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July 19, 2022

Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund Ins. Co., No. B316501 (Cal. Ct. App.)

To recoup business losses suffered during the COVID-19 pandemic, a group of hotels sued Fireman’s Fund seeking insurance coverage under their first-party property policy.  The policy covered losses resulting from “direct physical loss of or damage to” the hotel properties.  The policy excluded coverage for losses due to “[m]ortality, death by natural causes, disease, sickness, any condition of health, bacteria, or virus.”  Fireman’s Fund demurred to the hotels’ complaint on the ground that the mere inability to use the hotels was not a physical loss or damage required to trigger coverage, and the policy excluded coverage for losses caused by a virus.  The superior court sustained Fireman’s Fund’s demurrers and dismissed plaintiffs’ case.

The Court of Appeal reversed.  The hotels alleged that the virus caused chemical reactions that transformed the physical condition of the properties, requiring the hotels to suspend operations to remediate the air and surfaces or replace property.  The court held that these allegations sufficiently stated a claim for coverage for “physical loss of or damage to property,” no matter how “improbable” those allegations were. 

This decision departs from the clear trend of California appellate courts and the Ninth Circuit accepting insurers’ arguments against coverage in such cases.