The court dismissed the insured business interruption and civil authority claims due to the policy's virus exclusion. Franklin EWC, Inc. v. Hartford Fin. Servs. Group, 2020 U.S. 174010 (N.D. Calif. Sept. 22, 2020).
Franklin operated the European Wax Center. It was forced to close on March 19, 2020, due to State and other public health orders because of COVID-19. Franklin suffered business losses and laid off 30 employees. Franklin filed a claim with the insurer seeking coverage under the policy for business income lost due to the closure orders. The insurer denied the claim and Franklin sued. The insurer moved to dismiss.
The policy contained a virus exclusion stating the insurer would not pay for loss or damage caused directly or indirectly by a virus. Franklin's complaint repeatedly alleged that the virus caused the risk of direct physical loss required for a Covered Cause of Loss. A Covered Cause of Loss was defined as a "risk of direct physical loss," unless the loss was excluded under the policy. Thus, as the loss was caused directly or indirectly by the virus, the virus exclusion applied.
Franklin argued even if the virus exclusion applied, there was still coverage for civil authority. The Covered Cause of Loss was the closure orders that created the "risk of direct physical loss." Franklin therefore argued that the loss was created by the closure orders rather than the virus, and therefore the virus exclusion did not apply,
The court disagreed. The civil authority provision provided that it applied when access was prohibited by order of the civil authority "as the direct result of a Covered Cause of Loss." Franklin argued that the closure orders were issued as the direct result of the closure orders, a claimed Covered Cause of Loss. However, the closure orders could not have been issued as a result of the closure orders; instead, as the complaint alleged, they were issued as the direct result of COVID-19 - a cause of loss that fell within the virus exclusion.
