Mudpie, Inc. v. Travelers Casualty Insurance Company Of America

• Published date: 14 October 2021
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Food, Drugs, Healthcare, Life Sciences, Coronavirus (COVID-19), Insurance Laws and Products, Trials & Appeals & Compensation, Government Measures, Insurance Claims
• Law Firm: Lewis Brisbois Bisgaard & Smith LLP
• Author: Mr Michael Velladao

(Because Claims For Damage As A Result Of COVID-19 Government Orders Preventing Operation Of Businesses Failed To Allege Direct Physical Loss Of Or Damage To Property Or Were Otherwise Excluded By The Virus Exclusion, Coverage Was Not Afforded Under Commercial Property Policies)

(October 2021) - In Mudpie, Inc. v. Travelers Casualty Ins. Co. of America, ----F.3d---(9th Cir. October 1, 2021), the United States Ninth Circuit Court of Appeals, applying California law, affirmed the district court's order dismissing a class action filed by Mudpie, Inc. ("Mudpie") alleging that coverage was afforded under commercial property policies issued by Travelers Casualty Insurance Company of America ("Travelers") for claims for damage arising out of government shut-down orders based on "business income" and "extra expense" provisions in such policies. Alternatively, the Court of Appeals found that the "virus exclusion" in the Travelers policies barred coverage of the claims.

The parties' dispute arose out of California Governor, Gavin Newsome's emergency executive orders issued on March 4, 2020 and March 19, 2020 requiring all individuals in the State to stay at home. In conjunction with these orders, the City and County of San Francisco also issued a "Shelter in Place Order" requiring all businesses to cease all activities located within the County, except for "Minimum Basic Operations." Mudpie complied with these orders, such that it could not operate its store after March 16, 2020. As a result, Mudpie submitted a claim under its Travelers commercial property policy on April 27, 2020. In denying the claim, Travelers stated that "because the limitation on Mudpie's business operations were the result of the Government Order, as opposed to 'direct physical loss or damage to property at the described premises', this Business Income and Extra Expense coverage does not apply to Mudpie's loss."

Thereafter, Mudpie filed a lawsuit against Travelers on behalf of itself and a putative class of all retailers in California that purchased comprehensive business insurance coverage from Travelers. The Mudpie complaint alleged causes of action for declaratory relief, breach of contract, and bad faith. In response, Travelers filed a motion to dismiss the Mudpie lawsuit arguing that the claims based on government orders did not allege facts demonstrating that Mudpie's property had suffered a "direct physical loss of or damage to insured property." Alternatively, the motion argued that...