Feng Shui Consulting Fees Not Covered Because Those Fees Were Not “Necessary” And Did Not Constitute “Direct Physical Loss or Damage To Covered Property”
Patel v. Am. Econ. Ins. Co., 2014 U.S. Dist. LEXIS 63935 (N.D. Cal. May 8, 2014)
In Patel, the district court held that the insurer had no duty to indemnify its insured for feng shui consulting fees, or for other expenses incurred by the insured, because those amounts did not fall within the scope of coverage under the business policy issued by the insurer.
The carrier issued a business policy to the insured which covered, among other things, direct physical damage, loss of business income for twelve months after the date of the loss, and necessary extra expenses. A fire in the basement caused smoke damage to the insured’s dental office. The insured submitted claims to the carrier for various items, including a feng shui consulting invoice in the amount of $50,275. The carrier took the position that the feng shui consulting fees were not covered by the policy because “it is not a necessary expense to restore the premises to its pre-loss condition” and “does not meet the definition of direct physical loss or damage to Covered Property.” The carrier also denied the insured’s claim for other expenses that were incurred as a result of the fire but more than 12 months after the fire occurred. The insured sued the carrier, which filed a motion to dismiss. The district court ruled in favor of the insurer.
The district court first found that the policy unambiguously limited coverage for lost “business income” to losses that were incurred within 12 months of the date of direct physical loss. Since the date of “direct physical loss or damage” was the date of the fire, any claim for business income or extra expenses incurred more than 12 months after the fire did not fall within the policy’s coverage. The court also agreed with the insurer that the feng shui consultant fees were not covered because such services did not arise from “direct physical loss of or damage to Covered Property” and were not a necessary “Extra Expense” under the terms of the policy. Although “direct physical loss” was not defined in the policy, the court interpreted the words in their ordinary and popular sense and found “direct physical loss” to mean damage to tangible, material objects. The insured argued that it used the consultant to “restore energy balance” and determine “placement of furniture and deal[] with forces of Qi,” but the court found that “such services do not meet the plain meaning of the terms ‘direct physical loss.’” The court also held that the insured failed to show that those services were “necessary” “[t]o avoid or minimize the suspension of business” as required under the policy’s “Extra Expense” coverage.
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