Zalma on Insurance
Education • Business
Insurance Claims professional presents articles and videos on insurance, insurance Claims and insurance law for insurance Claims adjusters, insurance professionals and insurance lawyers who wish to improve their skills and knowledge. Presented by an internationally recognized expert and author.
Interested? Want to learn more about the community?
September 08, 2022
Still no Direct Physical Damage by Covid

It’s Time to Quit Trying to Get Business Interruption Payments from Insurers for Covid
Apple Annie Suffered no Direct Physical Damage
Barry Zalma

Posted on September 7, 2022 by Barry Zalma

Read the full article at https://lnkd.in/gGnGuQ2q and see the full video at https://lnkd.in/gESF2B7v and at https://lnkd.in/ggaPRAMA and at https://zalma.com/blog plus more than 4300 posts.

See the full video at https://rumble.com/v1j1e6p-still-no-direct-physical-damage-by-covid.html and at

The COVID pandemic and ensuing lock down have generated a host of legal issues. One of the most momentous, in terms of the potential monetary liability, is whether businesses ordered by government decree to close or suspend operations could get compensation under the business income coverage of the standard comprehensive commercial liability policy. The issue has generated opinions from different Courts of Appeal, all of which have held that the issue comes down to whether the insured can allege it suffered “direct physical loss of or damage to [the insured] property.” Having lost in the trial court, the insured here told the court that “this appeal can be viewed as a referendum on whether [those] decisions were correctly decided.” They were right but not as they expected.

In Apple Annie, LLC v. Oregon Mutual Insurance Company, A163300, California Court of Appeals, First District, Second Division (September 2, 2022) the California Court of Appeal refused to be swayed by the Marina Pacific decision.

BACKGROUND

At all relevant times, plaintiff Apple Annie, LLC, operated restaurants in Marin, San Francisco, and Santa Barbara counties. Defendant Oregon Mutual Insurance Company issued Apple Annie a comprehensive commercial liability and property insurance policy that, as relevant here, promised in general to “pay for direct physical loss of or damage to Covered Property at the [insured] premises,” and in particular to “pay for the actual loss of Business Income you sustain due to the necessary suspension of your ‘operations’ during the ‘period of restoration. The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.”

According to Apple Annie’s complaint, in March 2020, first the Marin and San Francisco Departments of Public Health, and then the Governor, issued “Shelter in Place orders,” which Apple Annie alleged “caused [it] to suspend business operations at all its locations, which resulted in an immediate loss of business income.” Oregon Mutual denied Apple Annie’s claim for its “business income loss.”

DISCUSSION

After a comprehensive survey of the subject, the court concluded that a business that closed pursuant to a government shut-down order had not suffered “direct physical . . . damage to” the business’s property. This was a matter of plain English:

“The words in the phrase ‘direct physical damage’ all have commonly understood meanings. ‘Physical’ is defined as ‘having material existence: perceptible especially through the senses and subject to the laws of nature.’ [Citation.] ‘Direct’ is defined as ‘proceeding from one point to another in time or space without deviation or interruption,’ ‘stemming immediately from a source,’ and ‘characterized by close logical, causal, or consequential relationship.’

The presence of COVID-19 on Plaintiff’s property did not cause damage to the property necessitating rehabilitation or restoration efforts similar to those required to abate asbestos or remove poisonous fumes which permeate property. Instead, all that is required for Plaintiff to return to full working order is for the [government orders and restrictions to be lifted.

This case . . . concerns an invisible virus that is present throughout the world. . . . It is that general presence, and not a specific physical harm to covered properties, that has caused governments at all levels to consider restrictions. The question, therefore, is one of ‘widespread economic loss due to restrictions on human activities, not the consequence of a direct physical loss or damage to the insured premises. (Inns-by-the-Sea)

Apple Annie contends that “because the phrase ‘physical loss of or damage to’ is phrased disjunctively, ‘loss of’ and ‘damage to’ must each be given a separate meaning.” Apple Annie reasoned: “Because of this disjunctive framing, each concept must be accorded a separate, distinct meaning. An interpretation of ‘loss of’ that assigns it the same meaning as ‘damage to’ would do violence to the language of the policy by rendering the former term surplusage.”

By contrast, the losses here arose from closures intended to limit the spread of a virus that can carry great risk to people but no risk at all to a physical structure.

The Court of Appeal decided to follow the reasoning of Inns-by-the-Sea and similar cases in acknowledging ‘the generally recognized principle in the context of first party property insurance that mere loss of use of physical property to generate business income, without any other physical impact on the property, does not give rise to coverage for direct physical loss. As the United States District Court, Southern District of California stated, that if, for example, a sick person walked into one of Plaintiffs’ restaurants and left behind COVID-19 particulates on a countertop, it would strain credulity to say that the countertop was damaged or physically altered as a result. The majority of cases in California (and elsewhere) are in accord.

Most recently, on July 13, Division Seven of the Second District filed its opinion in Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund Ins. Co. (2022) 81 Cal.App.5th 96 (Marina Pacific). The Court of Appeal went on to hold for the plaintiff insured, on the basis it had pled the element missing from the three earlier cases: it “adequately alleged direct physical loss or damage.” Thus, the court held, Marina Pacific stated a claim for breach of the insurance policy (Marina Pacific, supra, at p. 108), and concluded: “Because the insureds adequately alleged losses covered by Fireman’s Fund’s policy, they are entitled to an opportunity to present their case, at trial or in opposition to a motion for summary judgment. The judgment of dismissal based on the trial court’s disbelief of those allegations, whether ultimately reasonable or not, must be reversed.”

In sum, and in light of the foregoing, the Court of Appeal could not agree with Apple Annie’s primary contention that the policy language-“direct physical loss or damage to,” including its disjunctive phrasing-is ambiguous and “subject to a reasonable construction that supports coverage.” Doing so, the Court of Appeal rejected what may be the two most consequential aspects of Apple Annie’s position:

that “no physical alteration is necessary to show that the policyholder has suffered a ‘physical loss of’ insured property if the governmental authorities issue orders that prohibit the policyholder from using the insured property for its intended purpose,” and

that” ‘physical loss of’ includes the loss of use of the insured property, even if that loss is temporary.” (See Santo’s Italian Cafe LLC v. Acuity Ins. Co., supra, 15 F.4th 398, 402 [“A loss of use simply is not the same as a physical loss”].)

Although the COVID virus has a physical presence, and thus Apple Annie may have suffered economic loss from the physical presence of the COVID virus, it has not suffered direct physical loss of or damage to [its] property.

Apple Annie makes a new argument using a definition in the liability portion of the policy. A similar argument was made, and rejected, in United Talent Agency, which observed that cases involving comprehensive liability coverage are of limited benefit in determining the scope of property insurance coverage.

While Marina Pacific held for the insured, based on its pleading, in its supplemental brief Apple Annie acknowledges that the case does not directly implicate Apple Annie’s theory of coverage.

At oral argument the Court of Appeal asked counsel for Apple Annie – able counsel with significant experience in insurance coverage issues-what Apple Annie would, or could allege. Given that, the fact that this case has been pending for 25 months, and the further fact that Marina Pacific has been extant for over a month, the court concluded that Apple Annie has not met the burden required of it to obtain leave to amend, and thus the Court of Appeal denied the belated request.
ZALMA OPINION

As I said when I digested the Marina Pacific case, the decision was limited to whether the plaintiff had alleged a cause of action and since they alleged that there was direct physical damage they were entitled to try to prove it. Since this case was not brought on a demurrer’s finding the lack of direct physical damage defeated the claim for business interruption like all of the other cases across the country.

However, going against the grain, a Jury Awarded Baylor College of Medicine $48.5 Million in COVID-19 Business Interruption Lawsuit

The jury returned the verdict in the suit, which was filed against XL Insurance America, Ace America Insurance and several Lloyd’s syndicates, on Aug. 31, according to a copy of the judgment provided to BestWire. Ten of the 12 jurors agreed with the decision. I would expect the jury verdict to be appealed since Texas has joined with other states who have refused to allow coverage without direct physical loss.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at and [email protected].

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

00:13:10
Interested? Want to learn more about the community?
What else you may like…
Videos
Posts
July 18, 2025
Solomon Like Decision: No Duty to Defend – Potential Duty to Indemnify

Concurrent Cause Doctrine Does Not Apply When all Causes are Excluded
Post 5119

Death by Drug Overdose is Excluded

See the full video at https://lnkd.in/geQtybUJ and at https://lnkd.in/g_WNfMCZ, and at https://zalma.com/blog plus more than 5100 posts.

Southern Insurance Company Of Virginia v. Justin D. Mitchell, et al., No. 3:24-cv-00198, United States District Court, M.D. Tennessee, Nashville Division (October 10, 2024) Southern Insurance Company of Virginia sought a declaratory judgment regarding its duty to defend William Mitchell in a wrongful death case pending in California state court.

KEY POINTS

1. Motion for Judgment on the Pleadings: The Plaintiff moved for judgment on the pleadings, which was granted in part and denied in part.
2. Duty to Defend: The court found that the Plaintiff has no duty to defend William Mitchell in the California case due to a specific exclusion in the insurance policy.
3. Duty to Indemnify: The court could not determine at this stage whether the Plaintiff had a duty to ...

00:08:21
July 17, 2025
No Good Deed Goes Unpunished

GEICO Sued Fraudulent Health Care Providers Under RICO and Settled with the Defendants Who Failed to Pay Settlement

See the full video at https://lnkd.in/gDpGzdR9 and at https://lnkd.in/gbDfikRG, and at https://zalma.com/blog plus more than 5100 posts.

Post 5119

Default of Settlement Agreement Reduced to Judgment

In Government Employees Insurance Company, Geico Indemnity Company, Geico General Insurance Company, and Geico Casualty Company v. Dominic Emeka Onyema, M.D., DEO Medical Services, P.C., and Healthwise Medical Associates, P.C., No. 24-CV-5287 (PKC) (JAM), United States District Court, E.D. New York (July 9, 2025)

Plaintiffs Government Employees Insurance Company and other GEICO companies (“GEICO”) sued Defendants Dominic Emeka Onyema, M.D. (“Onyema”), et al (collectively, “Defendants”) alleging breach of a settlement agreement entered into by the parties to resolve a previous, fraud-related lawsuit (the “Settlement Agreement”). GEICO moved the court for default judgment against ...

00:07:38
July 15, 2025
Zalma’s Insurance Fraud Letter – July 15, 2025

ZIFL – Volume 29, Issue 14
Post 5118

See the full video at https://lnkd.in/geddcnHj and at https://lnkd.in/g_rB9_th, and at https://zalma.com/blog plus more than 5100 posts.

You can read the full 20 page issue of the July 15, 2025 issue at https://lnkd.in/giaSdH29

THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL

This issue contains the following articles about insurance fraud:

The Historical Basis of Punitive Damages

It is axiomatic that when a claim is denied for fraud that the fraudster will sue for breach of contract and the tort of bad faith and seek punitive damages.

The award of punitive-type damages was common in early legal systems and was mentioned in religious law as early as the Book of Exodus. Punitive-type damages were provided for in Babylonian law nearly 4000 years ago in the Code of Hammurabi.

You can read this article and the full 20 page issue of the July 15, 2025 issue at https://zalma.com/blog/wp-content/uploads/2025/07/ZIFL-07-15-2025.pdf

Insurer Refuses to Submit to No Fault Insurance Fraud

...

00:08:27
July 16, 2025
There is no Tort of Negligent Claims handling in Alaska

Rulings on Motions Reduced the Issues to be Presented at Trial

Read the full article at https://lnkd.in/gwJKZnCP and at https://zalma/blog plus more than 5100 posts.

CASE OVERVIEW

In Richard Bernier v. State Farm Mutual Automobile Insurance Company, No. 4:24-cv-00002-GMS, USDC, D. Alaska (May 28, 2025) Richard Bernier made claim under the underinsured motorist (UIM) coverage provided in his State Farm policy, was not satisfied with State Farm's offer and sued. Both parties tried to win by filing motions for summary judgment.

FACTS

Bernier was involved in an auto accident on November 18, 2020, and sought the maximum available UIM coverage under his policy, which was $50,000. State Farm initially offered him $31,342.36, which did not include prejudgment interest or attorney fees.

Prior to trial Bernier had three remaining claims against State Farm:

1. negligent and reckless claims handling;
2. violation of covenant of good faith and fair dealing; and
3. award of punitive damages.

Both Bernier and State Farm dispositive motions before ...

post photo preview
May 15, 2025
Zalma's Insurance Fraud Letter - May 15, 2025

ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional

See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.

Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:

Health Care Fraud Trial Results in Murder for Hire of Witness

To Avoid Conviction for Insurance Fraud Defendants Murder Witness

In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...

May 15, 2025
CGL Is Not a Medical Malpractice Policy

Professional Health Care Services Exclusion Effective

Post 5073

See the full video at https://lnkd.in/g-f6Tjm5 and at https://lnkd.in/gx3agRzi, and at https://zalma.com/blog plus more than 5050 posts.

This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.

In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:

Insurance Coverage Dispute:

Travelers issued a Commercial General Liability ...

See More
Available on mobile and TV devices
google store google store app store app store
google store google store app tv store app tv store amazon store amazon store roku store roku store
Powered by Locals