Retailers’ insurance claims for lost income following California’s Stay-at-Home order properly denied




Travelers Business Insurance Policy Does Not Cover Income Lost as a Result of California’s COVID-19 Stay-At-Home Order or the COVID-19 Pandemic In Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 20-16858 (9th Cir. Oct. 1, 2021), the corporate plaintiff appealed the district court’s dismissal of its suit seeking declaratory relief and asserting claims of breach of contract and breach of the covenant of good faith and fair dealing against the defendant, Travelers Insurance. The plaintiff filed suit on behalf of itself and a putative class of all retailers in California that had comprehensive business insurance coverage from the defendant and who been denied coverage after filing a claim for lost business income following California’s Stay-at-Home order.On appeal, the United States Court of Appeal for the Ninth Circuit held that the plaintiff did not allege a “direct physical loss” and that the plaintiff’s claims were barred by the insurance policy’s Virus Exclusion. “Clear and Explicit” Meaning of Insurance Policy Terms The defendant asserted that the plaintiff did not allege “a direct physical loss of or damage to” property under the insurance policy. The Court of Appeal explained that California courts interpret insurance policy terms according to their “clear and explicit” meaning as used in their “ordinary and popular sense.”The Court rejected the plaintiff’s argument that “direct physical loss or damage” to property did not require actual damage to the property, but only required the property to be no longer suitable for its intended purpose. To adequately make a claim under the policy, the insured had to allege a physical alteration to property, which the plaintiff failed to do. The “Efficient Cause” of the Loss Was the COVID-19 Virus The plaintiff argued that their claim was not barred by the policy’s Virus Exclusion because the cause of their loss was the California Stay-at-Home Order, not the COVID-19 virus itself. The Court rejected this argument and explained that where a loss can be linked to multiple causes, it is the “efficient cause,” or the cause that sets the other causes into motion, which the loss will be attributed to.The Court found that the COVID-19 virus was the “efficient cause” that led to the Stay-at-Home Order; thus, the plaintiff’s claims were barred by the policy’s Virus Exclusion.

April 14, 2022
Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 20-16858 (9th Cir. Oct. 1, 2021)
California Courts