Exhibit 25
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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

PAPPY’S BARBER SHOPS, INC. et al.,

Plaintiffs,

v. 

FARMERS GROUP, INC. et al., 

Defendants.

Case No.: 20-CV-907-CAB-BLM

ORDER ON MOTION TO DISMISS

[Doc. No. 16] 

This insurance coverage matter is before the Court on Defendants’ motion to 

dismiss. The motion has been fully briefed, and the Court deems it suitable for submission 

without oral argument. For the following reasons, the motion is granted. 

I. Background

Plaintiffs Pappy’s Barber Shops, Inc., and Pappy’s Barber Shop Poway, Inc., each 

operate a business in the San Diego area. The complaint makes no distinction between the 

plaintiffs, referring to them jointly as “Pappy’s Barber Shop.” The complaint does not 

expressly allege what type of business each Plaintiff operates, but based on the names of 

the entities, presumably the businesses are each a barber shop or salon.

The complaint names three defendants—Farmers Group, Inc., Farmers Insurance 

Company, Inc., and Truck Insurance Exchange—but makes no distinction among the three 

entities, referring to them throughout as “Farmers.” According to the complaint, “Farmers” 

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issued Pappy’s Barber Shop an insurance policy with a policy period of February 1, 2020 

through February 1, 2021 (the “Policy”). [Id. at ¶ 17.] The Policy itself is not attached to 

the complaint, but Defendants attach a copy of the Policy to their motion to dismiss and 

ask the Court to take judicial notice of the Policy. Plaintiffs did not oppose the request for 

judicial notice, and because judicial notice of the Policy is appropriate,1 the request for 

judicial notice is granted. According to the Policy itself, Truck Insurance Exchange is the 

insurer, and Plaintiffs do not dispute this fact in their opposition to the instant motion. 

[Doc. No. 16-2 at 9; Doc. No. 18 at 20.]

On March 16, 2020, in connection with the COVID-19 pandemic, San Diego Mayor 

Kevin Falconer “issued Executive Order No. 2020-1, prohibiting any gathering of 50 or 

more people and discouraging all non-essential gatherings of any size.” [Doc. No. 1 at ¶ 

25.] Three days later, California governor Gavin Newsom “issued Executive Order N-33-

20, requiring ‘all individuals living in the State of California to stay home or at their place 

of residence except as needed’ for essential service and engage in strict social distancing.” 

[Doc. No. 1 at ¶ 26.] As a result of these orders, both Plaintiffs, along with “[a]ll California 

businesses not deemed essential, . . . were ordered to close their doors.” [Id. at ¶ 27.] In 

addition, 49 state governments have issued orders limiting or prohibiting the operation of 

non-essential businesses as a result of the COVID-19 pandemic. [Id. at ¶ 30.] The 

complaint refers to these government orders collectively as the “COVID-19 Civil Authority 

Orders.” [Id. at ¶ 2.]

 

1 On a motion to dismiss under Rule 12(b)(6), the court “may also consider unattached evidence on which 

the complaint necessarily relies if: (1) the complaint refers to the document; (2) the document is central to 

the plaintiff's claim; and (3) no party questions the authenticity of the document.” United States v. 

Corinthian Colleges, 655 F.3d 984, 999 (9th Cir. 2011) (internal quotation marks and citation omitted). 

All of these requirements are met here. Accordingly, the Court treats the Policy “as ‘part of the complaint, 

and thus may assume that its contents are true for purposes of”” Defendants’ motion to dismiss. Marder 

v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (quoting United States v. Ritchie, 342 F.3d 903, 908 (9th 

Cir.2003)). Defendants also request judicial notice of a bulletin from the California Insurance 

Commissioner, but because the Court did not consider the bulletin in connection with this opinion, that 

request is denied as moot. 

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On April 1, 2020, Plaintiffs made a claim under the Policy for business income losses 

they incurred as a result of the COVID-19 Civil Authority Orders issued by Mayor 

Falconer and Governor Newsom. [Id. at ¶ 46.] Defendants notified Plaintiffs that day that 

they were denying coverage and issued a formal denial letter on April 3, 2020. [Id.] 

According to the complaint, this denial of coverage was improper because several coverage 

provisions were triggered, and none of the Policy exclusions apply.

First, the complaint alleges that there is coverage under the “Business Income” 

provision, which states:

We will pay for the actual loss of Business Income you sustain due to the 

necessary suspension of your “operations” during the “period of restoration”. 

The suspension must be caused by direct physical loss of or damage to 

property at the described premises. The loss or damage must be caused by or 

result from a Covered Cause of Loss.

[Doc. No. 16-2 at 15 (Policy § A.5.f.(1))]. Second, the complaint alleges that there is 

coverage under the “Civil Authority” provision, which states:

We will pay for the actual loss of Business Income you sustain and necessary 

Extra Expense caused by action of civil authority that prohibits access to the 

described premises due to direct physical loss of or damage to property, other 

than at the described premises, caused by or resulting from any Covered Cause 

of Loss.

[Doc. No. 16-2 at 27 (Policy § A.5.i.)]. Finally, the complaint alleges that there is coverage 

under the “Extra Expense” provision, which states:

We will pay necessary Extra Expense you incur during the “period of 

restoration” that you would not have incurred if there had been no direct 

physical loss or damage to property at the described premises. The loss or 

damage must be caused by or result from a Covered Cause of Loss.

[Doc. No. 16-2 at 27 (Policy § A.5.g.(1))]. According to the Policy, “Covered Causes of 

Loss” are “[r]isks of Direct Physical Loss unless the loss is” excluded in the exclusions 

section of the Policy or limited in the limitations section of the Policy. [Doc. No. 16-2 at 

23 (Policy § A.3.)]. The Policy defines “Business Income” as “[n]et income (Net Profit or 

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Loss before income taxes) that would have been earned or incurred if no physical loss or 

damage had occurred . . . .” [Doc. No. 16-2 at 25 (Policy § A.f.(1))].

The complaint alleges that none of the Policy’s exclusions or limitations apply. 

More specifically, the complaint alleges that exclusions for (1) mold and microorganisms, 

(2) virus or bacteria, and (3) fungi, wet rot, dry rot, and bacteria, do not apply because “the 

efficient proximate cause of [Plaintiffs’] losses was precautionary measures taken by the 

state to prevent the spread of COVID-19 in the future, not because coronavirus was found 

on or around Plaintiffs’ insured properties.” [Doc. No. 1 at ¶¶ 40, 42, 44.] Along these 

lines, the complaint does not allege that COVID-19 or the coronavirus itself caused a direct 

physical loss triggering coverage under the Policy. Rather, the complaint alleges only that 

the government orders themselves caused direct physical loss and damage to Plaintiffs’ 

property. [Doc. No. 1 at ¶ 93.]

Based on these allegations, Plaintiffs assert a total of six claims (for declaratory relief 

and breach of contract based on each of the three coverage provisions listed above) on 

behalf of themselves, a nationwide class, and California subclass, and a seventh claim for 

violation of California’s unfair competition law (“UCL”), California Business and 

Professions Code section 17200 et seq., on behalf of Plaintiffs and the California subclass. 

Defendants move to dismiss the complaint in its entirety.

II. Legal Standards

The familiar standards on a motion to dismiss apply here. To survive a motion to 

dismiss under Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted 

as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 

662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Thus, 

the Court “accept[s] factual allegations in the complaint as true and construe[s] the 

pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire 

& Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). On the other hand, the Court is 

“not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 

U.S. at 678 (quoting Twombly, 550 U.S. at 555). Nor is the Court “required to accept as 

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true allegations that contradict exhibits attached to the Complaint or matters properly 

subject to judicial notice, or allegations that are merely conclusory, unwarranted deductions 

of fact, or unreasonable inferences.” Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 

(9th Cir. 2010). “In sum, for a complaint to survive a motion to dismiss, the non-conclusory 

factual content, and reasonable inferences from that content, must be plausibly suggestive 

of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th 

Cir. 2009) (quotation marks omitted).

III. Discussion

Neither party disputes that California law governs this insurance coverage dispute. 

See, e.g., Intri-Plex Techs., Inc. v. Crest Group, Inc., 499 F.3d 1048, 1052 (9th Cir. 2007) 

(stating that law of the forum state applies in diversity actions). Under California law, the 

“interpretation of an insurance policy is a question of law” to be answered by the court. 

Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 18 (1995). The “goal in construing insurance 

contracts, as with contracts generally, is to give effect to the parties’ mutual intentions.” 

Minkler v. Safeco Inc. Co., 49 Cal. 4th 315, 321 (2010) (quoting Bank of the West v. 

Superior Court, 2 Cal. 4th 1254, 1264 (1992)). 

To accomplish this goal, the court must “look first to the language of the contract in 

order to ascertain its plain meaning or the meaning a layperson would ordinarily attach to 

it.” Waller, 11 Cal. 4th at 18; see also Cont’l Cas. Co. v. City of Richmond, 763 F.2d 1076, 

1080 (9th Cir. 1985) (“The best evidence of the intent of the parties is the policy 

language.”). “The clear and explicit meaning of [the policy] provisions, interpreted in their 

ordinary and popular sense, unless used by the parties in a technical sense or a special 

meaning is given to them by usage, controls judicial interpretation.” Waller, 11 Cal. 4th at 

18 (internal quotation marks and citations omitted); see also Minkler, 49 Cal. 4th at 321 

(“If contractual language is clear and explicit, it governs.”) (citation omitted). However, 

“[i]f the terms are ambiguous [i.e., susceptible of more than one reasonable interpretation], 

[courts] interpret them to protect the objectively reasonable expectations of the insured.” 

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Minkler, 49 Cal. 4th at 321 (citations omitted). That being said, “[c]ourts will not strain to 

create an ambiguity where none exists.” Waller, 11 Cal. 4th at 18-19. 

There are two parts to any coverage analysis. First, “[b]efore even considering 

exclusions, a court must examine the coverage provisions to determine whether a claim 

falls within the policy terms.” Waller, 11 Cal. 4th at 16 (internal brackets and quotation 

marks omitted). The insured bears the burden of proof in this regard, but the insuring 

agreement language in a policy is interpreted broadly in favor of coverage. See AIU Ins. 

Co. v. Superior Court, 51 Cal. 3d 807, 822 (1990) (“[W]e generally interpret coverage 

clauses of insurance policies broadly, protecting the objectively reasonable expectations of 

the insured.”). If the insured proves that the claim falls within the policy terms, the burden 

then shifts to the insurer to prove that an exclusion applies. Waller, 11 Cal. 4th at 16; see 

also Universal Cable Prods., LLC v. Atl. Specialty Ins. Co., 929 F.3d 1143, 1151 (9th Cir. 

2019) (“The burden is on the insured to establish that the claim is within the basic scope of 

coverage and on the insurer to establish that the claim is specifically excluded.”) (quoting

MacKinnon v. Truck Ins. Exch., 31 Cal.4th 635, 648 (2003)). Exclusions “are interpreted 

narrowly against the insurer.” Minkler, 49 Cal. 4th at 322.

Here, Defendants move to dismiss on the grounds that the complaint does not allege 

any “direct physical loss of or damage to property” as is required for coverage under the 

business income, civil authority, and extra expense coverage provisions. In their 

opposition, Plaintiffs contend that this Policy language does not require “physical alteration 

to property,” and that “jurisdictions around the country have held that a property that is 

uninhabitable or unsuitable for its intended purpose qualifies as a physical loss under 

commercial property insurance policies.” [Doc. No. 18 at 11.] 

Business Income and Extra Expense Coverage

For there to be coverage under the business income and extra expense provisions, 

there must be “direct physical loss of or damage to property at the described premises.” 

Plaintiffs focus on the first alternative—“direct physical loss of”—arguing that it does not 

require a tangible damage or alteration to property and that loss of the ability to continue 

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operating their business as a result of the government orders qualifies. Plaintiffs are not 

the first policyholders to argue in court that government orders forcing their businesses to 

stop operating as a result of the COVID-19 pandemic trigger insurance under provisions 

similar or identical to the ones in the Policy here. Most courts have rejected these claims, 

finding that the government orders did not constitute direct physical loss or damage to 

property. See, e.g., Malaube, LLC v. Greenwich Ins. Co., No. 20-22615-CIV, 2020 WL 

5051581 (S.D. Fla. Aug. 26, 2020) (recommending dismissal of complaint seeking 

coverage for loss of business income as a result of Florida COVID-19 Civil Authority 

Orders because the requirement that the plaintiff’s restaurant close indoor dining to 

mitigate the spread of COVID-19 was not a direct physical loss).

2

 As a district court 

explained just last week in an opinion granting a motion to dismiss a claim for coverage 

under identical policy language for business income losses of a restaurant due to COVID19 Civil Authority Orders in Los Angeles:

“When interpreting a policy provision, we must give terms their ordinary and 

popular usage, unless used by the parties in a technical sense or a special 

meaning is given to them by usage.” Palmer v. Truck Ins. Exch., 21 Cal. 4th 

1109, 1115 (1999) (citation and quotation marks omitted). The Business 

Interruption and Extra Expense provision at issue here conditions recovery on 

“direct physical loss of or damage to property.” 

Under California law, losses from inability to use property do not amount to 

“direct physical loss of or damage to property” within the ordinary and 

 

2 The case on which Plaintiffs rely, Studio 417, Inc. v. Cincinnati Ins. Co., No. 20-CV-03127-SRB, 2020 

WL 4692385 (W.D. Mo. Aug. 12, 2020), is distinguishable. In Studio 417, the district court based its 

denial of the insurer’s motion to dismiss, at least in part, on allegations “that COVID-19 ‘is a physical 

substance,’ that it ‘live[s] on’ and is ‘active on inert physical surfaces,’ and is also ‘emitted into the air.’ 

COVID-19 allegedly attached to and deprived Plaintiffs of their property, making it ‘unsafe and unusable, 

resulting in direct physical loss to the premises and property.’” Studio 417, 2020 WL 4692385, at *4. 

The policyholder also alleged that “it is likely that customers, employees, and/or other visitors to the 

insured properties were infected with COVID-19 and thereby infected the insured properties with the 

virus.” Id. at *2. Accordingly, “[b]ased on these allegations,” the district court held that the complaint 

“plausibly alleges a ‘direct physical loss’ based on ‘the plain and ordinary meaning of the phrase.’” Id. 

Here, in contrast, Plaintiffs expressly allege that COVID-19 did not cause physical loss of or damage to 

their properties, alleging and arguing only that that the government orders themselves constitute direct 

physical loss of or damage to the properties. 

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popular meaning of that phrase. Physical loss or damage occurs only when 

property undergoes a “distinct, demonstrable, physical alteration.” MRI 

Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., 187 Cal. App. 

4th 766, 779 (2010) (citation and quotation marks omitted). “Detrimental 

economic impact” does not suffice. Id. (citation and quotation marks omitted)

. . . .

An insured cannot recover by attempting to artfully plead temporary 

impairment to economically valuable use of property as physical loss or 

damage. For example, in MRI Healthcare Ctr., the court held that lost use of 

an MRI machine after it was powered off did not qualify as a “direct physical 

loss.” 187 Cal. App. 4th at 779. . . .

Plaintiff's FAC attempts to make precisely this substitution of temporary 

impaired use or diminished value for physical loss or damage in seeking 

Business Income and Extra Expense coverage. Plaintiff only plausibly alleges 

that in-person dining restrictions interfered with the use or value of its 

property – not that the restrictions caused direct physical loss or damage.

. . .

Plaintiff attempts to circumvent the plain language of the Policy by 

emphasizing its disjunctive phrasing – “direct physical loss of or damage to 

property,”–and insisting that “loss,” unlike “damage,” encompasses 

temporary impaired use. To support this argument, Plaintiff relies on Total 

Intermodal Servs. Inc. v. Travelers Prop. Cas. Co. of Am., 2018 WL 3829767 

(C.D. Cal. 2018). In Total Intermodal, the court concluded that giving 

separate effect to “loss” and “damage” in the phrase, “direct physical loss or 

damage,” required recognizing coverage for “the permanent dispossession of 

something.” Id. at *4.

Even if the Policy covers “permanent dispossession” in addition to physical 

alteration, that does not benefit Plaintiff here. Plaintiff's FAC does not allege 

that it was permanently dispossessed of any insured property. As far as the 

FAC reveals, while public health restrictions kept the restaurant's “large 

groups” and “happy-hour goers” at home instead of in the dining room or at 

the bar, Plaintiff remained in possession of its dining room, bar, flatware, and 

all of the accoutrements of its “elegantly sophisticated surrounding.”

10E, LLC v. Travelers Indem. Co. of Connecticut, No. 2:20-CV-04418-SVW-AS, 2020 

WL 5359653, at *4–5 (C.D. Cal. Sept. 2, 2020) (internal citations to the record omitted). 

This analysis is persuasive and equally applicable here, as Plaintiffs make similar 

arguments for coverage under identical policy language and also rely on Total Intermodal

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to support their position. For all the same reasons, Plaintiffs have failed to plausibly allege 

any entitlement to coverage under the business income or extra expense provisions in their

Policy with Truck Insurance Exchange. 

Civil Authority Coverage

There is also no coverage under the civil authority provision of the Policy. To trigger 

coverage under this provision, there must be an “action of civil authority that prohibits 

access to the described premises due to direct physical loss of or damage to property, other 

than at the described premises, caused by or resulting from any Covered Cause of Loss.” 

[Doc. No. 16-2 at 27 (Policy § A.5.i.) (emphasis added)]. Thus, to survive dismissal, the 

complaint must, at a minimum, allege that the government (1) prohibited Plaintiffs from 

accessing their premises (2) due to direct physical loss of or damage to property elsewhere. 

The allegations in the complaint do not satisfy either requirement. 

First, the complaint does not allege that any COVID-19 Civil Authority Orders

prohibited Plaintiffs from access to their business premises. Rather, it only alleges that 

Plaintiffs were prohibited from operating their businesses at their premises. Plaintiffs fail 

to make any distinction between their place of business (i.e., the physical premises where 

they operate their business), and the business itself, but this distinction is relevant to 

coverage under the Policy. The Policy insures property, in this case Plaintiffs’ property 

and physical places of business, and not Plaintiff’s business itself. To that end, the civil 

authority coverage provision only provides coverage to the extent that access to Plaintiff’s 

physical premises is prohibited, and not if Plaintiff’s are simply prohibited from operating 

their business. The government orders alleged in the complaint prohibit the operation of 

Plaintiff’s business; they do not prohibit access to Plaintiffs’ place of business. 

Second, even if the government orders alleged in the complaint could be construed 

as prohibiting Plaintiffs from accessing their premises, the orders were not issued due to 

direct physical loss of or damage to property other than at Plaintiffs’ premises. Just as the 

complaint does not plausibly allege any direct physical loss of Plaintiff’s property, it also

does not allege any direct physical loss or damage to property not at Plaintiffs’ places of 

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business. In the opposition, Plaintiff does not argue otherwise, referring only to its 

arguments under the business income and extra expense provisions that the complaint 

alleges direct physical loss of or damage to Plaintiffs’ property. [Doc. No. 18 at 16]; see 

generally, 10E, LLC, 2020 WL 5359653, at *5-6 (finding no civil authority coverage as a 

result of COVID-10 Civil Authority Orders requiring restaurant to cease indoor 

operations). 

Accordingly, because the complaint does not plausibly allege (1) any civil authority 

orders that prohibited access to Plaintiffs’ places of business (as opposed to simply 

prohibiting Plaintiffs from operating their businesses), or (2) any direct physical loss of or 

damage to property, other than at Plaintiffs’ premises, the complaint does not state a claim 

for coverage under the civil authority provision of the Policy.

IV. Conclusion

Because the allegations in the complaint do not a state a claim for coverage under 

the Policy, Plaintiffs’ claims for declaratory relief that there is coverage and for breach of 

contract must be dismissed. Likewise, because the UCL claim is premised on the existence 

of coverage under the Policy, it is dismissed as well. See generally, 10E, LLC, 2020 WL 

5359653, at *6 (dismissing UCL claim based on allegation that an insurance policy 

provided coverage after concluding that the plaintiff was not entitled to coverage under the 

policy). Accordingly, it is hereby ORDERED that the motion to dismiss is GRANTED, 

and the complaint is DISMISSED in its entirety.3

Plaintiffs make a passing request for leave to amend the complaint at the end of their 

opposition, but do not explain how an amended complaint would remedy any of the 

 

3 Because the complaint does not state a claim for coverage under the Policy, the Court need not address 

Defendants’ separate argument for dismissal of Farmers Group, Inc., and Farmers Insurance Company, 

Inc. as defendants because they are not parties to the Policy. However, the allegation that these defendants 

own subsidiaries that issue property insurance, which is Plaintiffs only argument for keeping these 

defendants in the case, is grossly insufficient to state a claim against them for declaratory relief, breach of 

contract, or violation of the UCL related to insurance coverage under a policy issued by Truck Insurance 

Exchange. Plaintiffs are advised that if they seek leave to amend their complaint, they must also amend 

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deficiencies identified by Defendants in their motion. Because any amendment is likely to 

be futile, before allowing Plaintiffs to amend their complaint, Plaintiffs must file a motion 

for leave to amend that attaches their proposed amended complaint, along with a redline 

showing all changes as compared with the original complaint. If a motion for leave to 

amend is not filed by September 21, 2020, this dismissal of Plaintiffs’ complaint will be 

with prejudice. If Plaintiffs file a motion for leave to amend, Defendants may file an 

opposition on or before September 28, 2020. The Court will then take the motion under 

submission without a reply and enter an order in due course.

It is SO ORDERED. 

Dated: September 11, 2020

 

their allegations as to these defendants. Failure to include factual allegations as to why these defendants 

can be liable for coverage under an insurance policy to which they are not a party will result in dismissal 

of these defendants regardless of whether Plaintiffs can plausibly allege a direct physical loss to their 

property or property not at their premises. 

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