Business Law


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February-March 2023

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


Hotel that lost business during COVID-19 shut-downs did not show it lost business income due to “direct physical loss or damage” of its property entitling it to insurance coverage.  Best Rest Motel, Inc. v. Sequoia Insurance Company (2023) __ Cal.App.5th __.

A hotel that lost business as a result of cancellations and travel restrictions imposed in response to the COVID-19 pandemic sought insurance coverage for its lost income.  The hotel claimed that it was forced to suspend its operations because of the presence of virus-infected droplets on its premises and nearby properties.  The insurer denied coverage and the hotel sued.  On summary judgment, the hotel presented evidence that the virus was present on its premises, and that it lost income due to a 90% decrease in reservations following the shut-down orders.  The hotel admitted, however, that it remained open for business.  Concluding that the hotel had not shown any triable issue that the loss of income was caused by physical damage to the premises, the trial court granted summary judgment for the insurer.

The Court of Appeal (Fourth Dist., Div. One) affirmed.  Following its earlier decision in Inns-by-the-Sea v. California Mut. Ins. Co. (2021) 71 Cal.App.5th 688, the appellate court concluded that the hotel lost business due to the shut-down orders, not because of any direct physical loss of or damage to the premises.  The court rejected the hotel’s argument that this case fit within the dicta from Inns-by-the-Sea suggesting that there might be coverage if the loss was caused by the physical presence of the virus on the property.  The evidence in the record showed that the physical presence of the virus at the hotel was not the cause of the loss—the cause was the cancellation of reservations and reduction in tourism following the shut-down orders.

See also Another Planet Entertainment v. Vigilant Insurance Company (S277893) [California Supreme Court granting review of 9th Circuit certified question to resolve whether the actual or potential presence of the COVID-19 virus on an insured’s premises can constitute “direct physical loss or damage to property” for purposes of coverage under a commercial property insurance policy]

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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