The opinion
Filed 9/22/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
TARRAR ENTERPRISES,
INC.,
Plaintiff and Appellant, A162795
v. (Contra Costa County
ASSOCIATED INDEMNITY Super. Ct. No. MSC20-
CORP., 01776)
Defendant and
Respondent.
At all relevant times, plaintiff Tarrar Enterprises, Inc. (Tarrar)
operated what it describes as “a utility consultant business” in Contra Costa
County. Defendant Associated Indemnity Corporation (Associated) issued
Tarrar 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 described [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 Tarrar’s complaint, in March 2020, first the Contra Costa
Board of Supervisors, and then the Governor, issued “shelter in place orders,”
1
which, Tarrar alleged, required it “to close its business premises for the
duration of the orders” and “caused [it] to suffer a serious and sustained loss
of business income.” Associated denied Tarrar’s claim for “business income
loss.” Tarrar sued, and its action ended when the trial court sustained
Associated’s general demurrer without leave to amend. And Tarrar’s timely
appeal is from the judgment of dismissal entered on the demurrer order.
Tarrar’s opening brief was filed on November 30, 2021, and begins with
this: “This appeal presents an important coverage issue arising from the
COVID-19 pandemic, and one that appears to be, in this factual context, of
first impression before the California Courts of Appeal: can losses caused by
the COVID-19 pandemic be covered by business interruption insurance
policies which are triggered by physical loss or damage?”
This statement may have been true when the brief was filed, but it has
been overtaken by subsequent events. Since then several California Courts
of Appeal have resolved the issue against the insureds—like here, on
demurrer—holding that the issue comes down to whether the insured can
allege it suffered “direct physical loss of or damage to property” within the
plain meaning of the policy language: Inns-by-the-Sea v. California Mutual
Ins. Co. (2021) 71 Cal.App.5th 688; Musso & Frank Grill Co. Inc. v. Mitsui
Sumitomo Ins. USA Inc. (2022) 77 Cal.App.5th 753; and United Talent
Agency v. Vigilant Insurance Co. (2022) 77 Cal.App.5th 821.
Most recently, some three weeks ago, this court filed its opinion in
Apple Annie, LLC v. Oregon Mutual Insurance Co. (Sep. 2, 2022, A163300)
__ Cal.App.5th __ [2022 Cal.App. Lexis 753] (Apple Annie)), which, discussing
the cases, affirmed a judgment on the pleadings for the insurer.
Meanwhile, in July, one Court of Appeal decision ruled for the insured,
in Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund Ins. Co. (2022)
2
81 Cal.App.5th 96 (Marina Pacific). There, after noting the holdings of Inns-
by-the-Sea, United Talent Agency, and various other cases, the Court of
Appeal held for the insured on the basis it had pled the element missing from
the three earlier cases: it “adequately alleged direct physical loss or damage,”
and stated a claim for breach of the insurance policy (Marina Pacific, supra,
at p. 108.) Thus, the court held that Marina Pacific stated a claim for breach
of contract 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.”
(Id. at p. 114.)
Tarrar’s opening brief had one argument, that “Tarrar’s pandemic
losses were within the reasonable expectations of the insured and nowhere
excluded from coverage.” However, in light of the opinions being filed, the
parties filed supplemental briefs, addressing the subsequent cases. And at
oral argument able counsel vigorously argued the matter in light of all five
cases.
Apple Annie discussed the four prior cases, and others, and held as it
did, affirming the judgment on the pleadings for the insurer. We adopt its
reasoning here without the need to repeat it, and conclude that Tarrar’s
complaint does not allege the necessary “direct physical loss of or damage to
property”—and thus that the demurrer was properly sustained.
That does not end the matter.
Here—and unlike Apple Annie—Tarrar argued in the trial court that if
the demurrer be sustained, it be with leave to amend. Despite that, the trial
court ruled to the contrary.
3
Tarrar maintained its request for leave to amend in its briefing here, in
both its opening brief and reply briefs, the latter of which sets forth in some
detail what Tarrar would allege in an amended complaint. And at oral
argument counsel for Tarrar confirmed that, and more, noting among other
things that leave to amend is appropriate when issues are developing.
But beyond that, given that the complaint here was the original
complaint, other principles guide us as well, principles we confirmed in
Eghtesad v. State Farm General Ins. Co. (2020) 51 Cal.App.5th 406, 411−412:
“[F]or an original complaint, regardless whether the plaintiff has requested
leave to amend, it has long been the rule that a trial court’s denial of leave to
amend constitutes an abuse of discretion unless the complaint ‘shows on its
face that it is incapable of amendment.’ (King v. Mortimer (1948)
83 Cal.App.2d 153, 158; see also Adkins v. City & County of San Francisco
(1935) 8 Cal.App.2d 620, 621 [where it appeared that plaintiff attempted in
good faith to state a cause of action and it was ‘not at all clear that plaintiff
could not have amended’ to overcome the demurrer, it was error for the trial
court to refuse to grant plaintiff at least one opportunity to amend].)
“This long-standing rule remains valid. The current edition of a
leading practical treatise explains, ‘[I]n the case of an original complaint,
plaintiff need not even request leave to amend. “Unless the complaint shows
on its face that it is incapable of amendment, denial of leave to amend
constitutes an abuse of discretion, irrespective of whether leave to amend is
requested or not.” ’ (Weil & Brown, Cal. Practice Guide: Civil Procedure
Before Trial (The Rutter Group 2019) ¶ 7:129, p. 7(I)-58, . . . quoting
McDonald v. Superior Court (1986) 180 Cal.App.3d 297, 303−304.) And the
California Judges Benchbook, Civil Proceedings Before Trial (CJER 2019)
(Judges Benchbook), instructs, ‘Rarely should a judge sustain a demurrer to
4
an initial complaint without granting leave to amend. Cabral v. Soares
(2007) 157 [Cal.App.]4th 1234, 1240[; citation.] Denial of leave to amend is
appropriate only when it conclusively appears that there is no possibility of
alleging facts under which recovery can be obtained. [Ibid.]’ (Judges
Benchbook, §12.52, p. 1023.)”
Thus, denial of leave to amend was error.
DISPOSITION
The judgment is reversed, and the trial court is instructed to vacate its
prior order sustaining the demurrer without leave to amend and enter a new
order sustaining the demurrer with leave to amend. Tarrar shall recover its
costs on appeal.
5
_________________________
Richman, Acting P. J.
We concur:
_________________________
Miller, J.
_________________________
Mayfield, J. *
Tarrar Enterprises, Inc. v. Associated Indemnity Corp. (A162795)
*Judge of the Mendocino Superior Court, Judge Cindee Mayfield,
sitting as assigned by the Chief Justice pursuant to article VI, section 6
of the California Constitution.
6
Trial Court: Contra Costa County Superior
Court
Trial Judge: Honorable Clare Maier
Attorney for Plaintiff and Covington & Burling LLP,
Appellant, Tarrar Enterprises, Rani Gupta; David Goodwin;
Inc.: Thomas Martecchini; Timothy
D. McGonigle Prof. Corp.;
Timothy D. McGonigle
Amicus curiae United Reed Smith LLP;
Policyholders in support of Nicolas A. Pappas
Appellant:
Attorney for Defendant and DLA Piper LLP; John P.
Respondent, Associated Phillips; Joseph Davison; Brett
Indemnity Corp.: Solberg; Gregory Sperla.
7