Water Sports Kauai, Inc. v. Fireman's Fund Insurance Company

Background

Water Sports Kauai, Inc. sought insurance coverage for lost income resulting from the closure of its chain of stores in response to the presence of coronavirus in Hawaii and government closure orders. The court had previously dismissed the first amended complaint and allowed the company to amend.

The court’s analysis

The court analyzed coverage under the policy’s Business Income and Civil Authority provisions. For Business Income coverage, the court had previously concluded that the complaint did not plausibly allege that the stores closed because coronavirus caused “direct physical loss of or damage to” covered property or specifically identified income-support property.

In the second amended complaint, the company alleged that coronavirus was likely present in the environment surrounding at least three specific Sand People stores. The court held that this theory remained insufficient. It also rejected the company’s arguments based on an imminent risk of significant harm from coronavirus because those arguments depended on definitions of direct physical loss or damage that the court had already rejected.

For Civil Authority coverage, the court relied on the company’s own description of the Hawaii closure orders as preventative and prophylactic measures intended to stop the potential spread of coronavirus. The complaint did not identify a specific neighboring property that was damaged or suffered a covered loss and that damage led to the identified government closure orders affecting the businesses.

Disposition

The court granted defendants’ motion to dismiss the second amended complaint. Because the company had failed to cure deficiencies previously identified by the court, the court found that further amendment would be futile and dismissed the complaint with prejudice. Judge William H. Orrick signed the order.