(Article from Insurance Law Alert, February 2021)
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A California trial court refused to dismiss a suit seeking coverage for COVID-19-related business losses, finding that the complaint alleged sufficient facts to show “direct physical loss.” Goodwill Indus. of Orange County, CA v. Philadelphia Indem. Ins. Co., 2021 WL 476268 (Cal. Super. Ct. Jan. 28, 2021).
The underlying complaint alleged that COVID-19 caused direct physical loss to insured property because virus particles were present at the properties, employees tested positive for the virus, and the policyholder was required to conduct sanitization of properties in order to remove COVID-19 particles from physical surfaces. Accepting these allegations as true for purposes of the insurer’s demurrer, the court concluded that the complaint sufficiently alleged “direct physical loss.” The court recognized that California federal courts have required a physical change to property or a permanent dispossession of property in order to satisfy the “direct physical loss” requirement, but deemed those cases factually inapposite. Noting the “high standard that must be met to prevail on a demurrer on an insurance policy,” the court declined to rule as a matter of law that COVID-19 has not “in some manner, caused physical damage to property.”