98 Cal.App.5th 158
Cal. Ct. App.2023Background
- Plaintiffs, including the San Jose Sharks and other NHL entities, filed claims for insurance coverage stemming from losses caused by the COVID-19 pandemic, primarily the closure of hockey arenas and resulting business interruption.
- Plaintiffs argued their Factory Mutual "all risks" commercial property insurance policies covered physical loss or damage from the presence of the COVID-19 virus, including business interruption and extra expenses.
- The policies included a "contamination exclusion" barring coverage for loss or damage due to contamination, defined to include viruses, unless resulting from other non-excluded physical damage.
- The trial court mostly granted Factory Mutual's motion to strike, ruling that plaintiffs failed to allege covered physical loss or damage due to COVID-19, but declined to decide whether the exclusion applied.
- Plaintiffs sought writ review, contending their pleading was sufficient and the exclusion ambiguous or inapplicable.
- The appellate court held that the contamination exclusion unambiguously barred coverage, even accepting plaintiffs had pleaded physical loss or damage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID-19 causes "physical loss or damage" to property | The virus altered and damaged property, satisfying this policy requirement | The virus did not cause physical loss or damage as defined by the policy | Plaintiffs sufficiently alleged "physical loss or damage" at pleading stage |
| Effect of the contamination exclusion | Excludes only costs/value reduction due to contamination, not lost earnings or business interruption | Excludes all losses from viral contamination, including business interruption | The contamination exclusion unambiguously bars all such coverage |
| Applicability of civil authority coverage | Government orders triggered additional coverage | Such coverage requires damage of the “type insured”; viral contamination is excluded | Viral contamination is not “damage of the type insured,” so coverage is unavailable |
| Ambiguity of the policy exclusion | Ambiguous exclusion should be construed in favor of insured | The exclusion is clear and applies to viruses | Policy language is unambiguous; exclusion applies |
Key Cases Cited
- United Talent Agency v. Vigilant Ins. Co., 77 Cal.App.5th 821 (Cal. Ct. App. 2022) (held that presence of virus is not "physical loss or damage" to property)
- Marina Pacific Hotel and Suites, LLC v. Fireman’s Fund Ins. Co., 81 Cal.App.5th 96 (Cal. Ct. App. 2022) (found allegations of physical alteration by virus sufficient to plead coverage)
- Yahoo Inc. v. National Union Fire Ins. Co., 14 Cal.5th 58 (Cal. 2022) (insurance contract interpretation principles)
- Baral v. Schnitt, 1 Cal.5th 376 (Cal. 2016) (standard for motions to strike in pleadings)
- Cal-Western Business Servs., Inc. v. Corning Capital Group, 221 Cal.App.4th 304 (Cal. Ct. App. 2013) (review standard for motion to strike)
- Inns-by-the-Sea v. California Mutual Ins. Co., 71 Cal.App.5th 688 (Cal. Ct. App. 2021) ("loss of use" cases distinguished from actual physical loss)