The federal district court in California dismissed the business interruption claim arising from COVID-19 by a Hawaii store chain. Water Sports Kauai v. Fireman’s Fund Ins. Co., 2020 U.S. DIst. LEXIS 209547 (N.D. Cal. Nov. 9, 2020).
Sand People closed its twelve stores on three islands six months ago due to the spread of the coronavirus and government shut down orders. It submitted a claim for coverage to its insurer, Fireman’s Fund. The claim was denied.
Sand People filed a class action, which included a Hawaii subclass of businesses in Hawaii insured by Fireman’s Fund who made a claim arising from lost business income due to COVID-19 and did not obtain coverage for the claim. Fireman’s Fund moved to dismiss, arguing the mere threat of coronavirus was insufficient to show a “direct physical loss of or damage to” covered property and the government closure orders were likewise insufficient.
Sand People argued that coronavirus was rapidly spreading in Hawaii, but failed to allege both its presence in any of its properties and a manifestation of imminent threat of contamination of any of its properties. There were no facts plausibly alleging an actual exposure at one or more of Sand People stores, much less that an actual physical exposure caused them to close a particular store or set of stores.
Sand People argued it suffered a “loss of” its property and “material alteration” of the property was not required. It argued that “loss” broadly included a deprivation, dispossession, and impairment of property, similar to what it suffered here due to the government orders shutting down non-essential businesses. But the case law required some physical tangible injury (like total deprivation of property) to support “loss of property or a physical alteration or active presence of a contaminant to support “damage to” property. Having failed to so plead, the claim was dismissed with leave to amend.
The claim for civil authority coverage suffered the same result. The preventative closure orders could not support a causal link of direct physical loss of or damage to property.