Insurers Not Liable for Business Interruptions Caused Solely by Government Ordered COVID-19 Closures
The Inns by the Sea v. California Mutual Ins. Co., 2022 Cal. LEXIS 1412 (March 9, 2022)
The California Supreme Court summarily denied review of now the seminal case, Inns By The Sea v. California Mutual, regarding no coverage for business interruption losses due to government orders shutting doors of hospitality businesses in order to stop spread of the COVID-19 virus. The Fourth Appellate District had affirmed the trial court’s dismissal after an order sustaining a demurrer by the insurer. The Appellate Court also commented that despite Inns’ allegation that the COVID-19 virus was present on its premises, its complaint did not sufficiently identify any direct physical damage to property that caused it to “suspend” its operations and defined “loss of usability” must be causally connected to “a distinct, demonstrable, physical alteration of the property” which could not be found to arise out of the government closure order. In contrast, in a very recently published case the Second Appellate District in Marina Pacific Hotel v. Fireman’s Fund Ins. (July 13, 2022) found the complaint was adequately pled as to “direct physical loss” to covered property due to robust allegations of presence of the virus that could not be eradicated and reversed the trial court’s order dismissing the complaint under a demurrer. Marina Pacific has been the only case thus far adverse to California insurers regarding artful pleading of direct physical damage to property arising out of COVID-19. Complaints that inescapably allege losses caused solely by government orders are still controlled by the Inns case.