Ruling for insurers, 9th Circuit says cause of closures ‘not debatable’

San Francisco retailer Mudpie Inc. is not entitled to any damages for business interruption from an insurance company over government-ordered closures due to the COVID-19 pandemic, a 9th U.S. Circuit Court of Appeals panel ruled Friday.

The same panel also rejected appeals by a dental appliance manufacturer, Selane Products Inc., and a group of minor league baseball teams against their insurance companies in unpublished decisions.

In the published decision, the panel affirmed a decision by U.S. District Judge Jon S. Tigar of Oakland, who ruled a policy provision requiring a "direct physical loss of or damage to the property" was not synonymous with loss of use because there was no actual physical alteration to Mudpie's business.

Further, 9th Circuit Judge Morgan B. Christen, writing for the panel, addressed an issue Tigar did not, concluding Travelers Casualty Insurance Company of America's virus exclusion policy also bars the retailer's claims.

California's stay-at-home orders in March 2020 "were issued in response to the COVID-19 pandemic, and the point is not debatable," wrote Christen, an appointee of President Barack Obama. Mudpie Inc. v. Travelers Casualty Insurance Company of America, 2021 DJDAR 10439 (9th Cir., filed Sept. 24, 2020).

The three rulings, which were argued before the panel in August, follow a pattern of federal courts rejecting business interruption claims by companies against their insurers due to government-ordered shutdowns prompted by the coronavirus.

Laura A. Foggan, a partner with Crowell & Moring LLP who wrote an amicus brief for the American Property Casualty Insurance Association, said in an email the 9th Circuit rulings were consistent with those in sister circuits.

"There are now seven federal court of appeals decisions on COVID-19 business interruption claims, and every one rejects policyholders' efforts to convert claims for purely economic losses into claims for physical loss or physical damage to covered property insured by a property insurance policy," Foggan wrote.

Christen cited an 8th U.S. Circuit Court of Appeals ruling this year against an oral and maxillofacial surgery practice in Iowa against its insurer to support the panel's decision. Oral Surgeon, P.C. v. Cincinnati Insurance Co., 2 F.4th 1141.

"We affirm the district court's ruling that Mudpie's claimed losses are not covered by the policy," Christen wrote. "The district court did not err by dismissing Mudpie's claims for declaratory relief, breach of contract, and breach of the covenant of good faith and fair dealing."

In the Mudpie case and a lawsuit filed by Chattanooga Professional Baseball LLC, a string of minor league baseball teams in several states, the panel cited a virus exclusion provision in the insurers' policy. Attorneys for the plaintiffs argued that it was the government orders that caused the economic damage, not the COVID-19 virus. But Christen rejected that argument in the Mudpie case.

"Though Mudpie argues it was the government orders that most directly caused its injury, Mudpie does not plausibly allege that 'the efficient cause,' i.e., the one that set others in motion ..., was anything other than the spread of the virus throughout California, or that the virus was merely a remote cause of its losses," she wrote.

Gibbs Law Group LLP partner Andre M. Mura, who represents Mudpie, asked the 9th Circuit panel to refer the case to certify a question to the California Supreme Court.

But defense attorneys for the insurers, including Theodore J. Boutrous Jr. of Gibson, Dunn & Crutcher LLP and Kannon K. Shanmugam, a partner with Paul, Weiss, Rifkind, Wharton & Garrison LLP who represents Continental Casualty Co. in its dispute with Selane Products, dismissed the suggestion.

Boutrous referred a reporter's phone call to Travelers, which could not be reached for comment Friday.

Mura also could not be reached.

The other cases decided by the 9th Circuit in its unpublished opinions were Selane Products Inc. v. Continental Casualty Company, 21-55123 (9th Cir., filed Feb. 16, 2021), and Chattanooga Professional Baseball LLC v. National Casualty Co. et al., 20-17422 (9th Cir., filed Dec. 16, 2020).

The other members of the panel were 9th Circuit Judge Danielle J. Forrest, an appointee of President Donald Trump, and Senior U.S. District Judge Michael M. Anello of the Southern District of California, an appointee of President George W. Bush.