THE INNS BY THE SEA, Plaintiff and Appellant, v. CALIFORNIA MUTUAL INSURANCE COMPANY, Defendant and Respondent.
D079036
COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
November 15, 2021
CERTIFIED FOR PUBLICATION; (Super. Ct. No. 20CV001274)
Reiser Law, Michael J. Reiser, Matthew Reiser, Isabella Martinez; Hunton Andrews Kurth, Scott P. DeVries, Lorelie S. Masters, Rachel E. Hudgins; The Meade Firm, Tyler Meade, Samuel I. Ferguson and Seena Forouzan for Plaintiff and Appellant.
Covington & Burling, Jad H. Khazem, David B. Goodwin, Rani Gupta for Oakland Athletics Baseball Company, San Francisco Giants Baseball Club LLC, Los Angeles Dodgers LLC, Angels Baseball LP and Padres L.P. as Amici Curiae on behalf of Plaintiff and Appellant.
Reed Smith, David E. Weiss and T. Connor O‘Carroll for United Policyholders as Amicus Curiae on behalf of Plaintiff and Appellant.
Hayes, Scott, Bonino, Ellingson, Guslani, Simonson & Clause, Mark G. Bonino, Stephen M. Hayes, Charles E. Tillage, and Ryan Z. Keller for Defendant and Respondent.
Crowell & Moring, Mark D. Plevin; Robinson & Cole and Wystan M. Ackerman for American Property Casualty Insurance Association and National Association of Mutual Insurance Companies as Amicus Curiae on behalf of Defendant and Respondent.
I. FACTUAL AND PROCEDURAL BACKGROUND
Inns operates four lodging facilities in Carmel-by-the-Sea, and one lodging facility in Half Moon Bay. On January 9, 2020, Inns renewed its commercial insurance policy with California Mutual (the Policy), which includes commercial property insurance covering each of Inns’ five lodging facilities.
In March 2020, the COVID-19 pandemic resulted in government orders restricting the movement of citizens and the operation of businesses. On
On March 24, 2020, Inns made a claim to California Mutual under its commercial property insurance coverage for the loss of business income caused by the pandemic. On the same day, California Mutual denied coverage, stating that “[l]oss of business due to reasons other than covered physical damage is beyond the scope of the insurance policy.”
On April 20, 2020, Inns filed the instant lawsuit against California Mutual in Monterey County Superior Court. The complaint pled causes of action for (1) declaratory relief, (2) breach of contract, (3) breach of the implied covenant of good faith and fair dealing, and (4) bad faith denial of insurance coverage, all of which were based on the allegation that the Policy provided coverage for Inns’ loss of business income due to the pandemic.
As factual background, the complaint specifically alleged,
“19. Emerging research on the virus and recent reports from the Center for Disease Control indicate that COVID-19 strains physically infect and can stay alive on surfaces for extended periods, a characteristic that renders property exposed to the contagion potentially unsafe and dangerous.
“20. On March 17, 2020, the Inns were forced to cease operations based on orders from both the County of Monterey and the County of San Mateo ordering cessation of all non-essential travel and directing all businesses and governmental agencies to cease non-essential operations at physical locations. These Closure Orders were issued in direct response to these dangerous physical conditions, and prohibit [Inns] from selling any rooms to the public, thereby forcing [Inns] to close the Inns and to lay off nearly all of its workers and triggering California Mutual‘s coverage responsibilities. “21. The Closure Orders were made in direct response to the continued and increasing presence of the coronavirus on [Inns‘] property and/or around its premises.”3
Attached to the complaint was the Policy issued to Inns by California Mutual. The Policy provides commercial property insurance for “direct physical loss of or damage to Covered Property at the premises . . . caused by or resulting from any Covered Cause of Loss,” with “Covered Property” generally encompassing Inns’ buildings and business personal property, as
well as certain personal property of others, unless specifically limited. “Covered Causes of Loss” is defined to mean “Risks Of Direct Physical Loss,” unless excluded or limited. To provide a simple example of this coverage, if a storm caused the roof to blow off one of Inns’ properties, California Mutual would pay for the loss of the roof.4
As especially pertinent here, however, the commercial property insurance also provides “Business Income (and Extra Expense)” and “Civil Authority” coverage. The Business Income coverage states in relevant part: “We will pay for the actual loss of Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration‘. The ‘suspension’ must be caused by direct physical loss of or damage to property at [Inns‘] premises . . . . The loss or damage must be caused by or result from a Covered Cause of Loss.” (Italics added.) The “Period of Restoration” is defined as “the period of time that: [¶] a. Begins: [¶] (1) 72 hours after the time of direct physical loss or damage for Business Income coverage; or [¶] (2) Immediately after the time of direct physical loss or damage for Extra Expense coverage; [¶] caused by or resulting from any Covered Cause of
quality; or [¶] (2) The date when business is resumed at a new permanent location.”5
The Extra Expense coverage provides for coverage of additional expenses during the restoration period:
“b. Extra Expense means necessary expenses you incur during the ‘period of restoration’ that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss.
“We will pay Extra Expense (other than the expense to repair or replace property) to:
“(1) Avoid or minimize the ‘suspension’ of business and to continue operations at the described premises or at replacement premises or temporary locations, including relocation expenses and costs to equip and operate the replacement location or temporary location.
“(2) Minimize the ‘suspension’ of business if you cannot continue ‘operations‘.
“We will also pay Extra Expense to repair or replace property, but only to the extent it reduces the amount of loss that otherwise would have been payable under this Coverage Form.”6
The Civil Authority coverage applies when Inns’ property does not itself sustain damage or loss, but damage or loss somewhere else gives rise to an order by a civil authority that prohibits access to Inns’ premises. The Policy
states, “We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.” (Italics added.)7
California Mutual filed a demurrer. Specifically, California Mutual argued that the Policy did not provide coverage for Inns’ lost business income resulting from the pandemic, under either the Business Income or Civil Authority coverages, because the pandemic did not give rise to direct physical loss of or damage to property. In addition, California Mutual argued that even if the pandemic gave rise to direct physical loss of or damage to property, three exclusions in the Policy operated to exclude coverage.8
After holding a hearing, the trial court issued an order on August 6, 2020, sustaining the demurrer without leave to amend. Inns appeals from the judgment.9
II. DISCUSSION
A. Applicable Legal Standards
We begin with the legal standards governing an appeal from an order sustaining a demurrer. “On appeal from an order of dismissal after an order sustaining a demurrer, the standard of review is de novo: we exercise our independent judgment about whether the complaint states a cause of action as a matter of law.” (Villafana v. County of San Diego (2020) 57 Cal.App.5th 1012, 1016.) In reviewing the complaint, “we must
the demurrer, regardless of the ground on which the trial court based its ruling. (Carman v. Alvord (1982) 31 Cal.3d 318, 324.)
This appeal requires us to interpret an insurance policy. “While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264 (Bank of the West).) “The principles governing the interpretation of insurance policies in California are well settled. ‘Our goal in construing insurance contracts, as with contracts generally, is to give effect to the parties’ mutual intentions.’ ” (Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 321 (Minkler).) ” ‘Such intent is to be inferred, if possible, solely from the written provisions of the contract. ([
” ‘If the terms are ambiguous [i.e., susceptible of more than one reasonable interpretation], we interpret them to protect “the objectively reasonable expectations of the insured.” ’ ” (Minkler, supra, 49 Cal.4th at p. 321.) This rule stems from the principle that ” ‘[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.’ ” (Bank of the West, at pp. 1264-1265, quoting
“The insured has the burden of establishing that a claim, unless specifically excluded, is within basic coverage, while the insurer has the burden of establishing that a specific exclusion applies.” (Minkler, supra, 49 Cal.4th at p. 322.) The principles of contractual interpretation, as applied to insurance policies “do not include using public policy to redefine the scope of coverage.” (Ward General Ins. Services, Inc. v. Employers Fire Ins. Co. (2003) 114 Cal.App.4th 548, 553 (Ward).)
B. The Scenario Alleged in the Complaint Does Not Trigger the Policy‘s Business Income Coverage
The first issue we must consider is whether the scenario pled in the complaint falls within the Policy‘s Business Income coverage. The Policy provides: “We will pay for the actual loss of Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration‘. The ‘suspension’ must be caused by direct physical loss of or damage to property at [Inns‘] premises . . . . The loss or damage must be caused by or result from a Covered Cause of Loss.” (Italics added.)
Here, there is no dispute that certain requirements of the Business Income coverage are satisfied. Specifically, Inns suspended its operations, which led to a loss of business income. However, the issue we must resolve is whether the suspension of operations was ”caused by direct physical loss of or damage to property at [Inns‘] premises.” (Italics added.)
In the context of a demurrer, we focus on the facts pled in the complaint. Inns emphasizes that the complaint generally refers to both the Orders and the presence of the COVID-19 virus when explaining the reason for Inns’ suspension of operations. More specifically, however, the complaint describes a three-step chain of causation, beginning with the COVID-19 virus, in which “the continued and increasing presence of the coronavirus on [Inns‘] property and/or around its premises” led to the Orders, which in turn led to Inns’ suspension of operations.11 Although the complaint is vague as to the
premises—that gave rise to the Orders, leading to Inns’ suspension of operations.12
Case law establishes that when an insurance policy uses the phrase “direct physical loss of or damage to . . . [p]roperty,” “the words ‘direct physical’ . . . modify both ‘loss of’ and ‘damage to.’ ” (Ward, supra, 114 Cal.App.4th at pp. 553-554.) Accordingly, Inns must establish that either “direct physical . . . damage to” property at the premises, or “direct physical loss of” property at the premises caused its suspension of operations. Inns sets forth arguments under both theories. We consider each in turn.13
1. In the Scenario Pled in the Complaint, Inns’ Operations Were Not Suspended Due to Direct Physical Damage to Inns’ Property
We turn first to the question of whether the suspension of Inns’ operations was caused by “direct physical . . . damage to” Inns’ property. (Italics added.) Inns argues that “the presence of COVID-19 clearly
constitutes the requisite ‘damage,’ as that undefined term is reasonably understood, because its physical presence transforms property, specifically indoor air and surfaces, from a safe condition to a dangerous and potentially deadly condition unsafe and unfit for its intended purpose.”
The words in the phrase “direct physical damage” all have commonly understood meanings. “Physical” is defined as “having material existence :
In many circumstances it is relatively simple to determine whether an item of personal property or a business‘s premises has incurred direct physical damage, leading to a suspension of operations. One can usually focus on whether there is some sort of physical alteration to an object or to a building. (See 10A Couch on Insurance (3d ed. 2016) § 148:46, p. 148-95 (Couch) [“There is little question that this threshold” of establishing “physical loss or damage” “has been met when an item of tangible property has been
physically altered by perils like fire or water“].)14 However, as case law demonstrates, the inquiry is not as simple when, as here, the question is whether the real property comprising a policyholder‘s entire premises has been damaged due to an intervening physical force that does not physically alter any building or item of personal property but makes the real property uninhabitable. (10A Couch, supra, § 148:46, p. 148-95 [“When the structure of the property itself is unchanged to the naked eye, however, and the insured alleges that its usefulness for its normal purposes has been destroyed or reduced, there are serious questions whether the alleged loss satisfies the policy trigger.“])15
First Presbyterian Church (Colo. 1968) 437 P.2d 52, 55, real property was determined to suffer “physical damage despite the lack of physical alteration of the property, on the theory that the uninhabitability of the property was due to the fact that gasoline vapors from adjacent property had infiltrated and saturated the insured building.” (10A Couch, supra, § 148:46, p. 148-99.) Inns and amici cite numerous other cases that fall into the same category, all of which identify the existence of property damage within the meaning of a property insurance policy despite the absence of physical alteration of a structure or object. Based on those authorities, Inns and amici contend that even though the COVID-19 virus does not physically alter the structure of property, it does give rise to “physical . . . damage to property” within the meaning of the Policy because it renders real property uninhabitable and unavailable for its intended use.
The central relevant California opinion is Hughes v. Potomac Ins. Co. of District of Columbia (1962) 199 Cal.App.2d 239. In that case, a landslide left a house standing on the edge of, and partially overhanging, a newly-formed 30-foot cliff, depriving it of “subjacent and lateral support essential to [its] stability.” (Id. at p. 243.) The plaintiffs’ insurance policy covered physical loss of and damage to the ” ‘dwelling building.’ ” (Id. at pp. 245-246.) Hughes concluded that coverage was triggered under the policy because the dwelling building “suffered real and severe damage when the soil beneath it slid away” even though the structure of the house was undamaged. (Id. at p. 249.)
The other cases cited by Inns and amici deal with the presence of noxious substances and odors that rendered real property uninhabitable or unable to be used as intended. The authorities are numerous, although none
of them were issued by California courts.16 We highlight the central cases here. First, Inns relies upon Gregory Packaging, Inc. v. Travelers Property Casualty Co. of America (D.N.J., Nov. 25, 2014, No. 2:12-cv-04418) 2014 WL 6675934, in which a food packaging business was determined to incur ” ‘physical loss of or damage to’ ” its facility under either
presence of large quantities of asbestos in the air of a building is such as to make the structure uninhabitable and unusable, then there has been a distinct loss to its owner” within the meaning of a first party property insurance policy.
Other cases find coverage under property insurance policies in similar situations. (See, e.g., Matzner v. Seaco Ins. Co. (Mass.Super.Ct., Aug. 12, 1998, No. CIV. A. 96-0498-B) 1998 WL 566658 [unsafe carbon monoxide levels in an apartment building caused by the chimney‘s condition was a “direct physical loss of or damage to” the property]; Farmers Ins. Co. of Oregon v. Trutanich (Or.Ct.App. 1993) 858 P.2d 1332, 1335 [the persistent odor from a past methamphetamine operation in a house constituted a “physical loss“]; Mellin v. Northern Security Ins. Co., Inc. (N.H. 2015) 115 A.3d 799, 805 [remanding for determination of whether persistent cat urine odor in a condominium unit emanating from downstairs was a covered physical loss under the principle that “physical loss may include not only tangible changes to the insured property, but also changes that are perceived by the sense of smell and that exist in the absence of structural damage“]; Widder v. Louisiana Citizens Property Ins. Corp. (La.Ct.App. 2011) 82 So.3d 294, 296 [a house made uninhabitable due to contamination with inorganic lead suffered “direct physical loss“]; TRAVCO Ins. Co. v. Ward (E.D.Va. 2010) 715 F.Supp.2d 699, 707-708 [a house made uninhabitable by sulfuric gas released from sheets of drywall suffered a direct physical loss].) “The majority of cases appear to support [the] position that physical damage to the property is not necessary, at least where the building in question has been rendered unusable by physical forces.” (TRAVCO Ins. Co., at p. 708, italics added.) As one federal court observed after surveying this case law, “[c]ontamination of a structure that seriously impairs or destroys its function
Relying on the case law we have described above, Inns and amici contend that the scenario pled in the complaint is analogous to the cases in which property insurance coverage was triggered because a physical force rendered real property uninhabitable or unsuitable for its intended use, without any structural alteration. As we will explain, we do not find the case law to be applicable here.
Certainly, there are some comparable elements between the scenario pled in the complaint and the case law relied upon by Inns and amici: (1) the COVID-19 virus—like smoke, ammonia, odor, or asbestos—is a physical force; (2) Inns alleges that a physical force (i.e., the COVID-19 virus) was present on its premises; and (3) Inns suspended its operations during the pandemic, presumably concluding that its premises were uninhabitable or unsuitable for their intended use. However, the similarities end there because Inns cannot reasonably allege that the presence of the COVID-19 virus on its premises is what caused the premises to be uninhabitable or unsuitable for their intended purpose. As we have discussed, although Inns loosely states that the Orders were issued “in direct response to the continued and increasing presence of the coronavirus on [Inns‘] property and/or around its premises,” a review of the actual text of the Orders reveal that they were issued because the COVID-19 virus was present throughout San Mateo and Monterey Counties, not because of any particular presence of the virus on Inns’ premises. Moreover, Inns alleges that it ceased operations “as a direct and proximate result of the Closure Orders.” It does not make the proximate cause allegation based on the particular presence of the virus on its premises.
case . . . concerns an invisible virus that is present throughout the world. . . . It is that general presence, and not a specific physical harm to covered properties, that has caused governments at all levels to consider restrictions. The question, therefore, is one of ‘widespread economic loss due to restrictions on human activities, not the consequence of a direct physical loss or damage to the insured premises.’” (Associates in Periodontics, PLC v. Cincinnati Ins. Co. (D.Vt., May 18, 2021, No. 2:20-cv-171) ___ F.Supp.3d ___, [2021 WL 1976404, at p. *6].)
Indeed, the lack of causal connection between the alleged physical presence of the virus on Inns’ premises and the suspension of Inns’ operations can be best understood by considering what would have taken place if Inns had thoroughly sterilized its premises to remove any trace of the virus after the Orders were issued. In that case, Inns would still have continued to incur a suspension of operations because the Orders would still have been in effect and the normal functioning of society still would have been curtailed. As explained in the context of a lawsuit brought by a restaurant to recover for business losses during the pandemic: “[T]he property did not change. The world around it did. And for the property to be useable again, no repair or change can be made to the property—the world must change. Even if a cleaning crew Lysol-ed every inch of the restaurant, it could still not host indoor dining at full capacity. Put simply, Plaintiff seeks to recover from economic losses caused by something physical—not physical losses.” (Town Kitchen LLC v. Certain Underwriters at Lloyd’s, London (S.D.Fla. 2021) 522 F.Supp.3d 1216, 1222.)
Based on the case law we have cited above, it could be possible, in a hypothetical scenario, that an invisible airborne agent would cause a policyholder to suspend operations because of direct physical damage to property. However, the complaint here simply does not describe such a circumstance because it bases its allegations on the situation created by the Orders, which were not directed at a particular business establishment due to the presence of COVID-19 on that specific business’s premises. As one court explained, “It could be a different story if a business—which could have otherwise been operating—had to shut down because of the presence of the virus within the facility. For example, a restaurant might need to close for a week if someone
In sum, we conclude that despite Inns’ allegation that the COVID-19 virus was present on its premises, it has not identified any direct physical damage to property that caused it to suspend its operations.
2. In the Scenario Pled in the Complaint, Inns’ Operations Were Not Suspended Due to Direct Physical Loss of Inns’ Property
We turn next to the question of whether, as Inns alternatively contends, the scenario pled in the complaint describes a suspension of operations caused by a “direct physical loss of” property. (Italics added.) According to Inns, regardless of the physical presence of the COVID-19 virus, it has adequately pled direct physical loss by alleging “the loss of use, function, and value of its property.” Thus, as Inns argues, even if we conclude that the presence of the COVID-19 virus on the premises did not constitute physical damage to property within the meaning of the Policy, “a policyholder can reasonably expect that a claim constitutes physical loss where the insured property cannot function as intended.” (Italics added.) As we will explain, this argument fails because it collapses coverage for “direct physical loss” into “loss of use” coverage. Case law and the language of the Policy as a whole establish that the inability to use physical property to generate business income, standing on its own, does not amount to a “‘suspension’ . . . caused by direct physical loss of” property within the ordinary and popular meaning of that phrase.18
The Couch treatise sets forth the generally recognized principle in the context of first party property insurance that mere loss of use of physical
Turning to the language of the Policy, the Business Income coverage applies when there is a suspension of operations caused by “direct physical loss of” property. As numerous courts have observed, the words “direct” and “physical” preclude the argument that coverage arises in a situation where the loss incurred by the policyholder stems solely from an inability to use the physical premises to generate income, without any other physical impact to the property. (See, e.g., Isaac’s Deli, Inc. v. State Auto Property and Casualty Ins. Co. (E.D.Pa., May 14, 2021, No. 5:20-cv-06165-JMG) ___ F.Supp.3d ___, [2021 WL 1945713, at p. *4] [focusing on the fact that the terms “‘direct’ and ‘physical’ ” modify the word “ ‘loss,’ ” “a natural reading suggests that the Policy contemplates an explicit nexus between the purported loss and the physical conditions of the covered premises”]; Image Dental, LLC v. Citizens Ins. Co. of America (N.D.Ill., June 11, 2021, No. 20-cv-02759) ___ F.Supp.3d ___, [2021 WL 2399988, at pp. *4-*5] [in light of the
The Policy’s reference to the “period of restoration” further supports our conclusion that mere loss of use, without any other physical impact to Inns’ property, is not sufficient to trigger the Business Income coverage. The Policy states, “We will pay for the actual loss of Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration’. The ‘suspension’ must be caused by direct physical loss of or damage to property at [Inns’] premises . . . .” (Italics added.) Significantly, the “period of restoration” is defined as ending on the earlier of “(1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or [¶] (2) The date when business is resumed at a new permanent location.”
The Policy’s focus on repairing, rebuilding or replacing property (or moving entirely to a new location) is significant because it implies that the “loss” or “damage” that gives rise to Business Income coverage has a physical nature that can be physically fixed, or if incapable of being physically fixed because it is so heavily destroyed, requires a complete move to a new location. Put simply, “[t]hat the policy provides coverage until property ‘should be repaired, rebuilt or replaced’ or until business resumes elsewhere assumes physical alteration of the property, not mere loss of use.” (Oral Surgeons, supra, 2 F.4th at p. 1144, italics added.)
Inns cites a federal district court decision rejecting the significance of identical “period of restoration” language by explaining that “the ‘Period of Restoration’ describes a time period during which loss of business income will be covered, rather than an explicit definition of coverage.” (Society Ins., supra, 521 F.Supp.3d at p. 742.) This observation misses the point. We do not focus on the “period of restoration” as an explicit definition of the scope of coverage. Instead, we cite the language because our task is to
In sum, we conclude that Inns has not alleged “direct physical loss of” property based on the fact that it lost the ability to use its physical premises to generate income.
3. The Absence of a Virus Exclusion in the Policy Does Not Impact the Meaning of “Direct Physical Loss of or Damage To” Property
As an additional argument in support of its contention that it incurred a suspension of operations caused by direct physical loss of or damage to property, Inns points out that even though many first party property insurance policies contain an express exclusion for loss or damage resulting “from any virus,” no such exclusion was included in the Policy. (Italics added.)
Inns specifically refers to the virus exclusion set forth in a form developed by the Insurance Services Office (ISO) in 2006, which states: “‘We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.’” (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2021) ¶ 6:393.2 [quoting ISO Form CP 01 40 07 06, § B—Exclusion Of Loss Due To Virus or Bacteria]; see also Podoshen, ISO Circular, New Endorsements Filed To Address Exclusion Of Loss Due To Virus Or Bacteria (July 6, 2006) <https://www.propertyinsurancecoveragelaw.com/files/2020/03/ISO-Circular-LI-CF-2006-175-Virus.pdf> [as of Nov. 15, 2021], archived at <https://perma.cc/L4WE-ZPYS> [describing the endorsement CP 01 40 07 06].)20 Inns argues that “California Mutual’s failure to use the 2006 [ISO] Virus Exclusion or any similar exclusion is prima facie proof that it actually intended to provide coverage for virus losses by not taking advantage of more specific wording that was available to it.”
Inns relies on case law holding that “an insurance company’s failure to use available language to exclude certain types of liability gives rise to the inference that the parties intended not to so limit coverage.” (Fireman’s Fund Ins. Companies v. Atlantic Richfield Co. (2001) 94 Cal.App.4th 842, 852 [holding that the “additional insured” endorsement in a CGL policy covered the additional insured for liability caused by the additional insured’s own negligence because the insurer could have used language in the endorsement stating that coverage applied only to the additional insured’s vicarious or derivative liability]; see also Pardee Construction Co. v. Insurance Co. of the West (2000) 77 Cal.App.4th 1340, 1359-1360 [in an additional insured endorsement, the insurer’s failure to use available language expressly excepting completed operations coverage implied a manifested intent not to do so].) However, this case law is
In addition, according to Inns, the fact that “the [2006 ISO virus] exclusion exists at all reflects the insurance industry’s acknowledgement that a virus is capable of causing ‘direct physical loss of or damage to property.’” This argument is misplaced because our analysis does not depend on an across-the-board rule that a virus can never give rise to a “direct physical loss of or damage to property” within the meaning of the Policy. As we have noted, it may be possible that in certain hypothetical situations a virus could cause a suspension of operations through direct physical loss of or damage to property. As pled, this is simply not such a case.21
C. The Policy’s Civil Authority Coverage Is Not Triggered By the Scenario Pled in the Complaint
Having determined that the scenario pled in the complaint does not trigger the Policy’s Business Income coverage, we next consider whether, as Inns contends, the Policy’s Civil Authority coverage is applicable here.
The Civil Authority coverage states: “We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.” Inns argues that the Civil Authority coverage applies because the complaint “alleged that the government orders were made in direct response to the continued and increasing presence of the coronavirus, a dangerous physical condition, on and around its property.” Similarly, the complaint pleads, “[T]he Civil Authority coverage applies because the Closure Orders were ‘action[s] of civil authorities that prohibits access to [Plaintiff’s] premises due to direct physical loss of or damage to [other] property . . . caused by or resulting from’ the COVID-19 coronavirus.”
The Orders are very clear about the reason they were issued. In both of the Orders, the first paragraph states, “The intent of this Order is to ensure that the maximum number of people self-isolate in their places of residence to the maximum extent feasible, while enabling essential services to continue, to slow the spread of COVID-19 to the maximum extent possible.” Elaborating on this preliminary explanation, the order issued by Monterey County states:
“This Order is issued based on evidence of the occurrence of COVID-19 within the County and [surrounding areas], scientific evidence and best practices regarding the most effective approaches to slow the transmission of communicable diseases generally and COVID-19 specifically, and evidence that the age,
condition, and health of a significant portion of the population of the County places it at risk for serious health complications, including death, from COVID-19. Due to the occurrence of the COVID-19 virus in the County, the potential for it to spread rapidly through the community, and the World Health Organization declaring COVID-19 to be a pandemic world-wide, there is a public health emergency throughout the County. Making the problem worse, some individuals who contract the COVID-19 virus have no symptoms or have mild symptoms, which means they may not be aware they carry the virus. Because even people without symptoms can transmit the disease, and because evidence shows the disease is easily spread, gatherings can result in preventable transmission of the virus. The scientific evidence shows that at this stage of the emergency, it is essential to slow virus transmission as much as possible to protect the most vulnerable and to prevent the health care system from being overwhelmed. One proven way to slow the transmission is to limit interactions among people to the greatest extent practicable. By reducing the spread of the COVID-19 virus, this Order helps preserve critical and limited healthcare capacity in the County.”
The order issued by San Mateo County contains almost identical wording.22
Through these statements, the Orders make clear that they were issued in an attempt to prevent the spread of the COVID-19 virus. The Orders give no
Numerous district court opinions have made the same observation in concluding that government stay-at-home and closure orders resulting from the pandemic did not give rise to Civil Authority coverage. (Mudpie, Inc. v. Travelers Casualty Ins. Co. of America (N.D.Cal. 2020) 487 F.Supp.3d 834, 844 [plaintiff was not entitled to Civil Authority coverage because “the government closure orders were intended to prevent the spread of COVID-19” rather than being based on any “prior property damage”]; Mortar and Pestle Corp. v. Atain Specialty Ins. Co. (N.D. Cal. 2020) 508 F.Supp.3d 575, 582 [“it is apparent from the plain language of the cited civil authority orders that such directives were issued to stop the spread of COVID-19 and not as a result of any physical loss of or damage to property”]; Baker v. Oregon Mutual Ins. Co. (N.D.Cal., Mar. 25, 2021, No. 20-cv-05467-LB) 2021 WL 1145882, at p. *5 [“the shutdown orders were issued to stop the spread of COVID-19 and were not about loss of or damage to property”]; Muriel’s New Orleans, LLC v. State Farm Fire and Casualty Co. (E.D.La., Apr. 26, 2021, No. 20-2295) ___ F.Supp.3d ___, [2021 WL 1614812, at p.*12] [coverage under the Civil Authority provision was not invoked because “the Closure Orders were intended to prevent the spread of COVID-19” and therefore “were preventative and lack[ed] the requisite nexus with prior property damage”]; Hair Studio 1208, LLC v. Hartford Underwriters Ins. Co. (E.D.Pa., May 14, 2021, No. 20-2171) ___ F.Supp.3d ___, [2021 WL 1945712, at p.*10] [“the Closure Orders were issued to prevent the spread of the COVID-19 virus to any of these properties. That fact brings this claim outside the coverage of the Civil Authority endorsement.”].)
In sum, the Orders were issued to prevent the spread of the pandemic, not because of any direct physical loss of or damage to property. Accordingly, the Orders did not trigger the Policy’s Civil Authority coverage.23
D. The Trial Court Properly Sustained the Demurrer Without Leave to Amend
As a final matter, we consider whether, as Inns contend, the trial court erred in sustaining the demurrer without granting leave to amend.
When a trial court sustains a demurrer without leave to amend, “we must decide whether there is a reasonable possibility the plaintiff could cure
Here, Inns contends that it should be granted leave to amend to include more information about “the science behind the C[OVID]-19 pandemic,” as the complaint was filed “in March 2020 before scientific understanding had developed.” According to Inns, if granted leave to amend it would include allegations such as those that the district court complimented in Kingray Inc. v. Farmers Group Inc. (C.D.Cal. 2021) 523 F.Supp.3d 1163, 1168, fn. 3, stating that “Plaintiffs offer an exceptionally thorough account of the science behind the C[OVID]-19 pandemic in the [first amended complaint], including the relevant facts that C[OVID]-19 is a viral disease commonly transmitted via human-to-human contact which may also spread through fomite transmission.”
Although Inns does not elaborate on the type of scientific information it would include, other courts have provided examples of such allegations. One district court, considering several consolidated lawsuits, summarized the science-based allegations in the applicable complaints as follows: “(1) ‘SARS-CoV-2 [i.e., the virus that causes COVID-19] can remain suspended in the air and travel far from the source on air currents due to HVAC systems and natural airflow.’ . . . [¶] (2) Transmission also occurs from property to person when virus-containing droplets land on surfaces creating a ‘fomite,’ and a person comes into contact with the property and then touches their eyes, nose, or mouth . . . ; and [¶] (3) SARS-CoV-2 can survive on surfaces for hours, days, or weeks, depending on the type of surface affected by the virus.” (Vita Coffee LLC v. Fireman’s Fund Insurance Company (W.D.Wash., July 21, 2021, No. 2:20-CV-01079-BJR) 2021 WL 3077922, at pp. *4-*5; see also Menominee Indian Tribe of Wisconsin v. Lexington Ins. Co. (N.D.Cal. Aug. 23, 2021) ___ F.Supp.3d ___, [2021 WL 3727070, at p. *10] [the complaint alleged that “‘[w]hen the coronavirus and COVID-19 attach to and adhere on surfaces and materials, they become part of those surfaces and materials, converting the surfaces and materials to fomites’ and ‘[t]his represents a physical change in the affected surface or material.’ ”].)
Even were Inns to amend its complaint to include specific allegations about how the virus is transmitted and how it can persist on surfaces and in the air, the complaint still would not state a claim for relief under either the Business Income or Civil Authority coverage provisions. As we have explained, with respect to the Policy’s Business Income coverage, the scenario pled in the
Therefore, the trial court did not abuse its discretion in sustaining the demurrer without leave to amend.
DISPOSITION
The judgment is affirmed.
IRION, J.
WE CONCUR:
HUFFMAN, Acting P. J.
O’ROURKE, J.
Notes
The second exclusion, which California Mutual refers to as “the [L]oss of [U]se” exclusion, states, “We will not pay for loss or damage caused by or resulting from any of the following: . . . [¶] b. Delay, loss of use or loss of market.”
The third exclusion, which California Mutual refers to as the “Acts or Decisions” exclusion, states that California Mutual will not pay for loss or damage caused by or resulting from “b. Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body” unless it results in loss or damage caused by a Covered Cause of Loss.