It’s no secret that businesses of all shapes and sizes have suffered tremendous losses during the COVID-19 pandemic. From closures to the “Great Resignation” to ever-changing consumer demands, businesses have dealt with one problem after another. One of those problems is the denial of insurance coverage under  “all risk” commercial property policies. For the last two years, courts across the country have found in favor of insurers, ruling that SARS-CoV-2, the virus underlying the COVID-19 pandemic, does not cause physical damage to property.

Enter Marina Pacific Hotel, LLC, et al. v. Fireman’s Fund Insurance Company, 2022 Cal. App. LEXIS 608 (2nd Dist. 2022), a case in which the California Appellate Court looked beyond the preliminary question of whether SARS-CoV-2 causes damage to property and got back to legal basics in its analysis of the plaintiffs’ complaint. With Marina Pacific Hotel, policyholders landed a major victory, and the case may provide a winning framework for plaintiff-insureds facing similar legal battles in the future.

The Marina Pacific Hotel Case

The policy at issue in Marina Pacific Hotel contained much of the standard coverage language which has been heavily debated over the last two years, namely, that the insurer will pay for “direct physical loss or damage” caused by or resulting from a covered cause of loss. This language has proven problematic for policyholders dealing with COVID-19 losses as judges have been reluctant to find that a virus physically alters property when viewed through the lens of what is traditionally considered “property damage.”

However, the Marina Pacific Hotel plaintiffs set out detailed allegations of physical damage, including the fact that SARS-CoV-2 can bond with the surfaces of objects it touches altering the cells and surface proteins of that object. Like insurers around the country, Fireman’s Fund argued that SARS-CoV-2 cannot physically damage property, and that the insured’s loss of use of a piece of property does not constitute physical damage.

In its ruling, the Marina Pacific Hotel court recognized the limitations of its own knowledge and highlighted the uncertainty of the pandemic. The court noted that methods of cleaning surfaces and exchanging goods have evolved since March 2020; and it emphasized that our knowledge of how we deal with SARS-CoV-2 is still changing. It was therefore inappropriate for the trial court to dismiss the plaintiff-policyholder’s complaint where it clearly alleged its property had been damaged by the virus. The California Appellate court aptly noted:

“[W]hat we think we know – beliefs not yet appropriately subject to judicial notice – has never been a proper basis for concluding, as a matter of law, those alleged facts cannot be true and, on that ground, sustaining a demurrer without leave to amend.”

Marina Pacific Hotel, 2022 Cal. App. LEXIS 608, *1.

The Takeaways for Policyholders

Thus, Marina Pacific Hotel seems to provide a path forward for policyholders seeking to recover for COVID-19 related losses under an “all risk” commercial property policy. When crafting a claim, or a legal complaint, policyholders and their counsel should be prepared to articulate the specifics of how a particular piece of property was forever changed, and not merely that the property needed extensive cleaning. If a claim progresses to a lawsuit, policyholders and their counsel should consider framing their arguments in terms of what the presently accepted scientific theories on the virus are, while also recognizing the fact that the science may change. Given these changes, and in light of the fact-pleading standard by which many states review legal complaints, plaintiff-policyholders should not be required to prove whether SARS-CoV-2 actually causes damage to property within the four corners of the policyholder’s complaint.