By Shawn Rice

Law360 (May 24, 2021, 4:26 PM EDT) -- A San Francisco landlord to a restaurant and a theatrical venue can't recover from insurers for unpaid rents due to the COVID-19 pandemic, a federal judge has ruled, saying there wasn't any physical loss or damage causing the tenants' inability to use the properties.

U.S. District Judge Jon S. Tigar on Friday said Falls Lake National Insurance Co. doesn't have to pay for the lost rents from China Live, a market restaurant; a restaurant called Eight Tables by George Che; six cocktail bars; and The Speakeasy, an immersive theatrical production set during Prohibition.

Both of these businesses were forced to shut down under California government orders to close all nonessential operations, according to court records. And a local eviction moratorium made it impossible for the restaurants' landlord, 644 Broadway LLC, to evict the nonpaying tenants, according to the suit.

But Judge Tigar said "[the landlord's] failure to allege physical loss, damage, or destruction that caused the alleged untenantability, or inability to access its property, is fatal to all of its claims."

The landlord filed suit, alleging that Falls Lake National and Falls Lake Fire and Casualty Co., which Judge Tigar found did not issue the commercial property insurance policies, were responsible for losses when its tenants were unable to pay rent due to pandemic-related closure orders.

The landlord argued that the tenants' restaurant and entertainment businesses were unfit, as government orders barred customers and employees from entering the properties. Those orders and government moratoriums on evictions prevented the use of the property as a generator of income, the landlord said.

But the insurers pushed back, arguing that there needed to be a "direct physical loss, damage, or destruction ... to real or personal property" to cause a covered loss resulting from untenantability.

In Friday's opinion, Judge Tigar agreed with the insurers, tossing the suit but allowing amendment.

Judge Tigar found that the outcome to 644 Broadway's suit was similar to his September ruling in Mudpie Inc. v. Travelers Cas. Ins. Co. of Am. In that ruling, Judge Tigar held that a San Francisco retailer couldn't show that business losses from COVID-19 shutdowns were caused by physical loss or damage.

Like in Mudpie, which is being appealed to the Ninth Circuit, Judge Tigar said there needs to be a link between prior property damage and the government closure orders. However, 644 Broadway doesn't allege any contamination by the coronavirus nor any other intervening physical force, the judge ruled.

Judge Tigar also wasn't convinced with the landlord's position that there wasn't a need for exclusions for nonstructural damage as those damages wouldn't be covered anyway. The judge said, for example, the fraudulent or dishonest acts exclusion could apply when an insured deliberately caused the property's physical damage.

On the East Coast, landlords have fared a bit better. In April, a Florida appellate court ruled that a Miami commercial landlord could proceed with its suit for $900,000 in lost revenue from the COVID-19 pandemic. That landlord alleged its tenants were forced to halt their retail and fitness businesses.

And a New York federal judge refused to toss Thor Equities' suit for over $20 million in coverage for rent payments owed at its Albee Square mall in Brooklyn, the Palmer House Hilton hotel in Chicago, retail properties in Tribeca, Chelsea and the Upper East Side of Manhattan, and property in other major cities.

Representatives for the parties didn't immediately respond to requests for comment Monday.

The landlord is represented by Martin W. Jaszczuk, Daniel Schlessinger, Maria G. Enriquez and Tamra Miller of Jaszczuk PC and Terry J. Mollica of Mollica Law.

Falls Lake is represented by Maria S. Quintero and Travis Wall of Hinshaw & Culbertson LLP.

The case is 644 Broadway LLC v. Falls Lake Fire and Casualty Co. et al., case number 4:20-cv-08421, in the U.S. District Court for the Northern District of California.

--Additional reporting by Daphne Zhang and Lauren Berg. Editing by Haylee Pearl.

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