A California state court refused to dismiss COVID-19 business interruption litigation filed by a Goodwill Industries outlet against a Tokio Marine Holdings Inc. unit,  stating the insurer’s policy language was ambiguous.

In what he labeled a “tentative” ruling, Judge Peter Wilson of the California Superior Court in Santa Ana said there was a question as to whether there was a “direct physical loss” under Goodwill Industries of Orange County’s business income and extra expense and civil authority policy provisions, according to Thursday’s ruling in Goodwill Industries of Orange County, California v. Philadelphia Indemnity Insurance Co.

Philadelphia Indemnity had sought a ruling from the court that Santa Ana-based Goodwill’s complaint was not legally sufficient to sustain a complaint.

The Tokio Marine unit had contended that Goodwill had not alleged sufficient facts to show there had been a direct physical loss because the coronavirus had not physically altered the property.

Goodwill, which operates 24 local stores and select donation sites,  according to its website, had contended that a “direct physical loss” does not require a tangible alteration of the property and that allegations of loss of use are sufficient. It said that if physical tangible alteration was required, it had satisfied that requirement as well.

The complaint said the virus was contained in repository droplets, called aerosols, that stay on surfaces and in the air for up to a month, and that they physically alter the air and surfaces to which they attach, making them “unsafe, deadly and dangerous,” according to court documents.

The complaint said that when Goodwill reopened its properties, its employees tested positive, and that it had to conduct additional cleaning and sanitation to remove the virus from the physical surfaces in its premises in accordance with public health measures, according to the ruling.

In refusing to dismiss the case in its preliminary ruling, the court cited a Sept. 8 decision by the U.S. District Court in Kansas City, Missouri, in Studio 417 Inc. v. The Cincinnati Insurance Co., in which the court ruled that the plaintiffs had “adequately stated a claim of direct physical loss,” based on the alleged causal relationship between the virus and their alleged losses.

The court in the Goodwill case said that while it  recognized California federal COVID-19-related rulings in insurers’ favor, these decisions “are not binding on the court and were decided under a different standard.”

The court said it “is not satisfied that there is a sufficiently full record” at this point in the litigation “to make the determination as matter of law that the coronavirus and COVID-19 have not, in some manner, caused physical damage to property.” A status conference in the case was set for April 2.

Goodwill said in a statement, “We are pleased with the Court’s detailed and thoughtful ruling, which permits us to proceed with this lawsuit against insurers that have wrongfully refused to pay for the significant losses we’ve incurred due to Covid-19, including lost revenue from our retail stores that fund the vital social service programs we provide to our communities.”

Goodwill’s law firm, Covington & Burling LLP, said in a statement, “The ruling is the most detailed California decision to date ruling in favor of the policyholder on this issue.”

Tokio Marine’s attorneys did not respond to a request for comment.

More insurance and risk management news on the coronavirus crisis here.