The Court of Appeal of California has reversed the dismissal of a COVID-related lawsuit filed by Amy's Kitchen (Amy's) against Fireman's Fund Insurance Company (Fireman's). The case is Amy's Kitchen, Inc. v. Fireman's Fund Ins. Co., 83 Cal. App. 5th 1062 (Cal. Ct. App. 2022).
Amy's, a company that produces organic and vegetarian meals, has facilities across the Pacific Northwest that employ more than 2,500 individuals. At the outset of the COVID-19 pandemic in early 2020, Amy's made several changes at its facilities in order to continue operations while also adhering to social distancing and similar guidelines to protect employees. Amy's had purchased a comprehensive property policy from Fireman's in 2019, which extended the policy to provide coverage for communicable diseases as well as loss avoidance and mitigation. There was no definition for "direct physical loss or damage" anywhere in the policy, only specifications for three distinct categories of costs covered "if incurred as a result of a covered communicable disease event." The types of costs Amy's had incurred in mitigating the effects of COVID-19, as described above, were included in those categories. Amy's filed a claim to recover the money spent to "[m]itigate, contain, remediate, treat, clean, detoxify, disinfect, neutralize, cleanup, remove, dispose of, test for, monitor, and assess the effects [of] the communicable disease."
Fireman's agreed COVID-19 was a communicable disease, but argued that the virus had not physically altered any of the Amy's facilities, and therefore the coverage extension did not apply. They denied the claim on the basis that none of the facilities had suffered actual physical damage. (Internal quotes omitted). Amy's sued Fireman's in spring 2021, and Fireman's filed a demurrer. The court granted the demurrer and refused to allow Amy's to amend its complaint because, allegedly, there wasn't anything in the complaint Amy's could change that would fix the original complaint. Amy's appealed.
The court said that the demurrer was correctly sustained, albeit for different reasons than those posited by the trial court, but the refusal of leave to amend the complaint had been in error. The court pointed out that the policy specifically included the types of costs Amy's had expended to reduce the impact of COVID-19 on its business operations. The cases Fireman's used to support their denial of the claims all "involve[d] business-income, extra-expense, and/or civil-authority provisions covering lost income," not "reasonable interpretation of a communicable disease extension in which coverage is triggered by a communicable disease event causing costs to be incurred" in combatting the effects of the disease. Amy's was trying to recover the latter types of expenses, not the former. The court flatly stated that "treating physical alteration as an additional condition of coverage, as Fireman's urge[d], would render [part of the policy] illusory—both redundant and meaningless."
While the court agreed that Amy's had not made a proper allegation for a "communicable disease event" at a specific location as stated in the trial court's prior dismissal of the case, the trial court had denied Amy's the chance to amend its complaint "solely on the incorrectly perceived inability to allege direct physical loss or damage" (internal quotes omitted) without accounting for the possibility of a proper claim for a "communicable disease event." As it was the plaintiff's responsibility to show a faulty complaint could be fixed, and Amy's had set forth facts demonstrating that the complaint could be amended to make a proper allegation, the trial court had improperly denied Amy's motion to amend its complaint.
Dismissal was reversed, and Amy's was granted permission to amend the initial complaint.
Editor's Note: It is important to note that, as in some other courts dealing with COVID claims, the Court of Appeal of California did not say whether Amy's actually did have a viable claim for coverage. The court only said that Amy's should have been able to go back and fix its initial complaint. As the court in this case pointed out, denying leave for a plaintiff to amend their original complaint should be an occurrence few and far between, and only when "it appears 'conclusively' that it is impossible to allege such facts." It was not impossible for Amy's to fix its initial complaint against Fireman's, so the trial court should have allowed the complaint to be amended.
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