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California appeals court rules against virus BI coverage for motels


In what is believed to be the first state appellate ruling on the issue, a California intermediate appeals court has ruled there is no COVID-19 business interruption coverage in litigation filed by a group of motels.

The California Court of Appeal in San Diego held in its Nov. 15 ruling in The Inns by the Sea v. California Mutual Insurance Co. there was no physical loss or damage caused by the virus. The policy did not have a virus exclusion.

Inns, which operates four lodging facilities in Carmel-by-the-Sea, California, and one in Half Moon Bay, California, filed its litigation in April 2020, according to the ruling.

“Although no California appellate court has addressed the issue, numerous federal court and courts in other states have done so,” the ruling said. 

“The overwhelming majority of federal district court cases find no possibility of coverage under commercial property insurance policies for a business’s pandemic-related loss of income,” it said.

A three-judge panel agreed with those other decisions. “In sum, we conclude that Inns has not alleged ‘direct physical loss of’ property, based on the fact that it lost the ability to use its physical premises to generate income,” it said.

“The Absence of a Virus Exclusion in the Policy Does Not Impact the Meaning of ‘Direct Physical Loss of or Damage to’ Property,” it said.

Attorneys in the case did not respond to requests for comment.