Robert W. Fountain, Inc. v. Citizens Insurance Company of America

Background

Robert W. Fountain, Inc. and Robert W. Fountain, collectively called “Fountain” in the opinion, operated an event-planning business. They sued their insurer, Citizens Insurance Company of America, for breach of contract and declaratory relief. Fountain sought business-income coverage for losses associated with San Francisco and California statewide “shelter in place” and “stay home” orders issued in March 2020. Citizens denied the claim.

The two policies provided coverage for business income lost because of a necessary suspension of operations caused by “direct physical loss of or damage to” covered property. The policies also excluded loss or damage caused directly or indirectly by a virus, regardless of another cause that contributed to the loss.

Court’s analysis

The court granted Citizens’ motion for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure. That motion asks whether, accepting the complaint’s factual allegations as true, the moving party is entitled to judgment as a matter of law.

The court first held that Fountain had not plausibly alleged direct physical loss of or damage to property. Fountain alleged that the government orders made it physically unable to use its premises, but it did not allege that it was permanently dispossessed of the property or that the property had become unrecoverable. The court concluded that temporary inability to access or use unharmed property was not the kind of direct physical loss required by the policies.

The court also held that the virus exclusion independently barred coverage. Fountain argued that its losses were caused by government orders rather than by a virus. The court rejected that distinction because the complaint acknowledged that the orders were issued because of the COVID-19 pandemic. Under the exclusion’s language covering losses caused directly or indirectly by a virus, and under California’s “efficient proximate cause” rule, the court concluded that COVID-19 was the predominant cause that set the orders in motion.

The court also rejected coverage under the policies’ Civil Authority provision. The opinion states that Fountain raised this provision for the first time in its opposition brief. That provision required, among other things, damage to property other than the insured premises and a civil-authority order prohibiting access because of direct physical loss or damage to property within one mile. The complaint did not allege those facts.

Disposition

The court granted Citizens’ motion for judgment on the pleadings with prejudice because it concluded that amendment would be futile. The ruling therefore rejected Fountain’s coverage claims under the Business Income provision and the Civil Authority provision.