Factual Background and Procedural History

In Boffo Cinemas LLC v. Fireman’s Fund Insurance Co., a popular California movie theater chain sought recovery of over $30 million under a breach of contract cause of action, due to funds lost from closures related to Covid-19. The pandemic is alleged to have triggered a policy it had in place that did not require any showing of an actual physical loss. [i]

The trial court held that Covid-19 related closures for business interruption were not recoverable as they did not trigger such an insurance policy. The trial court relied on an appellate court decision exploring the same issue, which held that recovery would not be permitted despite Covid-19 leading to business disruptions. [ii] The plaintiff appealed, and in a unanimous and unpublished decision, a three-judge panel reversed the trial court. While the panel agreed that the Inns-by-the-Sea decision does preclude the claim for business interruption coverage, it held that the plaintiff should be permitted to amend its suit to assert claims under separate provisions. [iii]

Analysis

Exclusions in insurance coverage based on business disruptions typically include an exclusion clause for viruses such as Covid-19. However, in this instance, the contract for insurance coverage did not include these typical virus exclusions. The defendant insurer stressed that the owner of the movie theater was required to show that there was an actual physical disruption or “alteration” to the property.

The trial court agreed and found the plaintiff could not amend its complaint, as it was originally framed in a manner that attributed its losses to the compulsory shutdown versus claiming any additional insurance coverage was triggered. As the panel noted, however, the trial court overlooked certain key insurance provision details by failing to opine on the additional policies that were in place allowing for insurance coverage.[iv]

The additional insurance that was in place did not require the showing of physical damage for coverage, instead requiring a situation involving “crisis management” and “event cancellation” or “postponement.” Assuming the plaintiff is able to amend its complaint, the trial court will need to analyze the definition of “covered crises event” per the policy language.

Takeaways

The panel emphasized that as the original complaint stands, it does not implicate coverage under this additional insurance policy for crisis management or a specific “covered special event.” The panel did agree with the defendant insurer that the plaintiff’s claim for business disruption coverage is precluded, but left open the door for the plaintiff to amend the complaint before a dismissal takes place.

It is important that defendant insurers and their counsel are mindful of existing precedent that may bar a plaintiff’s claims as well as any other policies that might subject the insurer to liability. The panel’s decision here illustrates trial courts that take a cookie cutter or narrow approach to insurance coverage issues as they relate to Covid-19 closures may face reversal.

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Sources

[i] Boffo Cinemas LLC v. Fireman’s Fund Insurance Co., Case Number D079665, Court of Appeal of the State of California, Fourth Appellate District.

[ii] Id.; Inns by the Sea v. California Mut. Ins. Co., (2021) 71 Cal. App.5th 688

[iii] Id.

[iv] Id.