Conspicuous, Plain and Clear Exclusion Must be Honored
Plaintiffs FlorExpo, LLC (“FlorExpo”) and Kendal Floral Supply, LLC (collectively, “Plaintiffs”) are leading importers and distributors of fresh-cut flowers from South America. When their claim was denied they sued Travelers in FlorExpo LLC and Kendal Floral Supply, LLC v. Travelers Property Casualty Company Of America, Case No.: 20-CV-1024 JLS (DEB), United States District Court Southern District Of California (March 8, 2021). Travelers Property Casualty Company of America’s Moved to Dismiss Plaintiffs’ Complaint.
FlorExpo purchased commercial property insurance from Defendant Traveler’s Property Casualty Company of America (“Defendant”) with “the Deluxe Property Coverage” for itself and its subsidiary, Plaintiff Kendal Floral Supply, LLC, for the 2020 to 2021 year (the “Policy”). The Policy provided coverage for loss or damages to “stock,” including Plaintiffs’ cut flowers, kept at various storage locations. Plaintiffs allege that between March 16 and March 22, 2020, government authorities prevented Plaintiffs from entering two of their warehouses containing their flower stock, and the inability to access the warehouses led to a total loss of the stock at these locations. Plaintiffs presented a claim to Travelers for loss of the stock (the “Coverage Claim”) and Defendant denied Plaintiffs’ claim.
Plaintiffs filed suit for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief.
Travelers’ motion to dismiss Plaintiffs’ breach of contract and declaratory relief claims alleged they failed to state a claim on the following grounds: (1) the alleged loss of flower stock falls within the Policy’s acts or decisions “of any . . . governmental body” exclusion (the “Acts of Decisions Exclusion”); and (2) Plaintiffs fail to plead a plausible alternative for coverage for that loss under the Policy. Defendant further moved to dismiss Plaintiffs’ breach of the implied covenant of good faith and fair dealing claim based on Plaintiffs’ inability to plead a loss covered by the Policy.
Breach of Contract
While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. A court must interpret a contract to give effect to the mutual intention of the parties as it existed at the time of contracting. For written contracts, the intention of the parties is to be ascertained from the writing alone, if possible.
In deciding an insurance coverage dispute, the determination whether the insurer owes a duty to defend is made in the first instance by comparing the allegations of the complaint with the terms of the policy. The insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot. An insurer may rely on an exclusion to deny coverage only if it provides conclusive evidence demonstrating that the exclusion applies.
The Insurance Policy
The policy excluded “any loss or damage caused by or resulting from “[A]cts or decisions, including failure to act or decide, of any person, group, organization or governmental body except as provided in the Additional Coverage – Ordinance or Law Coverage.
The Parties’ Arguments
Defendant relied on the Acts or Decisions Exclusion to argue that Plaintiffs’ loss was instead caused by an “excluded risk, which by definition, is not a Covered Cause of Loss. Defendant contends that the Acts or Decisions Exclusion bars coverage for property damage, loss, and expense that is caused by or results from any decision, act or failure to act or decide, by an insured or any third party—including, specifically, any ‘governmental body. Plaintiffs state that they were unable to access their flower stock due to government authorities’ involvement. Due to Plaintiffs’ inability to access their stock, Plaintiffs’ flowers perished, resulting in the loss they seek relief for under the Policy. Contrary to the claims of the plaintiffs, a policy exclusion for coverage may apply when the cause of loss was not a “separate and independent” act from the excluded loss.
The government action of restricting access to Plaintiffs’ warehouses was not “separate and independent” from the loss of the stock, as no intervening cause exists. Plaintiffs failed to plead a plausible alternative to the government action that caused their loss of stock. The stock perishing and being disposed of is not a “new hazard or phenomenon, separate and independent” from the government action to restrict access. Plaintiffs identify no other independent, Covered Losses that resulted in the loss to the flower stock.
To be enforceable, a coverage exclusion must be conspicuous, plain and clear. An insurance contract is ambiguous if the court finds that the language is subject to different interpretations.
The Acts or Decisions Exclusion is plainly stated and free of jargon. Additionally, the Acts or Decisions Exclusion is similar to standard insurance policy exclusions multiple courts have previously analyzed and found unambiguous. The Court joined the majority of courts analyzing similar clauses and found that the language of the exclusion is unambiguous.
Under the plain language of the Acts or Decisions Exclusion, the Court found the loss or damage was caused by both the intentional acts and careless omissions of third parties. Plaintiffs’ interpretation would require the Court to rewrite the insurance policy to require “negligence” or “intentional” government acts, which the Court will not do.
While Plaintiffs successfully have shown there may be a potential claim for coverage under the Policy, the Court concluded that the Acts or Decisions Exclusion applies to exclude Plaintiffs’ claim for two reasons. First, the governmental action was the direct cause of the loss for which Plaintiffs seek relief in the Coverage Claim, bringing the claim within the Acts or Decisions Exclusion. Second, the Court refuses to read a negligence limitation into the Exclusion, where such language does not exist and where courts interpreting similar exclusions have not limited the clause to only negligent acts.
The court concluded that Traveler’s rejection of the Coverage Claim was justified based on the Acts or Decisions Exclusion and granted the Motion to Dismiss.
Breach of the Implied Covenant of Good Faith and Fair Dealing
In order to establish a breach of the implied covenant of good faith and fair dealing under California law, a plaintiff must show: (1) benefits due under the policy were withheld; and (2) the reason for withholding benefits was unreasonable or without proper cause.
Since Traveler’s denial of coverage was justified under a valid exclusion its conduct was not in bad faith. The Court also granted Traveler’s Motion to Dismiss the Plaintiffs’ claim for breach of the covenant of good faith and fair dealing.
Plaintiffs are not entitled to declaratory relief because, the Policy exclusion applies and does not cover their loss.
Courts are often asked to interpret insurance policies written in conspicuous, plain and clear language understandable by anyone with a fourth-grade education. When a claim is rejected the insured attempts to create an ambiguity that doesn’t exist or ask the court to rewrite the policy since it is unfair to make the insured cover an uninsured loss. Thankfully, the USDC, as do almost every court, refused to rewrite the policy and interpreted it as written.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
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