The opinion
Filed 4/27/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
SANTA YNEZ BAND OF 2d Civ. No. B320834
CHUMASH MISSION (Super. Ct. No. 20CV01967)
INDIANS OF THE SANTA (Santa Barbara County)
YNEZ RESERVATION
CALIFORNIA,
Plaintiff and Appellant,
v.
LEXINGTON INSURANCE
COMPANY,
Defendant and Respondent.
Here we interpret an insurance contract that provides
coverage for physical loss or damage to real or personal property.
Experts disagreed whether the property was permanently
damaged or altered by the COVID-19 virus landing on its surface.
We decide this is not a loss as provided in the insurance
contract. Some courts have ruled the phrase “the COVID-19
virus has altered the property” to be sufficient as an allegation of
property damage in cases involving demurrers. In a motion for
summary judgment, however, the plaintiff must show the
alteration is so material that it caused specific economic damage
to the property to make a sufficient property damage insurance
claim.
The Santa Ynez Band of Chumash Mission Indians of the
Santa Ynez Reservation California (Chumash) appeals a
judgment following the granting of a motion for summary
judgment in favor of Lexington Insurance Company (Lexington)
in Chumash’s lawsuit against Lexington for denial of insurance
coverage. We conclude, among other things, that Chumash did
not present sufficient evidence to show that the COVID-19 virus
caused physical property damage to its casino and resort so as to
fall within the property damage coverage provisions of the
Lexington insurance policy. We affirm.
FACTS
The Chumash Casino and Resort (Casino and Resort) is a
large business enterprise of Chumash open to the public. It
consists of a 320-room hotel, a 145,000-square-foot “gaming
floor,” 2,500 video gaming machines, 50 table games, a poker
room, and a bingo room. It includes four restaurants, a 325-seat
buffet, a 125-seat café, a 145-seat food court, and a 125-seat “fine
dining restaurant.” It includes a 1,500-seat “multipurpose
venue” known as “the Samala Showroom.” The Casino and
Resort employs “an average of 1,767 [employees].” It has
recorded an “average 9,012 patrons per day on weekdays, and
11,392 per day on weekends.”
In March 2020, Casino and Resort General Manager Bill
Peters concluded that “the COVID-19 virus was present on and
interacting with surfaces at the casino-resort.” “By March 15,
2020, [Chumash] became aware of employees who were
complaining of symptoms consistent with COVID-19.”
2.
The Chumash business committee, a governing body of
Chumash, promptly ordered the Casino and Resort “closed.” The
official Chumash tribal resolution regarding the closure stated
COVID-19 “is causing physical loss or damage to property on or
near tribal lands, including, without limitation, the Chumash
Casino and Resort.”
The Casino and Resort remained closed through June 10,
2020. Between the closure and reopening, Chumash made
“repairs and upgrades” to its property. These included: 1) the
installation of temperature check machines, 2) plexiglass barriers
at “gaming machines and tables,” and 3) barriers “between tables
in employee break areas.”
The Insurance Policy
Chumash had an insurance policy with Lexington
providing for “ ‘All Risk’ property damage coverage.” The all risk
clause provided: “ ‘Subject to the terms, conditions and
exclusions stated elsewhere herein, this Policy provides insurance
against all risk of direct physical loss or damage occurring during
the period of this Policy.’ ” The policy contained “business
interruption” coverage “[a]gainst loss resulting directly from
interruption of business, services or rental value caused by direct
physical loss or damage, as covered by this Policy to real and/or
personal property insured by this Policy, occurring during the
term of this Policy.” (Italics added.)
The policy contained an “extra expense” provision “to cover
the necessary and reasonable extra expenses occurring during
the term of this Policy at any location as hereinafter defined,
incurred by the Named Insured in order to continue as nearly as
practicable the normal operation of the Named Insured’s business
following damage to or destruction of covered property by a
3.
covered peril which is on premises owned, leased or occupied by
the Named Insured.” (Italics added.)
The policy had an “interruption by civil authority”
provision that provided: “This Policy is extended to include the
actual loss sustained by the Named Insured, as covered
hereunder during the length of time, not exceeding 30 days, when
as a direct result of damage to or destruction of property by a
covered peril(s) occurring at a property located within a 10 mile
radius of the covered property, access to the covered property is
specially prohibited by order of a civil authority.” (Italics added.)
The policy also had a “protection and preservation of
property” provision that provided, in relevant part: “In case of
actual or imminent physical loss or damage of the type insured
against by this Policy, the expenses incurred by the Named
Insured in taking reasonable and necessary actions for the
temporary protection and preservation of property insured
hereunder shall be added to the total physical loss or damage
otherwise recoverable . . . .” (Italics added.)
Duane Dowell, the Chumash director of risk management,
declared, “[T]he Policy does not contain any provision which
purports to exclude coverage for physical loss or damage due to
viruses or pandemics.” He said Lexington first added a
“communicable Diseases” exclusion provision in its next policy on
July 1, 2020.
Denial of the Claim
Chumash made a claim with Lexington for “property
damage to the Chumash Casino and Resort” due to the COVID-
19 virus. It claimed the damage rendered its facilities “unsafe
and unusable.” The claim included the tribal closure order and
“confirmation” that an employee “was infected with COVID-19
4.
prior to closure.” (Boldface and underlining omitted.) Lexington
denied the claim.
Chumash filed an action against Lexington alleging causes
of action for declaratory relief, breach of contract, and breach of
the implied covenant of good faith and fair dealing. Chumash
filed a motion for summary adjudication. Lexington filed a cross
motion for summary judgment claiming Chumash did not qualify
for coverage because the Casino and Resort did not sustain
property damage as a result of the COVID-19 virus.
To show property damage, Chumash relied on declarations
from Lawrence Mayer, M.D., Ph.D., an academic researcher and
professor, and Doctor Ivan Dmochoski, a research scientist and
biochemist. Dmochoski said the “surfaces at the Chumash
Casino and Resort were physically altered” because of the
contamination from the COVID-19 virus. The “affected surfaces
may be permanently altered.” Mayer said it was “a statistical
near-certainty that the virus was present at the Chumash Casino
and Resort on and before March 15, 2020.” (Boldface and
underlining omitted.) He said the virus “physically altered the
surfaces of the property and equipment at the Casino.” (Boldface
and underlining omitted.) As a result of the virus contamination,
Chumash had to make physical alterations to its property to
attempt to reopen it for the public. This included, among other
things, the installation of over 1,000 plexiglass barriers and the
reduction of seats at the casino.
Lexington’s expert Doctor Alexis Sauer-Budge, a
microbiologist, declared the virus cannot damage property
surfaces and may be disinfected using standard disinfection
methods.
5.
The trial court granted summary judgment in favor of
Lexington. It ruled, “As a matter of California law, COVID-19
does not cause ‘direct physical loss or damage’ to property.”
DISCUSSION
Summary Judgment
“Summary judgment provides courts with ‘a mechanism to
cut through the parties’ pleadings in order to determine whether,
despite their allegations, trial is in fact necessary to resolve their
dispute.’ ” (San Jose Neurospine v. Aetna Health of California
(2020) 45 Cal.App.5th 953, 957.) “ ‘ “On appeal, the reviewing
court makes ‘ “an independent assessment of the correctness of
the trial court’s ruling [regarding summary judgment], applying
the same legal standard as the trial court in determining whether
there are any genuine issues of material fact or whether the
moving party is entitled to judgment as a matter of law.” ’ ” ’ ”
(Id. at p. 958) “ ‘Our task is to determine whether a triable issue
of material fact exists.’ ” (Ibid.) “ ‘[A]ny doubts as to the
propriety of granting a summary judgment motion should be
resolved in favor of the party opposing the motion.’ ” (Ibid.)
Triable Issues of Fact
“[T]he threshold requirement for recovery under a contract
of property insurance is that the insured property has sustained
physical loss or damage.” (Simon Marketing, Inc. v. Gulf Ins. Co.
(2007) 149 Cal.App.4th 616, 623.) “Physical damage” may
include “physical alteration.” (Marina Pacific Hotel & Suites,
LLC v. Fireman’s Fund Ins. Co. (2022) 81 Cal.App.5th 96, 109
(Marina Pacific).)
A business may not generally claim property damage
simply because it lost income or was required to shut down
because of the COVID-19 virus. But it may fall within the
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insurance property damage coverage provisions by showing the
COVID-19 virus altered its property and caused physical damage.
(Marina Pacific, supra, 81 Cal.App.5th at p. 101; Brown Jug, Inc.
v. Cincinnati Ins. Co. (6th Cir. 2022) 27 F.4th 398, 403; Los
Angeles Lakers, Inc. v. Federal Ins. Co. (C.D.Cal. 2022) 591
F.Supp.3d 672, 677 (Los Angeles Lakers).)
United Talent Agency
Lexington cites United Talent Agency v. Vigilant Ins. Co.
(2022) 77 Cal.App.5th 821 (United Talent Agency). There the
court, quoting from a federal decision, said, “ ‘While the impact of
the virus on the world . . . can hardly be overstated, its impact on
physical property is inconsequential: deadly or not, it may be
wiped off surfaces using ordinary cleaning materials, and it
disintegrates on it own in a matter of days.’ ” (Id. at p. 835, italics
added.) Relying on another federal decision, it said, “ ‘[T]he
virus’s inability to physically alter or persistently contaminate
property differentiates it from radiation, chemical dust, gas,
asbestos, and other contaminants whose presence could trigger
coverage . . . .’ ” (Id. at p. 836, italics added.)
Lexington contends the federal decisions relied on in
United Talent Agency, supra, 77 Cal.App.5th 821, and numerous
other federal decisions, show, as a matter of law, that Chumash
cannot prevail.
Federal Decisions
Federal decisions may be persuasive, but California courts
are not bound by the decisions of the lower federal courts.
(People v. Bradley (1969) 1 Cal.3d 80, 86.) Yet, even so, the
federal courts are not completely in agreement on the impact of
the virus. Lexington relies on statements about the
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inconsequential impact of the virus on business property that the
United Talent Agency court quoted from some federal decisions.
But other federal courts have held the COVID-19 virus can
damage business property, and its damage to businesses can be a
covered loss under standard “loss or damage” provisions of
business insurance policies. (Brown Jug, Inc. v. Cincinnati Ins.
Co., supra, 27 F.4th at p. 403 [complaint for damage coverage is
sufficient where plaintiff alleges “COVID-19 was present” and it
“materially altered all or part of the property”]; Los Angeles
Lakers, supra, 591 F.Supp.3d at p. 677 [same].)
Recent California Decisions
Recent California decisions have departed from United
Talent Agency, supra, 77 Cal.App.5th 821.
The theory relied on in United Talent Agency was rejected
in Marina Pacific, supra, 81 Cal.App.5th 96. There Marina
Pacific reversed the sustaining of a demurrer against a policy
holder. It discussed the legal standard for factual proof for
property damage insurance coverage involving COVID-19. It
noted that the United Talent Agency court concluded “the
COVID-19 virus does not damage property,” but it did so “without
evidence” to support its conclusion. (Marina Pacific, at p. 111.)
The United Talent Agency court also declared its “general belief
that surface cleaning may be the only remediation necessary to
restore contaminated property to its original, safe-for-use
condition.” (Marina Pacific, at p. 111.) But, as the Marina
Pacific court noted, “That was not always the understanding of
the appropriate precautions to take with items potentially
exposed to the virus.” (Ibid.) Consequently, whether the virus
caused property damage is determined by the evidence presented
in each case. The Marina Pacific court said some federal courts
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had adopted a “common sense” theory that “COVID-19 does not
physically alter the structure of property.” (Id. at p. 114.) But
instead of making such an assumption, the courts should
“actually receive evidence” on that issue. (Ibid.)
Other California courts have also rejected the rule that the
virus cannot cause damage. (Inns-by-the-sea v. California
Mutual Ins. Co. (2021) 71 Cal.App.5th 688, 710 (Inns-by-the-sea).)
There the court said it did not follow the “across-the-board rule
that a virus can never give rise to a “ ‘direct physical loss of or
damage to property.’ ” (Ibid.)
In Shusha, Inc. v. Century National Ins. Co. (2022) 87
Cal.App.5th 250, 262-263, the court also rejected the United
Talent Agency rule that the virus cannot cause physical damage
to business property.
Moreover, in light of Marina Pacific, the Ninth Circuit has
also recently questioned whether the United Talent Agency
decision is currently consistent with California law. (Another
Planet Entertainment, LLC v. Vigilant Insurance Co. (9th Cir.
2022) 56 F.4th 730, 733-734 [requesting certification to the
California Supreme Court].)
Chumash’s Failure of Proof
We do not take issue with recent California decisions
holding that business plaintiffs may be able to show that the
COVID-19 virus caused damage to their property so as to fall
within the property damage provisions of a business insurance
policy.
The issue here, however, is whether Chumash presented
sufficient evidence to show that the virus actually caused
physical damage to its property.
9.
The coverage provisions of the Lexington policy require
proof of physical damage to property. Alteration of business
property is a factor that may fall within the coverage provisions
of a property damage business insurance policy. (Marina Pacific,
supra, 81 Cal.App.5th at p. 109.) But the alteration must cause
physical damage for the business to be eligible for coverage under
the Lexington policy. If there is alteration of property without
physical damage, then there is no proof of an economic loss that
can be compensated under the policy. The ordinary meaning of
the term “physical damage to property” does not include a virus
on the property.
Chumash contends its experts said the property had been
physically altered. A plaintiff opposing a summary judgment
motion involving a property damage coverage claim must 1) be
able to present proof that the alteration of its property actually
caused damage; 2) identify the specific property that had been
damaged; 3) and especially present proof whether that property
had to be replaced or was no longer usable; and 4) present
evidence of the dollar amount of its loss. (See, e.g., Abdelhamid
v. Fire Ins. Exchange (2010) 182 Cal.App.4th 990, 1000.)
As Lexington notes, if the alteration of the Chumash
property caused damage, then Chumash should have been able to
show, for example, that its carpeting, gaming tables, gambling
devices, and playing cards had to be replaced or could not be used
again. But there are no such facts presented here. This is fatal
to the Chumash claim.
The Casino and Resort’s physical building structure
remained intact and was not changed. Chumash employees
worked there before, during, and after the shutdown. As
Lexington notes, “[N]o property was repaired, rebuilt or
10.
replaced.” There was no showing of the type of damage that
policyholders could reasonably expect to be compensated for, such
as alteration causing damage by fire, flood, or by physical impact
to the property.
Chumash claims it installed plastic barriers. But that was
to make the standard pandemic-related precautions that many
businesses made to reopen to the public after a shutdown. It is
not proof that its property had been damaged.
Chumash notes that it shut down its property. But it
presented no evidence to show that the shutdown was for the
purpose of repairing or replacing damaged items such as rugs,
gaming tables, or gambling machines. Those items remained
intact before, during, and after the shutdown. There was no
showing that the virus impaired its gambling machines or that
any other items of its property had been destroyed or damaged so
they could not be used again.
A business may rely on experts to prove property damage.
But here the Chumash experts’ declarations were not sufficient
for that purpose. They said that “surfaces at the Chumash
Casino and Resort were physically altered.” But such general or
conclusory statements do not suffice for a valid insurance claim.
The experts did not specifically identify which property was
altered. That is a fatal omission. An insurance carrier could not
be expected to investigate property damage without knowing
what property to examine. If a business, as here, is not able to
specifically identify the property that was damaged: 1) it is not in
a position to make an insurance claim, and 2) it is not in a
position to prove its case or oppose summary judgment.
During the claim procedure, Lexington asked Chumash for
additional information regarding its claim for coverage. In
11.
response, the Chumash representative said, “Our claim is more
accurately stated that the business loss is due to the orders of the
state, local, and tribal civil authorities (which we have previously
given you) and which were issued due to the ongoing pandemic.”
(Italics added.)
Had the Chumash Casino and Resort sustained property
damage, it was required to specify what property was damaged
and to submit a claim for the dollar amount of that loss. The
absence of such information supports Lexington’s decision to
deny coverage.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded in
favor of the respondent.
CERTIFIED FOR PUBLICATION.
GILBERT, P. J.
We concur:
YEGAN, J.
BALTODANO, J.
12.
James F. Rigali, Judge
Superior Court County of Santa Barbara
______________________________
Roxborough, Pomerance, Nye & Adreani, Nicholas P.
Roxborough and Vincent S. Gannuscio for Plaintiff and
Appellant.
Gibson, Dunn & Crutcher, Richard J. Doren, Matthew A.
Hoffman, Daniel R. Adler, Katarzyna Ryzewska and Kenneth H.
Oshita for Defendant and Respondent.
13.