Riker Danzig achieved a significant victory for our client Mitsui Sumitomo Insurance USA, Inc. (“MSI”) on May 27, 2022, when the U.S. District Court for the Central District of California granted MSI’s motion to dismiss the Amended Complaint of MSI’s policyholder, The Madera Group LLC (“Madera”). Madera, the operator of more than 20 restaurant locations in California and Arizona, had sought coverage under a property insurance policy issued by MSI for certain financial losses it sustained because of government orders restricting its ability to serve dine-in customers as a result of the COVID-19 pandemic. The Court had previously dismissed Madera’s initial complaint in June 2021, holding that although Madera had alleged potentially covered “direct physical loss” to its property based on the alleged presence of COVID-19 virus droplets at its location, Madera’s losses were nevertheless barred from coverage based on a clear and unambiguous virus exclusion in the MSI Policy. Madera filed an Amended Complaint that sought to sidestep the application of the virus exclusion, by arguing that “government negligence” in failing to stop the spread of the COVID-19 pandemic was actually the “efficient proximate cause” of its losses, rather than the virus itself.
In a comprehensive ruling on MSI’s motion to dismiss, the Court focused on whether Madera had adequately alleged any “direct physical loss” to its covered property. The Court noted the recent developments under California law, where a number of California Court of Appeals cases had concluded that allegations quite similar to Madera’s did not satisfy the requirement of “direct physical loss.” (One of the California Court of Appeals cases was Musso & Frank v. MSI, also involving MSI, which case Riker Danzig partner Maura Smith successfully argued on appeal.) Accordingly, the Central District of California Court held that Madera had failed, as a matter of law, “to plausibly allege a reason for [its] losses other than the mandated closures and limitations on business operations” – which did not constitute “direct physical loss” to any covered property of Madera. The Court further held that Madera’s allegations that “government negligence” caused its losses also failed to state a claim, because even assuming that “governmental negligence” led to the closure orders, those orders “did not cause physical damage to [Madera’s] property.”
Finally, the Court found that any further attempt by Madera to make additional amendments to its pleading would be futile. Accordingly, the Court denied Madera any further leave to amend and dismissed the Amended Complaint in its entirety, with prejudice.
Riker partner Jeffrey M. Beyer drafted the briefs on the motion to dismiss and also argued the motion before the U.S. District Court for the Central District of California. Working with Jeffrey were Brian E. O'Donnell and Maura C. Smith. A copy of the decision is available here.
