Barbizon School of San Francisco, Inc. INC. v. Sentinel Insurance Company Ltd

Background

Barbizon-West and Barbizon-NY sought coverage from Sentinel for business-interruption losses allegedly caused by COVID-19. Plaintiffs alleged that they closed insured locations in March 2020 because of the widespread presence of the SARS-CoV-2 virus. They submitted claims on June 26, 2020, and Sentinel denied them that day.

Barbizon-West’s policy covered direct physical loss or physical damage caused by a covered cause of loss. It generally excluded losses caused by viruses but included limited virus coverage when the virus resulted from specified causes of loss, such as water damage, smoke, or windstorm. Barbizon-NY’s policy did not contain that limited virus-coverage endorsement.

Plaintiffs’ original complaint asserted breach-of-contract, breach-of-the-implied-covenant, and California Unfair Competition Law claims. After the court dismissed the original complaint with leave to amend, Plaintiffs filed an amended complaint. Although the amended complaint repeated some earlier allegations, Plaintiffs said they were not currently seeking relief on the contract and implied-covenant claims. The only claim actively asserted was the third cause of action under California Business and Professions Code section 17200, commonly called the Unfair Competition Law or UCL.

The UCL theories

Plaintiffs based the UCL claim on three theories: (1) Sentinel failed to investigate their COVID-19 claims properly; (2) Sentinel fraudulently marketed and sold illusory limited virus coverage; and (3) Sentinel’s reliance on a pollution exclusion made that coverage meaningless and worthless.

Court’s reasoning

The court granted Sentinel’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim.

For the alleged failure to investigate, the court reasoned that the theory depended on coverage plausibly existing under the policies. Because the court concluded there was no coverage as a matter of law for the alleged COVID-19 losses, Sentinel’s alleged failure to investigate could not support a UCL claim.

The court also held that Plaintiffs had not pleaded the alleged fraudulent marketing with the particularity required by Federal Rule of Civil Procedure 9(b). Plaintiffs did not identify specific marketing or sales practices, misrepresentations, employees, recipients, dates, or statements. The court further held that the West Coast policy’s limited coverage was not illusory. Coverage is not illusory when a policy provides a possibility of coverage, and the endorsement could apply to certain physical loss or damage caused by specified events, including water damage resulting in fungi or rot.

Finally, the court held that Plaintiffs provided no factual allegations or developed argument explaining how Sentinel’s reference to the pollution exclusion made the limited coverage fraudulent, meaningless, or worthless. The court stated that Plaintiffs had effectively waived arguments on that issue by failing to address Sentinel’s dismissal arguments in their opposition.

Disposition

The court stated that further amendment would be futile. It dismissed the UCL claim without leave to amend and dismissed the amended complaint without leave to amend because the UCL claim was the only claim actively alleged. Judge Thomas S. Hixson signed the order.