The Inns by the Sea v. California Mutual Insurance Company (November 15, 2021, D079036)
In the first California state appellate decision to address coverage for business interruption losses due to the COVID-19 pandemic, the Court of Appeal (Fourth Dist., Div. One) concluded there is no coverage.
In this case, brought by a group of hotels that had to close due to COVID-19 stay-at-home orders, the appellate court concluded that business losses resulting from such orders do not involve “direct physical loss or damage to property,” as is required to trigger coverage under a property policy. The court reasoned that the losses resulted from the shut-down orders, not from any damage to the property under the plain meaning of “damage.” Further, mere loss of use of property is not equivalent to “physical loss.” Finally, coverage could not be inferred from the absence of a virus exclusion: the insured cannot “rely on the absence of an exclusion to create an ambiguity in an otherwise unambiguous insuring clause.”
The court left open the possibility that the presence of a virus could give rise to property coverage where a business had to close to remediate the property under a specific civil order directed at the particular business. But that was not the case here; the shut-down orders were intended to stop the spread of the virus throughout the County generally and were not issued because of any identified property damage or loss.
