Boxed Foods Company, LLC v. California Capital Insurance Company

Background

Boxed Foods Company, LLC and Gourmet Provisions, LLC sought a declaration that their insurance policy provided coverage for business-interruption losses and extra expenses connected to COVID-19 and California’s civil-authority orders. The policy covered losses occurring between August 31, 2019, and August 31, 2020. After California issued orders restricting gatherings and requiring businesses to stop nonessential operations, the plaintiffs closed their San Francisco restaurants, B Restaurant Bar and the Pin Up All-Star Diner. They submitted a claim for their resulting losses, but California Capital Insurance Company denied coverage.

The plaintiffs filed a putative class action seeking declarations concerning coverage under the policy’s Business Income, Extra Expense, and Civil Authority provisions. The defendant moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally valid claim.

The Policy’s Virus Exclusion

The policy excluded loss or damage caused by, resulting from, contributing to, or made worse by the actual, alleged, or threatened presence of any pathogenic organism, whether the cause was direct or indirect, proximate or remote, or occurred in whole or in part through another insured physical damage.

The court concluded that this exclusion barred the plaintiffs’ claims. Under the Civil Authority provision, coverage required, among other things, a prohibition on access to the insured property caused by physical loss or damage to other property and caused by a covered cause of loss. The court ruled that the virus exclusion removed viruses from the policy’s covered causes of loss. It also ruled that the exclusion was not limited to property damage and applied to business-income losses and extra expenses.

The court rejected the plaintiffs’ argument that the civil-authority orders, rather than COVID-19, caused their losses. Applying California’s efficient-proximate-cause rule, the court described COVID-19 as the cause that predominated and set the other cause in motion. Because the orders would not have existed without COVID-19, the court held that COVID-19 was the efficient proximate cause of the plaintiffs’ losses. The exclusion also expressly covered losses caused indirectly by a virus.

Other Arguments

The court found the virus exclusion unambiguous. It rejected the argument that the exclusion did not apply to a pandemic because it did not use the word “pandemic.” The court reasoned that “pandemic” describes how widely a disease spreads, while the virus remains the harm-causing agent, and that limiting the exclusion to less widespread viruses would make the policy’s reference to indirect causes meaningless.

Because the exclusion was unambiguous, the court did not apply the reasonable-expectations doctrine, which can help interpret unclear policy language based on what an insured reasonably expected. The court also found that the extrinsic evidence alleged by the plaintiffs—including evidence concerning standardized language prepared by the Insurance Services Office and communications with regulators—did not support a reasonable alternative meaning. The court therefore ruled that discovery was unnecessary to determine the scope or validity of the exclusion.

Disposition

Judge Charles R. Breyer granted California Capital Insurance Company’s motion to dismiss the complaint, without prejudice. The court stated that its holding should not necessarily be understood to apply to all virus exclusions because this policy’s exclusion was exceptionally broad compared with exclusions containing additional limitations or ambiguous language.