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Appeal decisions in California may lead to different decisions on covid coverage



A California appeals court ruling Monday in a case of covid-19 business interruption creates a conflict among the state’s appeals courts over whether the presence of the virus creates physical harm and could lead to different trial decisions regarding coverage.

While the Santa Ana-based appeals court upheld a lower court ruling in favor of a unit of Berkshire Hathaway Group Inc. Coast Restaurant Group Inc. v. Amguard Insurance Co . based on insurance exclusions, the ruling means lower courts can now rule either way on the question of whether COVID-19-related business interruption insurance covers physical injury, according to a policyholder attorney, whose firm filed an amicus brief on behalf of the plaintiffs.

Brea, Calif.-based Coast Restaurant, which operates the Cedar Creek Inn, accused Amguard of breaching the implied covenant of good faith and fair dealing and breach of contract in its April 2021

first amended complaint, according to the ruling.

A district court in Westminster, California, ruled in Armguard’s favor in September 2021 based on the policy’s virus exclusion but did not rule on whether there was “risk of physical loss” coverage under the policy.

The three-judge Court of Appeals panel concluded in its decision that “appellant suffered a covered loss under the policy because the state restrictions in this case deprived appellant of important property rights in the covered property.”

However, it affirmed the trial court’s decision based on the coverage’s virus exclusion as well as its exclusion for loss or damage caused by enforcement of any ordinance or law.

Policyholder advocate David B. Goodwin, general counsel at Burling & Covington LLP in San Francisco, pointed to the November 2021 decision by the California Court of Appeals in San Diego in The Inns by the Sea v. California Mutual Insurance Co ., which held that there was no physical loss or damage caused by the virus. The policy in that case had no virus exclusion.

Monday’s ruling “means that there is now a distinction between two appeals courts and the trial courts are now free to follow one or the other” during the state’s legal proceedings, Mr. Goodwin.

The California Supreme Court has approved two other covid for review19 business interruption cases but is not expected to resolve them until next year, he said.

Mr. Goodwin said many small business policies include the Insurance Services Office’s virus exclusion, while those for larger companies typically do not.

Other lawyers at Mr. Goodwin’s firm filed a pro-policyholder amicus brief in Coast Restaurant case on behalf of United Policyholders.

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


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