NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

OUT WEST RESTAURANT GROUP, INC.;

CERCA TROVA RESTAURANT GROUP, 

INC.; CERCA TROVA STEAKHOUSE, 

L.P.; CERCA TROVA SOUTHWEST 

RESTAURANT GROUP, LLC, 

Plaintiffs-Appellants, 

 v. 

AFFILIATED FM INSURANCE 

COMPANY, 

Defendant-Appellee.

No. 21-15585

D.C. No. 3:20-cv-06786-TSH

MEMORANDUM*

Appeal from the United States District Court

for the Northern District of California

Thomas S. Hixson, Magistrate Judge, Presiding

Submitted August 31, 2022

**

San Francisco, California

* This disposition is not appropriate for publication and is not precedent 

except as provided by Ninth Circuit Rule 36-3.

** The panel unanimously concludes this case is suitable for decision 

without oral argument. See Fed. R. App. P. 34(a)(2).

FILED

SEP 2 2022

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS
2

Before: W. FLETCHER and COLLINS, Circuit Judges, and FEINERMAN,***

District Judge.

Out West Restaurant Group, Inc. and three related entities (“Out West”) held 

a commercial property insurance policy issued by Affiliated FM Insurance Company

(“Affiliated”). Several policy provisions, including the “Civil or Military Authority” 

provision, cover business losses that are the “direct result of physical loss or 

damage” to property but exclude losses due to “contamination.” Two provisions 

cover costs and losses from the “presence of communicable disease.” Out West 

sought coverage from Affiliated for costs and losses arising from business 

interruptions caused by the presence of the COVID-19 virus at its restaurants and 

COVID-related government closure orders. Affiliated denied the coverage under 

the “direct physical loss or damage” provisions, deferred a coverage determination 

under the two “communicable disease” provisions, and sought additional 

information from Out West to investigate coverage under those two provisions.

Out West sued Affiliated, alleging that the policy covered its costs and losses. 

The district court dismissed the suit with prejudice under Rule 12(b)(6), holding that 

Out West did not suffer “direct physical loss or damage” within the meaning of the 

policy, and that its claim for “communicable disease” coverage remained under 

consideration by Affiliated. We review de novo the district court’s judgment. See 

*** The Honorable Gary Feinerman, United States District Judge for the 

Northern District of Illinois, sitting by designation.
3

L.A. Lakers, Inc. v. Fed. Ins. Co., 869 F.3d 795, 800 (9th Cir. 2017). We may affirm 

the judgment on any ground supported by the record. See Franklin v. Terr, 201 F.3d 

1098, 1100 n.2 (9th Cir. 2000).

As to the direct physical loss or damage policy provisions, Affiliated argues

(1) that Out West’s losses were not a “direct result of physical loss or damage” to 

property, and, in the alternative, (2) that the contamination exclusion bars coverage. 

Insofar as Out West submits that its costs and losses were caused by government 

closure orders, its claim is foreclosed by Mudpie, Inc. v. Travelers Casualty 

Insurance Co. of America, 15 F.4th 885 (9th Cir. 2021), which holds that such 

orders, standing alone, do not inflict direct physical loss or damage to property. Id. 

at 889–93.

To the extent that Out West argues that coverage is nonetheless available 

under the Civil or Military Authority provision, we reject that contention. That 

provision covers certain losses caused by an “order of civil or military authority 

[that] prohibits access to a location[,] provided such order is the direct result of 

physical damage ... at a[n] [insured] location or within five (5) statute miles of it”

(emphasis added). Out West alleges that the closure orders that “deprived [it] of the 

use and function” of its restaurants, were imposed due to “the presence of COVID19 ... at and/or within five miles of Out West insured locations.”
4

Confronting materially identical allegations, the California Court of Appeal

held that a similar Civil Authority provision “d[id] not apply” to business losses 

caused by COVID-related shutdown orders because “the plain language of the 

Orders shows that they were not based on ‘direct physical loss of or damage to 

property’ to [] premises,” but rather were issued “in an attempt to prevent the spread

of the COVID-19 virus.” Inns by the Sea v. Cal. Mut. Ins. Co., 286 Cal. Rptr. 3d 

576, 595–96 (Cal. Ct. App. 2021); see also id. at 581, 595–96 (holding that shutdown

orders designed “to slow the spread of COVID-19 to the maximum extent possible 

... did not give rise to Civil Authority coverage,” despite the plaintiff’s allegations 

that the orders “were made in direct response to the continued and increasing 

presence of the coronavirus on [the plaintiff’s] property and/or around its premises”). 

So too here: the stated purpose of the Solano County order—the only order discussed 

in Out West’s complaint and briefs—was to “protect and preserve the public health 

from, and prevent, the increasing transmission of COVID-19 in California.” Order 

of the Health Officer No. 2020-04, issued on March 30, 2020, available at 

https://solano.courts.ca.gov/wpcontent/uploads/2020/08/Solano_County_Health_Officer_Order_No_2020-04.pdf. 

The same holds for the orders cited in an appendix to the complaint, one of which—

the Monterey County order—was among those examined by Inns by the Sea. D.C. 

No. 3:20-cv-06786-TSH, Doc. 18-4; Inns, 286 Cal. Rptr. 3d at 595–97. 
5

Accordingly, because the closure orders that allegedly caused Out West’s losses 

were issued in an effort to halt the spread of COVID-19, Out West is not entitled to 

coverage under the Civil or Military Authority provision for losses it suffered due to 

those orders.1

Nor is Out West entitled to coverage, under the direct physical loss or damage 

policy provisions, due to the presence of COVID-19 virus on its property. To the 

extent that Out West’s theory of physical loss is based upon the presence of infected 

employees or patrons on its property, standing alone, that does not entail a “physical 

alteration of property” and therefore does not qualify as direct physical damage or 

loss. Mudpie, 15 F.4th at 892. And to the extent that Out West argues that infected 

persons contaminated the property or that virus was otherwise present, the 

contamination exclusion would bar coverage under the direct physical loss or 

damage policy provisions. The exclusion precludes coverage under those provisions

for “[c]ontamination, and any cost due to contamination including the inability to 

use or occupy property or any cost of making property safe or suitable for use or 

occupancy.” “Contamination” is defined as “any condition of property due to the 

actual or suspected presence of any foreign substance ... pathogen or pathogenic 

organism, bacteria, virus, disease causing or illness causing agent, fungus, mold or 

1 Because coverage is thus not available under the Civil or Military Authority 

provision, we need not resolve the parties’ dispute as to whether the contamination 

exclusion applies to that coverage.
6

mildew.” It follows that the policy excludes under those provisions losses caused

by the presence of COVID-19 virus on Out West’s property.

Out West contends that, given the policy’s inclusion of the communicable 

disease provisions, the contamination exclusion must refer only to “viruses that are 

not communicable diseases.” The policy imposes no such limitation. “An insurance 

policy may exclude coverage for particular injuries or damages in certain specified 

circumstances while providing coverage in other circumstances.” Julian v. Hartford 

Underwriters Ins. Co., 110 P.3d 903, 910 (Cal. 2005). That is precisely the case 

here. The communicable disease provisions cover damage caused by the presence 

of a virus if “access to [the insured property] is limited, restricted or prohibited by: 

a) An order of an authorized governmental agency regulating or as [a] result of such 

presence of communicable disease; or b) A decision of an Officer of the Insured as 

a result of such presence of communicable disease.” The contamination exclusion 

bars coverage under the direct physical loss or damage provisions for damage caused 

by the presence of a virus. There is thus no conflict between the contamination 

exclusion, on the one hand, and the communicable disease provisions, on the other,

such that the contamination exclusion must be read to refer only to viruses that are 

not communicable diseases.

Out West next argues that the contamination exclusion bars coverage only for 

“costs” from contamination, not for “losses.” The exclusion’s plain terms, which 
7

cover both “[c]ontamination, and any cost due to contamination” (emphasis added),

preclude that interpretation, which would read the words “contamination, and” out 

of the exclusion. See Magna Enters., Inc. v. Fid. Nat’l Title Ins. Co., 127 Cal. Rptr. 

2d 681, 683 (Cal. Ct. App. 2002) (rejecting a “construction [that] implicitly deletes 

... words ... from the policy’s language”). Moreover, the contamination exclusion 

specifically precludes coverage for “the inability to use or occupy property,” which 

makes clear that coverage for losses caused by the closure of Out West’s restaurants 

is precluded. 

Out West’s remaining arguments fail as well. First, nothing in the policy 

suggests that the contamination exclusion “excludes only traditional industrial 

contaminants”; to the contrary, the exclusion specifically excludes viruses. Second,

the California Court of Appeal has rejected the argument, advanced by Out West

here, that a policy’s failure to include standardized virus or pandemic exclusion 

provisions suggests that it does not exclude losses caused by viruses or pandemics. 

See Inns by the Sea, 286 Cal. Rptr. 3d at 593–94 (holding that the absence of a 

standardized virus exclusion does not “create an ambiguity in an otherwise 

unambiguous” policy).

As to the two communicable disease provisions, Out West argues that the 

district court erred in dismissing its claims for declaratory relief. Because Affiliated 

has not yet denied coverage under those provisions, Out West’s request for 
8

declaratory relief as to those provisions is unripe, and the district court was correct 

to dismiss it. See Bova v. City of Medford, 564 F.3d 1093, 1096 (9th Cir. 2009) 

(where the plaintiffs had not yet been denied coverage, reversing and remanding

with instructions to dismiss as unripe the plaintiffs’ request for declaratory relief that 

they were entitled to coverage). However, the dismissal should have been entered 

without prejudice to Out West’s renewing its request for declaratory relief in the 

event Affiliated denies coverage under those provisions.2

AFFIRMED AND REMANDED, with instructions to convert the 

dismissal of Plaintiffs’ communicable disease provision claims to a dismissal 

without prejudice.

2 Out West’s requests that we allow supplemental briefing on certain aspects of 

Inns by the Sea—those that, according to Out West, “recognize[] that noxious 

substances like COVID-19 can cause direct physical loss or damage” and 

incorrectly hold that “[government] orders caused the claimed loss”—are denied as 

moot. Those aspects of Inns by the Sea are immaterial to the grounds we articulate 

for affirming the district court’s judgment.