Caribe Restaurant & Nightclub told the Ninth Circuit that a district court erred by determining that it wasn’t owed coverage under its all-risk policy with Topa Insurance Co. Caribe said the club it operates, the La Luz Ultra Lounge in Bonita, endured substantial losses because of government restrictions limiting access to its property.

It said the district failed to recognize that the actual presence of the virus at its establishment made it less functional and diminished the amount of usable space. That constituted physical alteration required for coverage under its policy, Caribe said.

In its brief, Caribe said that the district court “departed from California law by reading the policy not as layperson based on ordinary meanings of the terms as California law requires, but as a lawyer attempting to decipher inapplicable California case law.”

Tim Burns, an attorney for Caribe from Burns Bowen Bair LLP, told Law360 that policyholders whose businesses have been hurt by the pandemic aren’t looking for a windfall — just a regular layperson’s reading of the language in their policies.

“Federal district courts across the country have essentially nullified the consumer protection features of insurance law by scrambling to read abstract case law involving different circumstances into the policies, instead of just reading the policies,” he said.

Describing at times the virus as a “physical force,” Caribe also argued that the temporary loss of functionality of a facility could constitute a direct physical loss. That argument, sometimes referred to as the loss-of-use theory, has been popular among policyholders, including one art gallery that appealed its pandemic coverage suit to the Ninth Circuit in May.

U.S. District Judge Otis D. Wright II, however, said in April that shutdowns ordered by the California and San Diego County governments didn’t cause physical loss.

“While the court is sympathetic that Caribe is suffering economically from the unprecedented COVID-19 pandemic, an economic business impairment does not qualify as a physical loss or damage to the premises,” he said in his decision, dismissing the suit without leave a year after it was filed. He referred to the respiratory illness caused by the virus.

Caribe’s suit was one of six class actions launched by attorneys from DiCello Levitt Gutzler LLC, the Lanier Law Firm PC, Burns Bowen Bair LLP and Daniels & Tredennick. It alleged that Topa, like other insurers, wrongly denied coverage for losses stemming from the pandemic.

In its appeal Thursday, Caribe also asked the Ninth Circuit to certify questions of whether the coronavirus can cause physical loss or damage to the California Supreme Court. It said the court should hear those questions, given the novel issues of law at stake and the absence of relevant California appellate court opinions on the matter.

Caribe is represented by C. Moze Cowper of Cowper Law PC, by Timothy W. Burns of Burns Bowen Bair LLP, by Adam J. Levitt of DiCello Levitt Gutzler LLC, by Douglas Daniels of Daniels & Tredennick and by Harvey G. Brown, Jr. and H. Victor Thomas of the Lanier Law Firm PC.

Topa Insurance Co. is represented by Gordon A. Greenberg, Jason D. Strabo, Margaret H. Warner and Sarah P. Hogarth of McDermott Will & Emery.

The case is Caribe Restaurant & Nightclub Inc. v. Topa Insurance Co., case number 21-55405, in the U.S. Court of Appeals for the Ninth Circuit.

–Additional reporting by Shawn Rice. Editing by Vincent Sherry.