Does COVID-19 Cause Direct Physical Loss or Damage To Property?

I don’t usually write about insurance coverage cases in part because I find policy language to be unabashedly fuliginous.  However, an opinion issued yesterday by the California Court of Appeal warrants some attention because it deals with Covid-19 and is admittedly at odds with decisions by other courts.  

The case involved a claim for “direct physical loss or damage” under a commercial insurance policy.  The insureds (a hotel and restaurant) alleged that the COVID-19 was present on, and continually reintroduced to, surfaces throughout the insured properties.  As a direct result, the insureds were required to close or suspend operations in whole or in part at various times, incur restoration and remediation expenses, and dispose of property damaged by the virus.  The insurance company successfully demurred.  The Court of Appeal reversed finding that the insureds had unquestionably pled direct physical loss or damage, i.e., a distinct, demonstrable, physical alteration of the property.  Marina Pacific Hotel and Suites, LLC v. Fireman’s Fund Ins. Co., 2022 WL 2711886.  It is important to note that the Court of Appeal did not hold that the virus had damaged or altered the property, only that the plaintiff had adequately alleged facts sufficient to state a cause of action.  Thus, the ultimate question remains to be answered – Can COVID-19 cause direct physical loss or damage to property for purposes of insurance coverage?