Appellate Court Issues Groundbreaking COVID Insurance Coverage Opinion In Favor Of Policyholders

• Published date: 19 July 2022
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Coronavirus (COVID-19), Insurance Laws and Products, Trials & Appeals & Compensation, Insurance Claims
• Law Firm: Hanson Bridgett LLP
• Author: Josephine Petrick

In an opinion that is the first of its kind in the California appellate courts, the Second District Court of Appeal, Division 7, has ruled that certain COVID-19-related business losses may be covered by business-interruption insurance (BII) policy provisions. Marina Pacific Hotels & Suites, LLC v. Fireman's Fund Ins., No. B316501, 2022 WL 2711886 (Cal. Ct. App. July 13, 2022) (slip op.), available at https://www.courts.ca.gov/opinions/documents/B316501.PDF.

The groundbreaking opinion gives a leg up to policyholders struggling with pandemic-era debt and business losses. The decision may also inspire the California Supreme Court, other California Courts of Appeal, and the U.S. Court of Appeals for the Ninth Circuit (among other reviewing courts nationwide) to give policyholders the opportunity to prove BII coverage in the context of the pandemic.

Marina Pacific is an exciting development in the law regarding COVID-19 BII coverage. Other important decisions are expected to be made in the coming months, and will be carefully watched by insurance practitioners, business owners, and the public as the courts continue to grapple with the fallout from the pandemic.

The Marina Pacific Court UnanimouslyDetermines that Policyholders Can Move Forward with COVID-19-Related Business Claims

In Marina Pacific, the owners of a restaurant and hotel group in Venice Beach, California, incurred virus-related losses due to the pandemic. Id. at *1, slip op. at 5. Their insurance policy provided: "[W]e will pay for direct physical loss or damage to [the insured property] caused by or resulting from a covered cause of loss during the Policy Period." Id. at *1, slip op. at 3. The policy included a separate "communicable disease coverage," defined as "any disease, bacteria, or virus that may be transmitted directly or indirectly from human or animal to a human." Id. at *2, slip op. at 4. The policy also contained a "mortality and disease exclusion," though it did not contain the ISO's standard "exclusion of loss due to virus or bacteria." Id. at *10-11, slip op. at 25.

When their insurance company denied coverage, the plaintiffs sued for breach of contract, bad faith, and related statutory claims. Id. at *2, slip op. at 5. The trial court sustained the insurer's demurrer, citing MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co., 187 Cal.App.4th 766 (2010), and the plaintiffs appealed. Marina Pacific, 2022 WL 2711886, at *4-5, slip op. at pp. 9-11.

In a published...