Co. of Connecticut for business losses stemming from the COVID-19 pandemic, finding that the virus hasn't caused physical loss — and even if it had, the restaurant's policy has a virus exclusion that bars coverage.

In an order filed Friday, U.S. District Judge André Birotte Jr. rejected arguments from Mark's Engine Co. No. 28 Restaurant that the virus had physically damaged its property, saying that because its employees still had access to the site, the company suffered no permanent loss or loss of use.

In the order, Judge Birotte adopted the reasoning of U.S. District Judge Steven V. Wilson, who presided over another COVID-19 coverage suit, with an identical policy, saying Mark's Engine only plausibly alleged that state mandates interfered with the use or value of the property, but didn't cause physical loss or damage.

Whatever physical alteration COVID-19 might cause to property in general and however the public response impacted its business, the judge wrote, Mark's Engine didn't allege that it altered its property in particular.

"The only individuals who could potentially claim 'direct physical loss of' access to the premises would be patrons who were no longer allowed to dine in," Judge Birotte said. "And even then, the policy is between plaintiff and defendant, not restaurant goers and defendant."

Mark's Engine operates a restaurant in downtown Los Angeles and sued Travelers and Los Angeles Mayor Eric Garcetti in April, claiming that Travelers should cover its revenue losses from the mayor's March order to shut down nonessential businesses and alleging that the legality of Garcetti's executive order is questionable.

Judge Birotte in July denied the restaurant's bid to remand the case to state court, finding that the eatery "fraudulently joined" Garcetti to avert federal jurisdiction. The judge said Travelers showed Garcetti should not be included in the case because he is not a party in the insurance contract between Travelers and its policyholder.

In September, attorneys for Travelers told the judge that the case should be dismissed, as the insurance policy explicitly excludes coverage for losses related to any virus.

In Friday's order, Judge Birotte further found that even if Mark's Engine had plausibly alleged that COVID-19 had caused direct physical loss or damage to its property, the policy has an exclusion stating that it does not cover "loss or damage caused by or resulting from any virus."

Given the complaint's emphasis that COVID-19 caused all its loss or damage, including that Garcetti's orders are due to the virus, and that the restaurant's employees refused to work for fear of infection, the exclusion clearly applies and precludes all coverage, the judge wrote, dismissing the suit with prejudice.

Representatives for Mark's Engine and Travelers could not immediately be reached for comment Monday.

The suit is the latest in a number of cases to be dismissed after judges found the virus did not trigger physical loss or damage coverage, while only a handful of cases have made it past the dismissal phase.

In September, comfort food restaurant and bar Plan Check dropped its suit against AmGuard Insurance Co. following a tentative order to dismiss, and Cincinnati Insurance Co. beat a suit from an Illinois dental office.

Also in September, a Florida judge let a gynecology office's suit against Sentinel Insurance Co. Ltd. move forward, saying she could not decide as a matter of law that coverage was precluded, making it only the fourth federal case to move ahead.

Geragos & Geragos APC has been sparring with Travelers over COVID-19 coverage suits, with Travelers suing the law firm in April, saying it has no duty to cover the firm for business losses during the pandemic. The suit came a week after the firm launched a series of complaints in Los Angeles Superior Court accusing Travelers of wrongfully denying coverage to it and several other California businesses.

Geragos moved to toss Travelers' suit in June, but a judge denied the request in August, according to court records.

The restaurant is represented by Mark J. Geragos, Benjamin J. Meiselas, and Matthew M. Hoesly of Geragos & Geragos APC and Nitoj P. Singh and Harmeet K. Dhillon of Dhillon Law Group Inc.

Travelers is represented by Richard J. Doren, Deborah L. Stein and Theodore J. Boutrous Jr. of Gibson Dunn & Crutcher LLP and Stephen E. Goldman and Wystan M. Ackerman of Robinson & Cole LLP.

The suit is Mark's Engine Co. No. 28 Restaurant LLC v. The Travelers Indemnity Co. of Connecticut et al., case number 2:20-cv-04423, in the U.S. District Court for the Central District of California.

--Additional reporting by Jeff Sistrunk, Daphne Zhang, Lauren Berg and Hailey Konnath. Editing by Alyssa Miller.

For a reprint of this article, please contact reprints@law360.com.

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