Insured Adequately Alleges Direct Physical Loss in COVID-19 Claim to Survive Motion for Judgment on the Pleadings

    The Court of Appeal reversed the trial court's granting of a motion for judgment on the pleadings, dismissing the insured's claim for loss due to the presence of COVID-19. Brooklyn Restaurants, Inc. v. Sentinel Ins. Co., Ltd., 2024 Cal. App. Unpub. LEXIS 1754 (Cal Ct. App. March 20, 2024). 

    Brooklyn secured a policy from Sentinel with an endorsement for "Limited Fungi, Bacteria, or Virus Coverage." ("Virus Endorsement"). In March 2020, Brooklyn submitted a claim for loss of business income due to the coronavirus at its restaurant, Harry's Coffee Shop. Sentinel denied the claim, and Brooklyn filed suit. 

    Brooklyn claimed Harry's Coffee Shop was "and continued to be, repeatedly infected by individuals coming and going from the premises until the virus is eliminated in the region." Further, Brooklyn was forced to reduce operations and move outside, physically losing the use of its interior dining spaces. 

    Sentinel filed a motion for judgment on the pleadings. The superior court granted the motion. 

    On appeal, the court referred to other appellate courts who had determined that, as a matter of law, the mere presence of the coronavirus on the surface was insufficient to allege damage to the property or a direct physical loss. This case was different, however, because the policy included the Virus Endorsement. The Virus Endorsement defined "loss or damage" to include "direct physical loss or direct physical damage to Covered Property caused by virus, including the cost of removal of the virus." There did not exist any requirement that some additional "direct physical loss or direct physical damage" must occur before "cost of removal" could be considered "loss or damage" under the endorsement. It was a reasonable interpretation of the provision that the mere incurring of the cost of removal would be sufficient "direct physical loss or direct physical damage."

    Brooklyn's complaint alleged it incurred expense "through enhanced and continual sanitation of the coffee shop in order to help mitigate the impacts of businesss interruption and continue operations in some decreased capacity." The court found that Brooklyn sufficiently alleged that it suffered the requisite "loss or damage" to trigger coverage under the Virus Endorsement.