A California federal district court dismissed the insured restaurant's civil authority claim after being ordered to close due to COVID-19. 10E, LLC v. Travelers Indemnity Co. of Connecticut, et al., 2020 U.S. Dist. LEXIS 156827 (C.D. Calif. Aug. 28, 2020).  The decision is here. 

    Public health restrictions prohibited in-person dining at plaintiff's restaurant, limiting its business to takeout and delivery. Plaintiff sought compensation for lost business and other costs of the disruption under Business Income and Extra Expense Coverage. The policy covered losses and expenses "caused by action of civil authority that prohibits access to the described premises." Further, "[t]he civil authority action must be due to direct physical loss of or damage to property." Finally, the policy included a virus exclusion that applied to actions of civil authority. 

    Plaintiff sued, alleging that it was entitled to coverage because public health restrictions prohibited access to its restaurant. The restrictions caused "physical damage" by labelling of the insured property as non-essential and preventing the ordinary intended use of the property. Plaintiff also alleged that the virus exclusion did not include exclusion for a viral pandemic. 

    Travelers filed a motion to dismiss. The court agreed that Plaintiff did not plausibly allege that it suffered "direct physical loss of or damage to property" as required for civil authority coverage. Under California law, losses from inability to sue property did not amount to "direct physical loss of or damage to property" within the ordinary meaning of that phrase. Physical loss or damage occurred only when property underwent a distinct, demonstrable, physical alteration. Detrimental economic impact did not suffice. Labeling the property as non-essential did not physically alter any of Plaintiff's property. Further, Plaintiff did not allege that the virus infected or stayed on surfaces of its insured property. Whatever physical alteration the virus caused to property in general, nothing in the complaint plausibly supported an inference that the virus physically altered conditions for Plaintiff's restaurant 

    Plaintiff attempted to circumvent the plain language of the policy by emphasising its disjunctive phrasing – "direct physical loss of or damage to property." Plaintiff, however, did not allege that it was permanently dispossessed of any insured property. Instead, Plaintiff remained in possession of its dining room and restaurant. 

    Therefore, the motion to dismiss was granted. Plaintiff was allowed 14 days to amend its complaint.