In the wake of the Coronavirus pandemic, countless policyholders made insurance claims with their carriers based on the closure or interruption of their businesses. The insurers with near-uniformity denied coverage, presenting a united front against their insureds.  Thousands upon thousands of cases ensued testing the propriety of the insurers’ denial of coverage.

Many business-interruption insurance policies are meant to cover losses tied to the “direct physical loss or direct physical damage” of (or to) the insured’s premises. Nationwide, courts are facing a complicated question—whether the COVID-19 virus can be said to cause “direct physical loss or direct physical damage.”

In the first wave of cases addressing this issue, one obscure California Court of Appeal case began to dominate the discussion in California’s state and federal courts:  MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins., 187 Cal.App.4th 766 (2010).  Though MRI Healthcare was decided a decade before the pandemic (and has nothing to do with viruses), in some early cases it was treated as a leading authority because of its holding that the phrase “accidental direct physical loss to” personal business property requires a physical change in the property.  Id.  While that is now changing as appellate courts recognize the unique conditions of the pandemic require a more tailored analysis, the early effects of MRI Healthcare were undeniable.

But there’s a hidden story about MRI Healthcare—the opinion was not initially designated for publication.  Had it stayed that way, the opinion would have been nonprecedential, and noncitable under California’s no-citation rule.  See Cal. R. of Ct. 8.1115(a).  It took foresight, initiative, and creative appellate lawyering using an obscure procedure—a request for publication by a nonparty to the appeal, see id. R. 8.1120—to make MRI Healthcare relevant a decade later during the COVID-19 pandemic.

Litigators, in-house counsel, and industry leaders should take note of the successful strategy that counsel employed in requesting that the Court of Appeal publish MRI Healthcare, and deploy it when new, favorable unpublished authorities come down the wire.  Requests for publication are simple to prepare, and can pay dividends.

An MRI Machine Fails to “Ramp Up”

In MRI Healthcare, a healthcare provider, “MHC,” had to demagnetize its MRI machine while repairs were being performed on the building. 187 Cal.App.4th at 769−70.  The machine then failed to “ramp back up,” which was an “‘inherent risk’” of the machine.  Id. at 770−75 & n.2.  MHC had insurance for “accidental direct physical loss to” MHC’s property.  Id. at 770−71.  State Farm denied MHC’s claim for the repair costs and income loss it sustained while the machine was inoperable. Id.

The Court of Appeal affirmed summary judgment for the insurer.  Id. at 778.  It reasoned that the phrase “direct physical loss”—when it comes to personal property insurance policies—generally “contemplates an actual change in insured property” when the property was originally in a “satisfactory state,” causing it to become “unsatisfactory” for future use, or in need of repairs.  Id. at 779 (cleaned up).  The Court of Appeal also ruled that deliberately ramping down the machine was not “accidental.”  Id. at 778−80.

A Simple Request Side-Steps the “No-Citation Rule”

Initially, MRI Healthcare was designated as “not to be published in the official reports”—the fate of a majority of California Court of Appeal opinions, which are unremarkable legally and factually, and thought to have little or no public import.  Jon B, Eisenberg, Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2021) ¶ 11:160.  As noted, unpublished cases cannot be cited in California.  Cal. R. of Ct. 8.1115(a).

However, a prominent defense attorney association took note of the opinion and requested that the Court of Appeal publish it.  Counsel acted promptly, filing the publication request just days after the opinion issued.  See Docket, No. B213985.  Just over a week later, the Court of Appeal granted the request.  Id.

The basis for the publication request was CRC Rule 8.1120.  It provides that any person may request that an unpublished opinion “be ordered published” within 20 days after the opinion is filed.  Id.  If the court that rendered the opinion does not or cannot grant the request before a final decision, then it is up to the Supreme Court, which may grant or deny the request.  Id.

The publication standards are set forth in California Rule of Court 8.1105(c), which provides that a Court of Appeal opinion should be published if it:

  1. Establishes a new rule of law;
  2. Applies an existing rule of law to a set of facts significantly different from those stated in published opinions;
  3. Modifies, explains, or criticizes with reasons given, an existing rule of law;
  4. Advances a new interpretation, clarification, criticism, or construction of a provision of a constitution, statute, ordinance, or court rule;
  5. Addresses or creates an apparent conflict in the law;
  6. Involves a legal issue of continuing public interest;
  7. Makes a significant contribution to legal literature by reviewing either the development of a common law rule or the legislative or judicial history of a provision of a constitution, statute, or other written law;
  8. Invokes a previously overlooked rule of law, or reaffirms a principle of law not applied in a recently reported decision; or
  9. Is accompanied by a separate opinion concurring or dissenting on a legal issue, and publication of the majority and separate opinions would make a significant contribution to the development of the law.

Id.

The organization that requested MRI Healthcare be published evidently saw the potential for it to assist their client base in future cases.  They were right.

MRI Healthcare’s Early Influence on the Development of Pandemic Insurance Law

Certain pandemic-era cases have applied and expanded the applicability of MRI Healthcare to deny policyholders coverage for business-related costs caused by the COVID-19 virus.  See, e.g., Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885 (9th Cir. 2021); Musso & Frank Grill Co., Inc. v. Mitsui Sumitomo Ins. USA Inc., 77 Cal.App.5th 753 (2022); United Talent Agency v. Vigilant Ins. Co., 77 Cal.App.5th 821, 830 (2022); Inns-by-the-Sea v. Cal. Mut. Ins. Co., 71 Cal.App.5th 688, 706 (2021) (the “Musso & Frank line of cases”).

MRI Healthcare never could have had the influence it had without the successful Rule 8.1120 publication request.

Going Forward:  The Limits of MRI Healthcare

Despite the early influence of MRI Healthcare, the California Court of Appeal has begun to depart from the early COVID-19 BII cases, beginning a new trend favoring policyholders’ claims instead, at least in the early stages of litigation.  See companion post, Josephine Petrick & Ashley Nakai, In a Groundbreaking Pandemic-Era Win for Policyholders, California Court of Appeal Holds that COVID-19-Related Losses May Be Covered by Business-Interruption Insurance Policy, Appellate Insight, July 18, 2022; Marina Pac. Hotel & Suites, LLC v. Fireman’s Fund Ins., 81 Cal.App.5th 96 (2022); accord Cajun Conti LLC v. Certain Underwriters at Lloyd’s, London, No. 2021-0343, 2022 WL 2154863 (La. Ct. App. Jun. 15, 2022) (slip op.).

A number of lower courts have recognized that MRI Healthcare may not fit the facts or circumstances of the COVID-19 pandemic.  See, e.g., Boardwalk Ventures CA, LLC v. Cent.-Nat’l Ins. Co., No. 20STCV27359, 2021 WL 1215892, at *8−9 (Cal. Super. Ct. Mar. 18, 2021), summary judgment denied, 2022 WL 2037845 (Apr. 18, 2022), on reconsideration, 2022 WL 2037844 (May 19, 2022); Susan Spath Hegedus, Inc. v. ACE Fire Underwriters Ins., 538 F.Supp.3d 457 (E.D. Pa. 2021).  MRI Healthcare dealt with inherent mechanical problems in machinery, making it distinguishable from the context of insured business losses due to COVID-19.  Boardwalk Ventures, 2021 WL 1215892, at *6.  And in contrast to an inherent vulnerability in a machine, the Coronavirus is an “external force.”  Id. (citing MRI, 187 Cal.App.4th at 780); cf. Marina Pac., 81 Cal.App.5th 96, slip. op. at *8 (distinguishing MRI Healthcare because the virus “lives on” and “bonds to” surfaces, transforming their physical condition); see also Susan Spath, 2021 WL 1837479, at *8−9 (distinguishing MRI from the COVID-19 business-interruption insurance context).

There is a significant difference between powering down a machine, see MRI, 187 Cal.App.4th at 770, and shutting down an entire business due to the presence or potential presence of a lethal pathogen like the Coronavirus, see, e.g., Urogynecology Specialist of Fla. LLC v. Sentinel Ins. Co., Ltd., 489 F.Supp.3d 1297, 1302-03 (M.D. Fla. 2020) (“Importantly, none of the [prior] cases dealt with the unique circumstances of the effect COVID-19 has had on our society—a distinction this Court considers significant.”).

Conclusion

It remains to be seen whether MRI Healthcare will continue to impact the development of BII law in California.  Regardless, the story behind the publication of MRI Healthcare will stand as an example of creative appellate lawyering and foresight.

Policyholders, and those who represent them, should keep an eye out for the next “MRI Healthcare”—and when they find it, act fast to contact an appellate attorney about a publication letter request per California Rule of Court 8.1120.  Anyone can file, and the time limit is 20 days.  Id.

The same request may also be made informally to the California Supreme Court, often in conjunction with briefing by the parties on a petition for review.  See Cal. R. Ct. 8.105(e)(2) (“The Supreme Court may order that . . . an opinion not certified is to be published.”).

A letter requesting publication can and should be short—just a page or two—and is a modest investment (or a kind of insurance policy!) with the potential for an incredible return.