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September 2022

Ninth Circuit Affirms Dismissal of Putative Class Action Seeking Coverage for COVID Shutdown-Related Losses

Gordon Rees Scully Mansukhani partners Matthew Foy, Jennifer Wahlgren, Robert Larsen, and Wing Yan Wong successfully obtained victory before the Ninth Circuit on behalf of two national insurers in a putative class action seeking COVID shutdown-related losses.

In a case which garnered media attention in several national legal publications, Gordon & Rees clients were sued in a putative class action filed in the District of Nevada by insureds who operated a restaurant chain and others similarly situated. Plaintiffs asserted causes of action, including for breach of contract and bad faith, stemming from a denial of coverage in response to their insurance claim for alleged business interruption losses and related expenses resulting from governmental COVID-19 shut down orders.

The plaintiffs were insured by a national insurer under a Restaurant Recovery insurance policy which covered specified losses and expenses incurred as a result of a covered “Insured Event,” including “Accidental Contamination” which was defined in part to mean accidental or unintentional contamination, impairment or mislabelling of an “Insured Product.” The term “Insured Product” was in turn defined to include ingestible products for human consumption.

The trial court entered judgment in favor of the firm's clients following a successful motion to dismiss. It rejected plaintiffs’ arguments, including that its restaurant offerings (i.e., service of food) were impaired and that food service should be considered an “Insured Product.” Plaintiffs appealed and the Ninth Circuit affirmed, holding that any interpretation of the term “Insured Product” to include food service “contradicts the plain language of the policy.” The Court held that an “Insured Product” within the meaning of the policy is limited to ingestible products for human consumption. The Court also rejected plaintiffs’ argument that an “Avian Flu” exclusion in the policy was evidence that the policy intended to cover more than just contamination and impairment of “food products” because, according to plaintiffs, Avian Flu does not spread through food. The Court concluded that this exclusion is irrelevant because (1) there is no coverage under the insuring clauses in the first instance, and (2) exclusions cannot be used to expand coverage in any event.

Matthew S. Foy
Robert S. Larsen
Jennifer N. Wahlgren
Wing Yan Wong