Business Law

Appellate Law Update


The following published decision may be of interest to attorneys practicing insurance law:


Trial court erred in denying leave to amend in connection with dismissal of COVID-19 business interruption coverage suit where policy covered losses due to communicable disease events.
Amy‚Äôs Kitchen, Inc. v. Fireman‚Äôs Fund Insurance Company (2022) __ Cal.App.5th ___.

Amy‚Äôs Kitchen obtained a comprehensive property insurance policy from Fireman‚Äôs Fund that included coverage extensions for communicable disease, loss avoidance, and mitigation. The communicable disease coverage extension stated that Fireman‚Äôs Fund would pay for ‚Äúdirect physical loss or damage [to the premises] . . . caused by or resulting from a covered communicable disease event,‚ÄĚ defined as an event in which public health authorities mandate decontamination, evacuation, or disinfection of infected premises. The loss avoidance and mitigation coverage extension also required Fireman‚Äôs Fund to pay ‚Äúnecessary expense‚ÄĚ that the insured paid to ‚Äúprotect, avoid, or significantly mitigate potential covered loss or damage‚ÄĚ that threatened Amy‚Äôs. After Amy‚Äôs confirmed several COVID-19 cases on its premises and incurred costs to clean, disinfect, and mitigate the contamination, as required by the county health authorities, it sought coverage from Fireman‚Äôs Fund.  Fireman‚Äôs Fund denied coverage.  In the subsequent coverage suit, the trial court sustained Fireman‚Äôs Fund‚Äôs demurrer without leave to amend, reasoning that Amy‚Äôs failed to allege ‚Äúdirect physical loss or damage to Property.‚ÄĚ

The California Court of Appeal, (First Dist., Div. Four) reversed.  The language of Fireman‚Äôs Fund‚Äôs policy here differed from the language analyzed in the prior cases holding that COVID-19 business closures did not involve ‚Äúdirect physical loss of or damage to property.‚ÄĚ  In the context of a policy that extended to cover costs incurred to remediate a premises affected by a communicable disease event, a lay person would read ‚Äúdirect physical loss of or damage‚ÄĚ to the premises to include the presence of a communicable disease that required mitigation measures.  While Amy‚Äôs complaint did not allege a specific public health authority order requiring remediation or decontamination of its premises, the trial court should have allowed leave to amend on that issue.

See also Tarrar Enterprises, Inc. v. Associated Indemnity Corp. (2022) __ Cal.App.5th __ [First Dis., Div. Two] [Trial court erred in denying leave to amend COVID-19 business interruption coverage suit to permit insured to allege ‚Äúphysical loss of or damage to property‚ÄĚ under Marina Pacific Hotel & Suits, LLC v. Fireman‚Äôs Fund Ins. Co. (2022) 81 Cal.App.5th 96].

This e-Bulletin was prepared by Emily V. Cuatto, Certified Appellate Specialist and Partner of Horvitz & Levy LLP. Ms. Cuatto is a member of the Insurance Law Standing Committee of the Business Law Section of the California Lawyers Association.

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