California Court Holds that No Insurance Coverage for Hotel’s Loss of Income Claims During Covid

California Court Holds that No Insurance Coverage for Hotel’s Loss of Income Claims During Covid

By: Jose L. Parra, Esq.

November 30, 2021

The California Court of Appeal, Fourth Appellate District recently held in The Inns By The Sea v. California Mutual Insurance Company (Super. Ct. No. 20CV001274) that a California Hotel would not be provided insurance coverage for the loss of income sustained during the COVID-19 pandemic.

The case appears to be limited to the specific language of the insurance policy at play; however, the nature of the holding appears to send more uncertainty for the many businesses in our state that may face unprecedented levels of loss brought by COVID.

The court determined that loss of income caused by governmental orders that limited the operation of the hotel was not a covered scenario under the insurance policy in question; principally, the policy required a finding of direct physical loss. Accordingly, the court concluded that the suspension of business’ operations was due to orders issued by a governmental body and not by physical loss or damage as required per the policy.

The decision issued by the court raises many questions about the uncertain predicaments that many businesses in our state face. In particular, how can a business be prepared for the wake of increasing governmental orders issued during the age of COVID, when it appears that insurance companies are hesitant to cover for loss brought about by a pandemic?

It is not surprising that many commercial policies have different sets of exclusions for coverage; some exclusions deal with acts of God, wars, riots, etc. Therefore, when dealing with the large myriad of business insurance policies, it is crucial that a proper review of the coverage clauses be undertaken.

With the alarming impact that COVID has had on our business community, it is important for every business to prepare for the future. The hope is that our legislative representatives act diligent in enacting policies that help our business community thrive during these unprecedented levels of economic loss brought by COVID.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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