Palmdale Estates, Inc. v. Blackboard Insurance Company

Background

Palmdale Estates operated a venue in Sunol, California, where it hosted weddings and other events. In response to the COVID-19 pandemic, Alameda County prohibited large gatherings. Palmdale alleged that it could no longer host events and lost money as a result. It submitted a claim for its business losses to Blackboard Insurance Company, which denied coverage.

Palmdale then sued Blackboard for breach of contract and breach of the implied covenant of good faith and fair dealing. Blackboard moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the insurance policy did not cover Palmdale’s losses.

Policy Provisions

The policy’s Business Income coverage applied to lost income caused by a necessary suspension of operations during a stated restoration period, but only when the suspension resulted from “direct physical loss of or damage to” the insured property caused by a covered cause of loss. The policy similarly limited Extra Expense coverage to expenses resulting from direct physical loss or damage to property.

The policy also excluded loss or damage caused directly or indirectly by any virus, including a virus capable of causing physical distress, illness, or disease.

Court’s Analysis

The court granted the motion on both grounds.

First, the court concluded that Palmdale did not plausibly allege a covered direct physical loss of or damage to its venue. Palmdale argued that a flawed public-health response and government negligence allowed COVID-19 to spread, making the venue dangerous, unsafe, and unusable. The court found that this alleged unsafe condition was conclusory and did not approximate a physical alteration, contamination, loss of functionality caused by infection, or another tangible physical injury. The court also said that the temporary inability to use the venue and the resulting economic impact were not enough to trigger coverage.

Second, the court held that the virus exclusion independently barred coverage. It reasoned that the closure orders were issued in response to the COVID-19 pandemic, which was a cause of the claimed loss, and that the exclusion applied to claims based on virus-related losses.

Disposition

The court granted the motion to dismiss and gave Palmdale leave to file an amended complaint within 30 days. The opinion does not state that the dismissal was with prejudice or without prejudice. The order disposed of the motion identified as ECF No. 22.