After pro-insurer 9th Circuit rulings, judge lifts stay on COVID premises case

Following favorable decisions for insurers at the 9th U.S. Circuit Court of Appeals, a federal trial court judge lifted a stay Monday in another COVID-19 coverage lawsuit.

U.S. District Judge Fernando M. Olguin had issued the stay two months ago.

Unicolors Inc. and Lenovati Inc., two clothing companies, sued Zurich American Insurance Co. and Nationwide Mutual Insurance Co. The lawsuit alleged the insurers failed to provide coverage for loss of income during the pandemic.

Ramin R. Younessi, counsel for the clothing retailers, declined to comment.

According to the initial complaint, the companies rented property that they could not use because customers and employees feared contracting the virus, which led to a loss of income. In addition, government orders directed members of the public to stay home and avoid visiting businesses, triggering coverage under the purchased insurance policies, the plaintiffs argued. The complaint was filed in Los Angeles County Superior Court and then moved to the Central District of California. Unicolors Inc., et al v. Zurich American Insurance Company et al., 2:21-cv-05885 (C.D. Cal., filed July 20, 2021).

Olguin stayed the case on Sept. 8 awaiting decisions in similar cases that were making their way through the 9th Circuit.

In a blow to companies seeking coverage for pandemic-related losses, the circuit court ruled that retailer Mudpie Inc. was not entitled to damages for business interruption from Travelers Casualty Insurance over government-ordered closures due to the COVID-19 pandemic. The circuit court 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manufacturer, Selane Products Inc., and a group of minor league baseball teams against their insurance companies in unpublished decisions. Mudpie Inc. v. Travelers Casualty Insurance, 2021 DJDAR 10439 (9th Cir. Oct. 1, 2021).

In the case before Olguin, insurers filed motions to dismiss in August, arguing the clothing companies ignored court decisions in similar COVID-19 coverage claims.

Zurich American disputed the plaintiffs' argument that "fear and apprehension" over the virus resulted in the physical loss of the subject premises. Zurich American is represented by Squire Patton Boggs US LLP, who did not return a request for comment.

"Plaintiffs' theory, therefore, is that their property is physically lost whenever a human being is emotionally or psychologically unwilling to visit plaintiffs' premises or buy plaintiffs' products," the motion for dismissal stated. "Fear and apprehension" never caused, and never could cause, a permanent physical dispossession of real or personal property. Nor could any COVID-19-related governmental order, as is now well-established, particularly in this district."

In lifting the stay, Olguin also denied the motions for dismissal. But he allowed the insurers to file renewed motions by Nov. 8.