A Superior Court in California overruled the insurer's demurrer to the policy holder's complaint seeking business interruption coverage after government shutdown orders were issued because of the coronavirus pandemic. Goodwill Industries of Orange County, California v. Philadelphia Indemnity Ins. Co., Cal. Superior Ct., Civil No. 30-2020-01169032-CU-IC-CXC (Minute Order Jan. 28,, 2021). The minute order is here [Goodwill Decision].
The insurer demurred on the ground that the insured had not alleged sufficient facts to show "direct physical loss" under the business income, extra expenses and civil authority provisions in the policy because coronavirus and COVID-19 did not physically alter the structure.
The complaint expressly alleged that the coronavirus and COVID-19 caused direct physical loss and damage to the insured's property. Further, coronavirus and COVID-19 were present at its properties at the time of the state and county closure orders. When the insured reopened its properties, its employees tested positive, requiring the insured to conduct additional cleaning and sanitization to respond to and remove the coronavirus and COVID-19 from physical surfaces in its insured premises. The insured argued (a) that "directly physical loss" did not require physical tangible alteration of the property and that allegations of loss of use were sufficient, and (b) that if physical tangible alteration is required, the insured had satisfied this requirement.
The court noted that whether the insured had alleged sufficient facts to overcome the insurer's demurrer depended on the interpretation of "direct physical loss." Taking the complaint's allegations as true, the court could not determine as a matter of law that the allegations did not show a "direct physical loss." Therefore, the demurrer was overruled.
