Facts

Sutter's Place, Inc., is a historic and prestigious card club that originated in Alviso, California in 1929. After 63 years of success, the casino was forced to relocate in 1992 and reopened in 1994 as Bay 101 Casino. The casino is a highly coveted venue hosting the World Poker Tour tournament for more than a decade. On March 4, 2020, Governor Gavin Newsom proclaimed a state of emergency in California based on the threat of COVID-19. Sutter's Place ceased operations as a result of the government-mandated shut downs, prompting Sutter's place to make a business interruption claim under its "all risk" commercial insurance policy issued by Zurich American Insurance Company. The policy's business income coverage stated in relevant part: "We will pay for the actual loss of 'business income' you sustain due to the necessary 'suspension' of your 'operations' during the 'period of restoration.' The 'suspension' must be caused by direct physical loss of or damage to property at the 'premises' at which a Limit of Insurance is shown on the Declaration for Business Income. The loss or damage must be directly caused by a 'covered cause of loss.'" The policy also contained a microorganism exclusion, excluding coverage for loss, cost, or any expense arising out of the effects of microorganisms.

Zurich rejected the claim in a letter, which stated, "the presence of the COVID-19 virus does not constitute 'direct physical loss or damage' to property and, in any event, it does not appear that the order of civil authority affecting Sutter's Place, Inc. resulted from any direct physical loss or damage within the distance limit as set forth in the Declarations...the presence of the COVID-19 virus is excluded as a cause of loss; accordingly, the order of civil authority affecting Sutter's Place, Inc. does not result from a covered cause of loss." Sutter's Place subsequently filed suit against Zurich to obtain benefits under the insurance policy.

PLAINTIFF'S CONTENTIONS: Plaintiff asserted claims for breach of the implied covenant of good faith and fair dealing; and breach of contract. Plaintiff contended that defendant breached its duty of good faith and fair dealing by unreasonably rejecting its legitimate claim without a fair, balanced, and thorough investigation; unreasonably engaging in a pattern and practice of failing to conduct an investigation to determine the efficient proximate cause (predominant cause) on claims made by insureds; and unreasonably engaging in a pattern and practice of placing its own financial interests above plaintiff and its insureds. Plaintiff argued that the foregoing unreasonable, malicious, oppressive and/or fraudulent misconduct constituted institutional bad faith. Plaintiff asserted that defendant's denial was erroneously based on the COVID-19 event, and failed to acknowledge the losses caused by the governmental orders which were the basis of plaintiff's claim. Plaintiff also argued that defendant misrepresented the language of its own policy with respect to coverage. Plaintiff asserted that the policy did not limit itself to "direct physical loss or damage" but also covered "direct physical loss of damage" to property in both its property coverage and business income and extra expense coverages.

DEFENDANT'S CONTENTIONS: Defendants contended that plaintiff's claim was denied because plaintiff did not claim any direct physical loss of or damage to the casino that would entitle it to coverage under the policy; and the policy's microorganism exclusion excluded coverage for physical damage or loss based on a virus such as the COVID-19 virus.

Result

The court granted Zurich's motion for judgment on the pleadings and dismissed the action.