Boxed Foods Company, LLC v. California Capital Insurance Company

Background

Boxed Foods Company, LLC and Gourmet Provisions, LLC sued California Capital Insurance Company over coverage for business losses connected to COVID-19 and California’s civil-authority orders. The plaintiffs sought declarations that the orders triggered coverage under the policy’s Business Income, Extra Expense, and Civil Authority provisions. They also filed the case as a putative class action.

The plaintiffs alleged that they closed their San Francisco restaurants after California restricted gatherings and required businesses to stop nonessential operations. They submitted a claim for losses associated with being unable to operate, but the insurer denied coverage, concluding that the policy did not cover COVID-19 as a cause of loss.

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 a pathogenic organism, whether the cause was direct or indirect, proximate or remote, or contributed to the loss in whole or in part.

The court concluded that this exclusion applied to the plaintiffs’ claims. Under the Civil Authority provision, coverage required, among other things, a covered cause of loss to cause physical loss of or damage to other property. The court held that viruses were excluded causes of loss under the policy, so the plaintiffs could not establish the required covered cause for their civil-authority claim.

The court also held that the exclusion applied to the Business Income and Extra Expense claims. It found no language limiting the exclusion to property damage or excluding business-income and extra-expense losses from its scope. The court reasoned that COVID-19 was the efficient proximate cause—the predominant cause that set the other cause in motion—because the civil-authority orders would not have existed without COVID-19. The exclusion also expressly covered losses caused indirectly by a virus.

Plaintiffs’ Arguments

The plaintiffs argued that the exclusion was ambiguous because it did not use the word “pandemic” and could be read to exclude ordinary virus losses but not losses from a widespread pandemic. The court rejected that interpretation. It held that the absence of the word “pandemic” did not create an ambiguity and that the exclusion applied to virus-related losses regardless of the virus’s geographic scope.

The plaintiffs also argued that denying coverage conflicted with the parties’ reasonable expectations. The court did not evaluate that argument because it found the exclusion clear and unambiguous. Under the court’s analysis, the reasonable-expectations doctrine did not apply when the policy language was unambiguous.

The plaintiffs further argued that discovery was needed to determine the exclusion’s meaning and validity, relying in part on allegations about standardized language developed by the Insurance Services Office and communications with regulators. The court found that the alleged evidence did not support a reasonable alternative interpretation of the policy. It also held that extrinsic evidence could not be used to give the exclusion the opposite of its ordinary meaning.

Disposition

The court granted the insurer’s Rule 12(b)(6) motion to dismiss for failure to state a claim. The court had initially dismissed the complaint without prejudice, but it determined that amendment would be futile because of the breadth of the virus exclusion. The amended order therefore granted California Capital Insurance Company’s motion to dismiss the complaint with prejudice.

Judge Charles R. Breyer cautioned that the decision should not necessarily be understood to apply to every virus exclusion. The court described this exclusion as exceptionally broad because it lacked limitations and ambiguous language found in some other policies.