Zurich American Insurance Company v. WM Bolthouse Farms, Inc.

[7] 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA [10] 11 ZURICH AMERICAN INSURANCE Case No. 1:21-CV-00783-JLT-CDB COMPANY, et al., [12] ORDER REQUESTING JOINT STATUS 13 Plaintiffs, REPORT REGARDING MOTION FOR JUDGMENT ON THE PLEADINGS 14 v. 15 WM. BOLTHOUSE FARMS, INC., (Doc. 36) 16 Defendant. [17] 18 WM. Bolthouse Farms, Inc. is a farming, food and beverage company that held insurance 19 policies from each of the Plaintiffs. (Doc. 36 at 12.) Bolthouse submitted insurance claims to 20 Plaintiffs following losses due to the COVID-19 pandemic and government-ordered closures. 21 (Doc. 7 at 22 ¶ 48.) Plaintiffs initiated this action for declaratory judgment seeking a declaration 22 that no insurance coverage exists under their policies. (Doc. 7 at 2 ¶ 1.) With its answer to the 23 complaint, Bolthouse filed a cross-complaint containing affirmative defenses of unclean hands, 24 waiver, estoppel, laches, failure to state a claim, breach of contract, and bad faith. (Doc. 13 at 1725 19.) On September 10, 2021, Plaintiffs filed a motion for judgment on the pleadings asking the 26 Court to find that none of the insurance policies cover Bolthouse’s claimed losses and its cross27 complaint fails to state a claim upon which relief can be granted. (Doc. 36.) 28 The parties have fully briefed the motion (including an opposed sur-reply) (Docs. 39, 43, 1 44, 45) and have also filed various supplemental authorities as the California courts of appeal and 2 the Ninth Circuit decided cases with substantially similar insurance claims. (Docs. 47, 56, 62.) 3 Although the parties’ arguments raise several nuanced and complex disputes over contract term 4 interpretation, the outcome of the case seemingly depends, in large part, on whether the presence 5 of the COVID-19 virus in Bolthouse’s properties may constitute a “direct physical loss or 6 damage.” The primary provisions that provide coverage under the Zurich Edge Form, common to 7 all policies, require losses attributable to a “direct physical loss of or damage” to Bolthouse’s 8 property. (Doc. 13-1 at 30 (Time Element Provision § 4.01.01); id. at 39 (Decontamination Costs 9 § 5.02.07).) The exclusion for costs due to “Contamination” also makes an exception and covers 10 costs resulting from “direct physical loss or damage.” (Id. at 26.) Plaintiffs contend that the 11 presence of the COVID-19 is not a “physical loss of or damage” to property. (Doc. 36 at 18-25.) 12 In contrast, Bolthouse alleges that the presence of COVID-19 causes droplets to attach to 13 surfaces, remain in the airspace, and requires installation of physical barriers and various other 14 mitigation efforts to prevent the virus’s spread. (Doc. 39 at 16-17.) Bolthouse argues these 15 allegations suffice to show direct physical loss or damage to their properties. (Id. at 18-25.) 16 California courts of appeal are split on this issue. In United Talent Agency v. Vigilant 17 Insurance Co., Division 4 of the Second District held that the presence of COVID-19 in an 18 insured’s property—including employees testing positive and allegations that COVID-19 droplets 19 “land on and adhere to surfaces and objects”—does not constitute direct physical loss or damage. [20] 77 Cal. App. 5th 821 , 826-40 (2022); see also Inns-by-the-Sea v. Cal. Mut. Ins. Co., 71 Cal. App. 21 5th 688, 705 (2021) (Division 1 of Fourth District holding the presence of COVID-19 is not direct 22 physical damage to the property). On the other hand, Division 7 of the Second District reached 23 the opposite conclusion. See Marina Pac. Hotel & Suites, LLC v. Fireman’s Fund Ins. Co., 81 24 Cal. App. 5th 96, 106-12 (2022). The Marina court acknowledged that United Talent Agency was 25 “[n]ot distinguishable” but maintained that the court had improperly disregarded the insured’s 26 allegations. Id. at 111-12 . On December 28, 2022, the Ninth Circuit issued an order certifying the 27 following question to the California Supreme Court to resolve this split: “Can the actual or 28 potential presence of the COVID-19 virus on an insured’s premises constitute ‘direct physical 1 | loss or damage to property’ for purposes of coverage under a commercial property insurance 2 | policy?” Another Planet Entm’t, LLC v. Vigilant Ins., Co., 2022 WL 17972557 (9th Cir. Dec. 28, 3 || 2022). 4 Because the Ninth Circuit has certified this question to the California Supreme Court, the 5 || Court ORDERS the parties to submit a joint status report within 30 days of this order explaining 6 || whether Plaintiffs’ motion for judgment on the pleadings (Doc. 36) should be stayed pending a 7 || resolution from the California Supreme Court. [8] 9 IT IS SO ORDERED. 10 Dated: _ January 11, 2023 Cerin | Tower TED STATES DISTRICT JUDGE 1]