By Max H. Stern and Holden Benon
The primary California state appellate choice on COVID-19 Enterprise Interruption protection is now within the books, and it’s yet one more victory for insurers. In The Inns by the Sea v. California Mutual Ins. Co., Case No. D079036 (Cal. Ct. App. 4th Dist., Div. 1, Nov. 15, 2021), the California Court docket of Attraction for the Fourth District discovered there was no protection, however the absence of a virus exclusion within the related coverage. The court docket’s 36-page opinion gives an intensive and cautious evaluation of a number of essential COVID-19-related enterprise interruption points, some highlights of which we summarize under.
Inns-by-the Sea operates lodges within the California coastal communities of Carmel and Half Moon Bay. In March of 2020, Inns closed its services in response to shutdown orders issued by Monterey and San Mateo counties. Then, Inns made a declare below its property insurance coverage coverage for its claimed lack of enterprise earnings attributable to the pandemic. (For extra background on enterprise interruption insurance coverage, discuss with one in all our earlier weblog posts on this matter.) Inns’ insurer denied protection, and Inns filed swimsuit in Monterey Superior Court docket.
The ensuing enchantment was heard by the Fourth Appellate District, Division 1, in San Diego (after a workload re-assignment). Notably, the court docket discovered that, even assuming Inns’ grievance described the presence of coronavirus on the property, there was a scarcity of causal connection between Inns’ suspension of its enterprise and the alleged bodily presence of virus. The court docket centered on the coverage’s normal language that acknowledged that the suspension of the insured’s operations “have to be induced by direct bodily lack of or harm to property at [Inns’] premises . . .” (Emphasis added.) The court docket noticed that the county shutdown orders weren’t issued in response to any particular presence of the coronavirus on Inns’ premises; as an alternative, they have been issued to sluggish the unfold of coronavirus that was current all through Monterey and San Mateo Counties. As a result of Inns’ losses have been attributable to the counties’ shutdown orders, the court docket decided that the suspension of Inns’ operations was not attributable to a direct bodily loss or damage to property, and thus there was no protection for its losses.
The court docket additionally held that the absence of a virus exclusion within the coverage didn’t affect the which means of “direct bodily loss or harm to” property. Inns had argued that the truth that the insurer didn’t add a virus exclusion to its coverage was proof that the coverage really supposed to supply protection for virus losses, as a result of the insurer didn’t “reap the benefits of extra particular wording that was obtainable to it.” The court docket rejected this argument, reciting the final precept that, below California regulation, protection is outlined first by the insuring clause, and when an prevalence is clearly not included throughout the protection afforded by the insuring clause, it needn’t even be particularly excluded. The court docket additionally pointed to precedent from courts nationwide holding that the absence of an exclusion, standing alone, doesn’t suggest protection.
As intermediate appellate court docket choices from any District are binding on all California state trial courts, Inns by the Sea represents an essential improvement in California COVID-19 Enterprise Interruption protection regulation and one other addition to the growing variety of appellate rulings that favor insurers.