83 Cal.App.5th 685
Cal. Ct. App.2022Background
- Tarrar Enterprises, a Contra Costa County utility-consultant business, bought a commercial policy promising to pay for "direct physical loss of or damage to Covered Property" and business income loss caused by such loss or damage.
- In March 2020 local and state shelter‑in‑place orders required closure of Tarrar’s premises; Tarrar alleged those orders caused substantial business‑income loss and sought coverage.
- Associated Indemnity denied the claim; Tarrar sued and the trial court sustained Associated’s general demurrer without leave to amend, dismissing the complaint.
- Multiple California Courts of Appeal had recently addressed whether COVID‑era losses meet the policy’s "direct physical loss or damage" requirement, with several rejecting coverage (Inns‑by‑the‑Sea; Musso & Frank; United Talent Agency) and one accepting coverage based on sufficient pleadings (Marina Pacific).
- This court adopted the reasoning of Apple Annie (discussing those precedents) and concluded Tarrar’s complaint failed to allege the required direct physical loss or damage, but held the trial court erred in denying leave to amend because the original complaint did not show amendment was impossible.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID‑related shutdowns constitute "direct physical loss of or damage to property" triggering business‑income coverage | Tarrar: pandemic closures are within insureds' reasonable expectations and constitute covered physical loss | Associated: policy requires tangible, physical alteration/damage to property; allegations of closure alone are insufficient | Complaint does not allege direct physical loss or damage; demurrer properly sustained (court follows Apple Annie and related cases) |
| Whether denial of leave to amend was proper | Tarrar: should be granted leave to amend to plead additional facts | Associated: dismissal without leave appropriate given pleadings | Denial of leave to amend was an abuse of discretion; reversal and remand with demurrer sustained but with leave to amend |
Key Cases Cited
- Inns‑by‑the‑Sea v. California Mut. Ins. Co., 71 Cal. App. 5th 688 (holding allegations of business loss from COVID orders did not allege direct physical loss or damage)
- Musso & Frank Grill Co. v. Mitsui Sumitomo Ins. USA Inc., 77 Cal. App. 5th 753 (same: policy requires physical alteration or damage)
- United Talent Agency v. Vigilant Ins. Co., 77 Cal. App. 5th 821 (same conclusion on demurrer)
- Marina Pacific Hotel & Suites v. Fireman’s Fund Ins. Co., 81 Cal. App. 5th 96 (distinguished; held insured adequately pleaded direct physical loss and stated a claim)
- Eghtesad v. State Farm Gen. Ins. Co., 51 Cal. App. 5th 406 (confirming rule that denying leave to amend an original complaint is error unless amendment is impossible)
- Cabral v. Soares, 157 Cal. App. 4th 1234 (advisory that demurrers to initial complaints should rarely be sustained without leave to amend)