Court Opinion

ID: 5125325
Source: CourtListenerOpinion
Date Created: 2021-11-11 21:00:59.567798+00
Date Added: 2024-06-11T08:22:50.363127
License: Public Domain

FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT

 MUDPIE, INC.,                                      No. 20-16858
                      Plaintiff-Appellant,
                                                      D.C. No.
                      v.                           4:20-cv-03213-
                                                         JST
 TRAVELERS CASUALTY INSURANCE
 COMPANY OF AMERICA,
              Defendant-Appellee.                     OPINION

         Appeal from the United States District Court
           for the Northern District of California
           Jon S. Tigar, District Judge, Presiding

            Argued and Submitted August 11, 2021
                  San Francisco, California

                      Filed October 1, 2021

 Before: Morgan Christen and Danielle J. Forrest, Circuit
     Judges, and Michael M. Anello,* District Judge.

                   Opinion by Judge Christen

     *
       The Honorable Michael M. Anello, United States District Judge for
the Southern District of California, sitting by designation.
2     MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA

                            SUMMARY**

                    California Insurance Law

    The panel affirmed the district court’s order dismissing
Mudpie, Inc.’s claims against its insurer in Mudpie’s
diversity putative class action seeking to recover under the
insurance policy’s “Business Income” and “Extra Expense”
coverage after state and local authorities in California issued
several public health orders in response to the COVID-19
pandemic.

    Mudpie filed suit on behalf of itself and a putative class
of all retailers in California that: purchased comprehensive
business insurance coverage from Travelers Casualty
Insurance Company of America that included coverage for
business interruption; filed a claim for lost business income
following California’s Stay at Home order; and were denied
coverage. The parties disputed whether Mudpie adequately
alleged a “direct physical loss of or damage” to property
under the Policy.

    The panel held that California courts would construe the
phrase “physical loss of or damage to” as requiring an insured
to allege physical alteration of the property. The panel
rejected Mudpie’s interpretation of “direct physical loss of or
damage to” to be synonymous with “loss of use.” Mudpie’s
complaint did not identify a distinct, physical alteration of the
property. The panel affirmed the district court’s ruling that
Mudpie’s claimed losses were not covered by the Policy, and

    **
       This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
    MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA            3

concluded that the district court did not err by dismissing
Mudpie’s claims for declaratory relief, breach of contract,
and breach of the covenant of good faith and fair dealing.

    The panel held that the Policy’s Virus Exclusion barred
coverage for Mudpie’s claimed losses. The panel rejected
Mudpie’s argument that its losses were not subject to the
Policy’s Exclusion because the losses were caused by Stay at
Home Orders that restricted Mudpie’s use of its property, not
directly by the virus. California courts apply the efficient
proximate (meaning predominate) cause of the loss. The
panel held that Mudpie did not plausibly allege that the
efficient cause (the cause that set others in motion) was
anything other than the spread of the virus throughout
California, or that the virus was merely a remote cause of its
losses.

                        COUNSEL

Andre M. Mura (argued), Eric H. Gibbs, and Amanda M.
Karl, Gibbs Law Group LLP, Oakland, California; Victoria
S. Nugent and Geoffrey Graber, Cohen Milstein Sellers &
Toll PLLC, Washington, D.C.; for Plaintiff-Appellant.

Theodore J. Boutrous Jr. (argued), Richard J. Doren, and
Deborah L. Stein, Gibson Dunn & Crutcher LLP, Los
Angeles, California; Stephen E. Goldman and Wystan M.
Ackerman, Robinson & Cole LLP, Hartford, Connecticut; for
Defendant-Appellee.

Gabriel K. Gillett, John H. Mathias Jr., David M. Kroeger,
and Michael F. Linden, Jenner & Block LLP, Chicago,
Illinois; Angelo I. Amador, Restaurant Law Center,
4    MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA

Washington, D.C.; for Amicus Curiae Restaurant Law
Center.

Jeffrey R. White, Counsel; Tobias L. Millrood, President;
American Associate for Justice, Washington, D.C., for
Amicus Curiae American Association for Justice.

David B. Goodwin and Breanna K. Jones, Covington &
Burling LLP, San Francisco, California; Jad H. Khazem,
Covington & Burling LLP, Washington, D.C.; for Amicus
Curiae United Policyholders.

Laura A. Foggan, Crowell & Moring LLP, Washington, D.C.,
for Amici Curiae American Property Casualty Insurance
Association and National Association of Mutual Insurance
Companies.

                          OPINION

CHRISTEN, Circuit Judge:

    Mudpie, Inc. appeals a district court order dismissing its
claims against Travelers Casualty Insurance Company of
America (Travelers). Mudpie operates a children’s store
located in San Francisco that sells clothing, toys, books, and
other goods.       Mudpie alleges that it purchased a
comprehensive commercial liability and property insurance
policy from Travelers (the Policy), and made a claim pursuant
to the Policy’s “Business Income” and “Extra Expense”
coverage in 2020 after state and local authorities in California
issued several public health orders in response to the COVID-
19 pandemic. Mudpie claimed the orders prevented it from
operating its store. Travelers denied the claim.
        MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA                 5

    Mudpie filed a putative class action seeking declaratory
relief and asserting claims for breach of contract and breach
of the implied covenant of good faith and fair dealing. The
district court granted Travelers’ motion to dismiss pursuant
to Federal Rule of Civil Procedure 12(b)(6), and Mudpie
timely appealed. We have jurisdiction pursuant to 28 U.S.C.
§ 1291. We affirm the district court’s judgment.

                                   I

    On March 4, 2020, Governor Gavin Newsom declared a
state of emergency in California in response to the threat
posed by COVID-19. Governor Newsom issued an executive
order on March 12, 2020, that “[a]ll [California] residents are
to heed any orders and guidance of state and local public
health officials, including but not limited to the imposition of
social distancing measures, to control the spread of
COVID-19.”

    The City and County of San Francisco issued a “Shelter
in Place Order” on March 16, 2020.1 This order required
residents to remain at their place of residence unless
performing “essential activities.” Id. at 1. The Shelter in
Place Order also declared that “[a]ll businesses with a facility
in the County, except Essential Businesses . . . , are required
to cease all activities at facilities located within the County
except Minimum Basic Operations.” Id. at 3. Failure to
comply with San Francisco’s Shelter in Place Order was
deemed a misdemeanor punishable by a fine, imprisonment,
or both. Id. at 1.

    1
      City and County of San Francisco, Order of the Health Officer
No. C19-07 (Mar. 16, 2020), https://sfgsa.org/sites/default/files/Docum
ent/OrderC19-07ShelterinPlace.pdf.
6    MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA

    On March 19, 2020, Governor Newsom in conjunction
with the State Public Health Officer ordered “all individuals
living in the State of California to stay home or at their place
of residence except as needed to maintain continuity of
operations of the federal critical infrastructure sectors.”
Mudpie alleges that it complied with the local and state
orders (collectively, the Stay at Home Orders) and as a result,
was not able to operate its store after March 16, 2020.

    Mudpie filed a claim with Travelers under the Policy on
April 27, 2020. In its letter denying the claim, Travelers
stated that “[b]ecause the limitations on [Mudpie’s] business
operations were the result of the Governmental Order, as
opposed to ‘direct physical loss or damage to property at the
described premises’ . . . this Business Income and Extra
Expense coverage does not apply to [Mudpie’s] loss.”
Travelers further stated that the Policy’s coverage excluded
“‘loss or damage caused by or resulting from any virus’ –
such as the COVID-19 virus.”

     Mudpie filed suit in the United States District Court for
the Northern District of California on behalf of itself and a
putative class of “[a]ll retailers in California that purchased
comprehensive business insurance coverage from [Travelers]
which includes coverage for business interruption, filed a
claim for lost business income following California’s Stay at
Home order, and were denied coverage.” Mudpie’s
complaint asserted three causes of action: (1) a claim for
declaratory relief that “its business income losses are covered
and not precluded by exclusions or other limitations” in the
Policy; (2) a claim for breach of contract; and (3) a claim for
a breach of the implied covenant of good faith and fair
dealing. Mudpie did not allege that COVID-19 was present
in its storefront premises during the relevant period.
        MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA                     7

    Travelers filed a motion to dismiss pursuant to Federal
Rule of Civil Procedure 12(b)(6). The motion argued that
Mudpie was not entitled to Business Income or Extra
Expense coverage because Mudpie had “not alleged . . . any
facts demonstrating that [it] suffered a ‘direct physical loss of
or damage to’ insured property,” and because the Policy
included a Virus Exclusion.2 Mudpie countered “that its
inability to operate and occupy its storefront following the
government closure orders [wa]s a direct physical loss of
property covered by [the Policy].”

    The district court granted Travelers’ motion, ruling that
Mudpie “fail[ed] to allege any intervening physical force
beyond the government closure orders” and thus was “not
entitled to Business Income or Extra Expense coverage”
pursuant to the Policy. The district court declined to consider
Travelers’ argument that the Virus Exclusion barred
Mudpie’s recovery. The court dismissed the complaint
without prejudice but gave Mudpie leave to amend. Mudpie
responded by filing a notice advising “it [would] not be
amending its Complaint, as permitted by the Court’s Order.”
The court then dismissed the complaint with prejudice, and
Mudpie timely appealed.

                                    II

    We review de novo an order granting a motion to dismiss
for failure to state a claim under Federal Rule of Civil

    2
       Travelers also argued that Mudpie could not establish entitlement to
the Policy’s “Civil Authority” coverage. Mudpie’s complaint alleged that
its losses were insured under the Policy’s Civil Authority coverage, but
Mudpie abandoned this argument in the district court, and it is not a part
of this appeal.
8    MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA

Procedure 12(b)(6). L.A. Lakers, Inc. v. Fed. Ins. Co.,
869 F.3d 795, 800 (9th Cir. 2017). “[W]e accept the factual
allegations of the complaint as true and construe them in the
light most favorable to the plaintiff.” Id. (quoting AE ex rel.
Hernandez v. County of Tulare, 666 F.3d 631, 636 (9th Cir.
2012)).

    “When interpreting state law, we are bound to follow the
decisions of the state’s highest court, and when the state
supreme court has not spoken on an issue, we must determine
what result the court would reach based on state appellate
court opinions, statutes and treatises.” Diaz v. Kubler Corp.,
785 F.3d 1326, 1329 (9th Cir. 2015) (internal quotation marks
and brackets omitted) (quoting Paulson v. City of San Diego,
294 F.3d 1124, 1128 (9th Cir. 2002) (en banc)). “We will
ordinarily accept the decision of an intermediate appellate
court as the controlling interpretation of state law,” Tomlin v.
Boeing Co., 650 F.2d 1065, 1069 n.7 (9th Cir. 1981), “unless
[we] find[] convincing evidence that the state’s supreme court
likely would not follow it,” Ryman v. Sears, Roebuck & Co.,
505 F.3d 993, 994 (9th Cir. 2007).

                               III

      Pursuant to the Policy, Travelers agreed to “pay for direct
physical loss of or damage to [Mudpie’s] Covered Property
. . . caused by or resulting from a Covered Cause of Loss.”
At oral argument before our court, defense counsel agreed the
“Covered Property” included Mudpie’s storefront premises
and its contents. The coverage also extended to certain losses
to Mudpie’s “Business Income” and “Extra Expense”
incurred to recover from a covered loss. In relevant part, the
Policy provides:
    MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA           9

       [Travelers] will pay for the actual loss of
       Business Income [Mudpie] sustain[s] due to
       the necessary “suspension” of [Mudpie’s]
       “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. . . .

           ....

       [Travelers] will also pay Extra Expense
       (including Expediting Expenses) to repair or
       replace the property, but only to the extent it
       reduces the amount of loss that otherwise
       would have been payable under [the
       “Business Income” provision].

    Under California law, the burden is on the insured to
establish that a claimed loss “is within the basic scope of
insurance coverage.” Aydin Corp. v. First State Ins. Co.,
959 P.2d 1213, 1215 (Cal. 1998). “[O]nce an insured has
made this showing, the burden is on the insurer to prove the
claim is specifically excluded.” Id. Where, as here, a policy
covers “direct physical loss of or damage to” property, the
“direct physical loss requirement is part of the policy’s
insuring clause and accordingly falls within [the insured’s]
burden of proof.” MRI Healthcare Ctr. of Glendale, Inc. v.
State Farm Gen. Ins. Co., 115 Cal. Rptr. 3d 27, 36 (Ct. App.
2010).

    The parties dispute whether Mudpie adequately alleged a
“direct physical loss of or damage to” property under the
10 MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA

Policy, and they offer competing interpretations of that
phrase. California courts require that we interpret an
insurance policy according to the “clear and explicit”
meaning of the terms as used in their “ordinary and popular
sense.” AIU Ins. Co. v. Superior Ct., 799 P.2d 1253, 1264
(Cal. 1990) (internal quotation marks omitted); Bay Cities
Paving & Grading, Inc. v. Laws.’ Mut. Ins. Co., 855 P.2d
1263, 1270 (Cal. 1993) (“The clear and explicit meaning of
the[] 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.”) (internal quotation marks and citations
omitted). We must “construe [insurance policies] as would
a reasonable layperson, not an expert, attorney, or a
historian.” E.M.M.I. Inc. v. Zurich Am. Ins. Co., 84 P.3d 385,
391 n.2 (Cal. 2004) (citing Crane v. State Farm & Cas. Co.,
485 P.2d 1129 (Cal. 1971)).

    California courts have interpreted coverage provisions
similar to the Policy’s “direct physical loss of or damage to
property” term.3 For example, in MRI Healthcare, the
California Court of Appeal considered the meaning of the
phrase “direct physical loss” in a business insurance policy.
115 Cal. Rptr. 3d at 31–32. The plaintiff in MRI Healthcare,
MRI Healthcare Center (MHC), was required to demagnetize,
or “ramp down,” its MRI machine when its landlord repaired
storm damage to the roof over the room housing the machine.
Id. at 32. After the roof was repaired, the machine failed to
restart for several months, causing MHC to lose business
income. Id. at 31–32. MHC’s business insurance policy
provided coverage for lost income sustained during a business

     3
       Accordingly, we decline Mudpie’s request to certify its question to
the California Supreme Court. See Cal. R. Ct. 8.548(a)(2).
     MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA 11

interruption “caused by accidental direct physical loss to
property at the described premises.” Id. at 31. MHC’s
insurer denied coverage for lost business income during the
period when the MRI machine was nonoperational, id. at 32,
and the superior court entered summary judgment in favor of
the insurer, id. at 30.

    The California Court of Appeal affirmed the superior
court’s ruling, explaining “direct physical loss ‘contemplates
an actual change in insured property . . . occasioned by
accident or other fortuitous event directly upon the property
causing it to become unsatisfactory.’” Id. at 37 (quoting
AFLAC Inc. v. Chubb & Sons, Inc., 581 S.E.2d 317, 319 (Ga.
Ct. App. 2003)). In other words, “[f]or loss to be covered,
there must be a ‘distinct, demonstrable, physical alteration’ of
the property.” Id. at 38. The court cited Couch on Insurance
§ 148:46,4 which explains:

        The requirement that the loss be “physical”
        . . . is widely held to exclude alleged losses
        that are intangible or incorporeal and, thereby,
        to preclude any claim against the property
        insurer when the insured merely suffers a
        detrimental economic impact unaccompanied
        by a distinct, demonstrable, physical alteration
        of the property.

The California appellate court concluded there was no
coverage because there had been no “distinct, demonstrable,
physical alteration” of the MRI machine. MRI Healthcare,
115 Cal. Rptr. 3d at 38. Rather, the machine was turned off

    4
      10A STEVEN PLITT ET AL., COUCH ON INSURANCE § 148:46 (3d ed.
2021) (footnotes omitted).
12 MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA

and could not be turned back on due to the inherent nature of
the machine itself rather than actual physical damage or
alteration. Id.

     Mudpie contends that under California law “direct
physical loss of or damage to” property does not require
actual damage to the property but merely requires that the
property no longer be suitable for its intended purpose. In
support, Mudpie cites Hughes v. Potomac Insurance Co. of
the District of Columbia, 18 Cal. Rptr. 650 (Dist. Ct. App.
1962), abrogated on other grounds by Sabella v. Wisler,
377 P.2d 889 (Cal. 1963). But Hughes cannot bear the
weight Mudpie places on it. First, Hughes did not purport to
interpret a “direct physical loss” provision similar to the one
at issue here. Hughes concerned whether a home insurance
policy’s definition of “dwelling” included the ground
underneath a home in addition to the structure itself. See id.
at 655. Second, contrary to Mudpie’s suggestion, Hughes did
not imply that an insured need not show any physical change
to the insured property to prove “direct physical loss.” To the
contrary, the court in Hughes concluded that the home
sustained “real and severe damage when the soil beneath it
slid away and left it overhanging a 30-foot cliff” and deemed
the home uninhabitable. Id.5

     5
       Both parties discuss an unpublished federal district court decision
from the Central District of California: Total Intermodal Services Inc. v.
Travelers Property Casualty Co. of America, No. CV 17-04908 AB
(KSX), 2018 WL 3829767 (C.D. Cal. July 11, 2018). Mudpie cites this
case for the proposition that “direct physical loss” can include permanent
dispossession of property. Besides the fact that Total is an unpublished
decision, this argument is not well taken because our task is to gauge how
the California state courts would resolve the legal issue at hand and Total
was a federal district court decision. In any event, the result in Total is not
     MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA 13

    Unlike the cases that Mudpie relies upon, Mudpie’s
complaint does not identify a “distinct, demonstrable,
physical alteration of the property,” see MRI Healthcare,
115 Cal. Rptr. 3d at 37, and it does not allege that Mudpie
was permanently dispossessed of its property. Instead,
Mudpie alleges the Stay at Home Orders temporarily
prevented Mudpie from operating its store as it intended, and
urges us to interpret “direct physical loss of or damage to” to
be synonymous with “loss of use.” We cannot endorse
Mudpie’s interpretation because California courts have
carefully distinguished “intangible,” “incorporeal,” and
“economic” losses from “physical” ones. Id.; see also Doyle
v. Fireman’s Fund Ins. Co., 229 Cal. Rptr. 3d 840, 843–44
(Ct. App. 2018) (concluding no physical damage was alleged
where wine collection diminished in value after counterfeit
wine was added, because no wine was physically lost); Ward
Gen. Ins. Servs., Inc. v. Emps. Fire Ins. Co., 7 Cal. Rptr. 3d
844, 851 (Ct. App. 2003) (concluding no physical damage
was alleged where plaintiff sought to recover loss of
electronically stored data, because there was “no loss of or
damage to tangible property”).

    Interpreting the phrase “direct physical loss of or damage
to” property as requiring physical alteration of property is
consistent with other provisions of Mudpie’s Policy. Cf.
Producers Dairy Delivery Co. v. Sentry Ins. Co., 718 P.2d
920, 927 n.7 (Cal. 1986) (“[L]anguage in a contract must be
construed in the context of that instrument as a whole . . . and
cannot be found to be ambiguous in the abstract.”). For
example, the Policy provides coverage for Business Income
and Extra Expense only during the “period of restoration,”

inconsistent with MRI Healthcare and does not change the result we reach
here.
14 MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA

and it defines the “period of restoration” as ending on “[t]he
date when the property at the described premises should be
repaired, rebuilt or replaced with reasonable speed and
similar quality; or . . . [t]he date when business is resumed at
a new permanent location.” That this coverage extends only
until covered property is repaired, rebuilt, or replaced, or the
business moves to a new permanent location suggests the
Policy contemplates providing coverage only if there are
physical alterations to the property. To interpret the Policy to
provide coverage absent physical damage would render the
“period of restoration” clause superfluous.

    Our conclusion that California courts would construe the
phrase “physical loss of or damage to” as requiring an insured
to allege physical alteration of its property is consistent with
conclusions reached by other courts. See, e.g., Michael Cetta,
Inc. v. Admiral Indem. Co., 506 F. Supp. 3d 168, 179
(S.D.N.Y. 2020) (interpreting the phrase “direct physical loss
of or damage to” in an insurance policy and observing that
“nearly every court to address this issue has concluded that
loss of use of a premises due to a governmental closure order
does not trigger business income coverage premised on
physical loss to property”); Promotional Headwear Int’l v.
Cincinnati Ins. Co., 504 F. Supp. 3d 1191, 1200 (D. Kan.
2020) (“[T]he overwhelming majority of cases to consider
business income claims stemming from COVID-19 with
similar policy language hold that ‘direct physical loss or
damage’ to property requires some showing of actual or
tangible harm to or intrusion on the property itself.”).

    The Eighth Circuit recently considered whether the
COVID-19 pandemic and related government-imposed
restrictions constitute “accidental physical loss or accidental
physical damage” to business property in Oral Surgeons, P.C.
     MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA 15

v. Cincinnati Insurance Co., 2 F.4th 1141 (8th Cir. 2021).
There, an oral and maxillofacial surgery practice ceased non-
emergency services in March 2020 to comply with COVID-
19 restrictions imposed by the Governor of Iowa. Id. at 1143.
The restrictions were lifted and non-emergency surgeries
resumed in May 2020. Id. Oral Surgeons filed a claim with
its insurer for losses suffered during the suspension of non-
emergency procedures. Id. The subject policy insured Oral
Surgeons against lost business income and certain extra
expense resulting from the suspension of operations “caused
by direct loss to property.” Id. (internal quotation marks
omitted). The policy defined “loss” as “accidental physical
loss or accidental physical damage,” id., but Oral Surgeons
did not allege physical alteration to its property, id. at 1145.

    Applying Iowa law, the Eighth Circuit interpreted the
policy to require direct physical loss or physical damage, and
concluded “there must be some physicality to the loss or
damage of property—e.g., a physical alteration, physical
contamination, or physical destruction.” Id. at 1144. The
Eighth Circuit observed that the policy covered business
income and incurred extra expense only during the “period of
restoration” and reasoned that the fact “the policy provides
coverage until property ‘should be repaired, rebuilt or
replaced’ or until business resumes elsewhere assumes
physical alteration of the property, not mere loss of use.” Id.;
see also O’Brien Sales & Mktg., Inc. v. Transp. Ins. Co.,
512 F. Supp. 3d 1019, 1023 (N.D. Cal. 2021) (relying on MRI
Healthcare and holding that plaintiff’s loss of use
“unaccompanied by a distinct, demonstrable, physical
alteration to the property” was insufficient to be compensable
under its insurance policy). We affirm the district court’s
ruling that Mudpie’s claimed losses are not covered by the
Policy. The district court did not err by dismissing Mudpie’s
16 MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA

claims for declaratory relief, breach of contract, and breach
of the covenant of good faith and fair dealing.6

                                     IV

   We also conclude that the Policy’s Virus Exclusion bars
coverage for Mudpie’s claimed losses. The Policy specifies:

         [Travelers] will not pay for loss or damage
         caused by or resulting from any virus,
         bacterium or other microorganism that
         induces or is capable of inducing physical
         distress, illness or disease.

Having ruled that Mudpie did not allege a direct physical
loss, the district court did not rely on the Virus Exclusion
when it dismissed Mudpie’s complaint. Nevertheless, the
parties fully briefed the applicability of the Virus Exclusion
in the district court and we may affirm “on any basis the
record supports, including one the district court did not
reach.” Or. Short Line R.R. Co. v. Dep’t of Revenue Or.,
139 F.3d 1259, 1265 (9th Cir. 1998) (quoting Herring v.
FDIC, 82 F.3d 282, 284 (9th Cir. 1995)).

    Mudpie argues that its losses are not subject to the
Policy’s Virus Exclusion because the losses were caused by

    6
       To survive the motion to dismiss Mudpie’s claim for breach of the
implied covenant of good faith and fair dealing, Mudpie was required to
adequately plead two elements: (1) benefits under the policy were
withheld; and (2) the reason for withholding benefits was unreasonable or
without proper cause. See Love v. Fire Ins. Exch., 271 Cal. Rptr. 246, 255
(Ct. App. 1990). Because Mudpie failed to plausibly allege that it was
entitled to coverage under the Policy, it failed to adequately plead the first
element of this claim.
     MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA 17

Stay at Home Orders that restricted Mudpie’s use of its
property, not directly by the virus. Travelers contends that
this exclusion bars coverage for all of Mudpie’s claimed
losses because it was the virus that prompted state and local
authorities to issue the Stay at Home Orders in the first place.

    California courts broadly interpret the term “resulting
from” in insurance contracts. Mosley v. Pac. Specialty Ins.
Co., 263 Cal. Rptr. 3d 28, 35 (Ct. App. 2020) (explaining
“[t]he term ‘resulting from’ ‘broadly links a factual situation
with the event creating liability, and connotes only a minimal
causal connection or incidental relationship’”) (citation
omitted). And “where there is a concurrence of different
causes, the efficient cause—the one that sets others in
motion—is the cause to which the loss is to be attributed,
though the other causes may follow it, and operate more
immediately in producing the disaster.” Sabella v. Wisler,
377 P.2d 889, 895 (Cal. 1963) (quoting 6 COUCH, INSURANCE
§ 1466 (1930)).

    The California Supreme Court explained in Garvey v.
State Farm Fire & Casualty Co., 770 P.2d 704 (Cal. 1989),
that Sabella “impliedly recognized that coverage would not
exist if the covered risk was simply a remote cause of the
loss, or if an excluded risk was the efficient proximate
(meaning predominant) cause of the loss” and concluded “the
fact that an excluded risk contributed to the loss would not
preclude coverage if such a risk was a remote cause of the
loss.” Id. at 707. California courts apply the efficient
proximate cause doctrine developed in Sabella and reaffirmed
in Garvey because the doctrine “creates a workable rule of
coverage that provides a fair result within the reasonable
expectations of both the insured and the insurer.” Julian v.
Hartford Underwriters Ins. Co., 110 P.3d 903, 907 (Cal.
18 MUDPIE V. TRAVELERS CAS. INS. CO. OF AMERICA

2005), as modified (May 5, 2005) (internal quotation marks
omitted).

    Mudpie’s complaint does not allege an attenuated causal
chain between the virus and Mudpie’s losses. Nor does
Mudpie dispute that the Stay at Home Orders that impacted
Mudpie’s business were issued in response to the COVID-19
pandemic, and the point is not debatable. The state
authorities’ March 19 Stay at Home Order explained that
COVID-19 had “rapidly spread throughout California” and “a
State of Emergency . . . exist[ed] in California as a result of
the threat of COVID-19.” Based on these findings,
Californians were ordered to remain at home or at their place
of residence except for purposes deemed essential. Though
Mudpie argues it was the government orders that most
directly caused its injury, Mudpie does not plausibly allege
that “the efficient cause,” i.e., the one that set others in
motion, Sabella, 377 P.2d at 895, was anything other than the
spread of the virus throughout California, or that the virus
was merely a remote cause of its losses. Cf. Garvey, 770 P.2d
at 707. Accordingly, the Policy’s Virus Exclusion bars
coverage for Mudpie’s claims.

                               V

    The judgment of the district court is AFFIRMED.7

  7
    United Policyholders’ motion to become amicus, Dkt. # 33, is
GRANTED.