Calif. appellate court reinstates COVID business interruption case


In a rare policyholder victory, a California appeals court on Wednesday reversed a lower court and reinstated a COVID19-related business interruption coverage lawsuit filed by a hotel and restaurant against an Allianz SE unit.

A three-judge panel of the California Court of Appeal in Los Angeles held in its ruling in Marina Pacific Hotel and Suites LLC et al. v. Fireman’s Fund Insurance Co. that it was premature to dismiss the litigation at “this nascent phase of the case.”

Plaintiffs in the case, who are owners of the Hotel Erwin and Larry’s, an adjacent restaurant, in the Los Angeles neighborhood of Venice sued Allianz unit Fireman’s Fund in July 2020 under their commercial property insurance policy, which provided $22 million in business interruption coverage. The trial court issued its final ruling dismissing the case in October.

“Today, we think we know how (COVID-19) spreads, how to protect against it and how best to treat those who have it. Perhaps we do,” the appellate ruling said.

“But even so, when a pleading alleges facts sufficient to constitute a cause of action, what we think we know — beliefs not yet appropriately subject to judicial notice — has never been a proper basis for concluding, as a matter of law, those alleged factors cannot be true. … Yet that is precisely what occurred here.”

The ruling said the policyholders allege the virus “not only lives on surfaces but also bonds to surfaces … which transform the physical condition of the property.”

“Assuming, as we must, the truth of these allegations, even if improbable, absent judicially noticed facts irrefutably contradicting them, the insureds have unquestionably pleaded direct physical loss or damage to covered property,” the ruling said,

Noting federal appeals courts that have dismissed similar cases, the ruling said federal courts’ pleading rules “significantly differ” from those applicable to a state trial court order.

It said also that another California appellate decision that went against policyholders, The Inns by the Sea v. California Mutual Insurance Co., was based on allegations of the loss of use of the insured property because of government-ordered closures.  

Attorneys in the case did not respond to requests for comment.

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