Riker Danzig prevailed before the U.S. Court of Appeals for the Ninth Circuit, on behalf of our client Mitsui Sumitomo Insurance USA, Inc. in an insurance coverage case arising out of the COVID-19 pandemic when, on August 28, 2023, the Ninth Circuit affirmed the dismissal by the U.S. Central District of California of all claims brought against Mitsui by The Madera Group LLC.
The case involved claims for insurance coverage under a property insurance policy issued by Mitsui to Madera, the operator of more than 20 restaurant locations in California and Arizona. Madera sought coverage in connection with business income losses it sustained due to government orders restricting its ability to serve dine-in customers during the early months of the COVID-19 pandemic. The U.S. District Court dismissed Madera’s initial complaint in June 2021, concluding that although Madera had alleged potentially covered “direct physical loss” to its properties based on the alleged presence of COVID-19 virus droplets at its locations, Madera’s losses were nevertheless barred from coverage based on a clear and unambiguous Virus Exclusion in the Mitsui Policy. Madera then 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 COVID-19 virus itself.
In a comprehensive ruling on Mitsui’s motion to dismiss the Amended Complaint, the District Court concluded that Madera had failed, as a matter of California 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, while not directly ruling on applicability of the Virus Exclusion, the District Court observed that “[i]t seems clear … the Virus Exclusion would also bar coverage.”
On appeal before the Ninth Circuit, Madera again argued that the Mitsui Policy’s Virus Exclusion did not apply under California’s “efficient proximate cause” doctrine because the losses were caused not by the virus, but by the U.S. government’s “negligent public health preparedness” prior to the pandemic. We argued – and the Ninth Circuit agreed – that the virus, and not the government’s preparedness, was the true “efficient proximate cause” of Madera’s losses because the so-called negligent pandemic preparation by the government would not have impacted Madera were it not for the COVID-19 virus itself. The Court, therefore, held that the Virus Exclusion “unambiguously” barred Madera’s claims, and affirmed the dismissal of the claims against Mitsui.
Riker partner Jeffrey M. Beyer drafted Mitsui’s briefs on the motion to dismiss, argued the motion before the U.S. District Court for the Central District of California, and also drafted Mitsui’s submissions to the Ninth Circuit. Also representing Mitsui were firm Co-Chair Brian E. O’Donnell and partner Maura C. Smith.
Read Law360's coverage of the case here (subscription required).
