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Calif. appeals court again reinstates COVID business interruption case

business interruption

A California state appeals court has overturned a lower court and reinstated a COVID-19-related business interruption case for the second time.

In July, a three-judge panel of the California Court of Appeal in Los Angeles held in its ruling in Marina Pacific Hotel and Suites LLC et al. v. Fireman’s Fund Insurance Co., which was filed by a hotel and restaurant against an Allianz SE unit, that it was premature to dismiss the litigation at “this nascent phase of the case.”

A three-judge panel cited this earlier ruling in Monday’s decision overturning the trial court and ruling in favor of La Cava, a Sherman Oaks restaurant operated by Shusha Inc., according to its ruling in Shusha Inc. v. Century-National Insurance Co.

Shusha had charged the North Hollywood-based insurer with breach of contract, breach of the implied covenant of good faith and fair dealing and unfair business practices in violation of the state Unfair Competition law.

La Cava alleged that it suffered physical loss of, or damage to, its dining rooms and other property caused by the “actual presence of virus droplets in the air” and on surfaces, the ruling said.

The panel said it disagreed with the lower court’s reasoning dismissing the case. “As we discussed in Marina Pacific…the insured is not required to provide authority at the pleading stage to support its position that contamination with the COVID-19 virus caused damage to the surfaces in its premises,” the ruling said.

In reinstating the restaurant’s causes of action for bad faith and violation of the unfair competition law, the ruling said the insurer’s denial of coverage on April 9, 2020, was “just three weeks after La Cava tendered its claim and in the earliest days of our understanding of the novel COVID-19 virus, cannot be deemed as matter of law to have been made in good faith with reasonable grounds.”

At the time, “it was settled law that environmental contamination that resulted in physical damage could trigger business income coverage,” it said.

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