California appeals court again rules for policyholders in COVID litigation

A California state appeals court ruled Monday for the third time that a business is entitled to business interruption coverage in connection with the COVID-19 pandemic.

A three-judge panel of the California Court of Appeal in Los Angeles overturned a lower court and held in its ruling in JRK Property Holdings Inc. v. Colony Insurance Co. et al. that the Los Angeles-based real estate investment company was entitled to business interruption coverage in connection with its COVID-19-related losses from primary insurer Liberty Mutual Co. unit Ironshore Specialty Insurance Co. and several of its excess insurers.

The same court had previously ruled in policyholders’ favor in Marina Pacific Hotel and Suites LLC et al. v. Fireman’s Fund Insurance Co. and Shusha Inc. v. Century-National Insurance Co., in rare policyholder victories in such cases.

The appeals court said in its ruling that the California Supreme Court has agreed to review two cases on the business interruption issue in which the policyholder prevailed at the appeals court level — John’s Grill Inc. v. The Hartford Financial Services Group Inc. and Shusha.

In overturning the trial court and ruling in favor of JRK, which had $250 million in primary and excess business interruption property coverage, the appeals court said, “We agree with JRK that the complaint adequately alleges loss resulting from physical alteration of the insured property.”

JRK’s allegations “fall squarely within the type of allegations we found sufficient to allege coverage in Marina Pacific and Shusha,” it said, noting that JRK similarly alleged that the COVID-19 virus “hangs in the air and attaches to property for extended periods of time … thus compromises the physical integrity of the structures it permeates.”

The appeals court upheld the lower court’s dismissal of excess insurers Berkshire Hathaway Inc. unit RSUI Indemnity Co. and Markel Group Inc. unit Evanston Insurance Co. from the litigation based on virus exclusions in their policies.

JRK attorney Meredith Elkins, a partner with Cohen Ziffer Frenchman & McKenna in New York, said the ruling “is a great sign that the Court of Appeal actually looked at the well-pled allegations in the complaint.”

Insurer attorneys did not respond to a request for comment.