Loss Caused by Changes to the World Not Physical Damage

The California Court of Appeal, Sixth District, applying California law, affirmed the Superior Court’s judgment in favor of the insurer’s demurrer without leave to amend, holding that the insured failed to plead any actual physical damage or loss caused by the COVID-19 virus. Here, the insured, Inns by the Sea, was forced to close a number of hotels in and near Carmel-by-the-Sea as a result of California’s shutdown order at the outset of the COVID-19 pandemic. The Court of Appeal rejected the insured’s claim for coverage, finding that the insured failed to show any actual physical damage caused by the virus to any of its properties. Instead, the insured’s losses resulted more from changes to the world around the hotels than from any actual alteration within the properties. As such, the Court of Appeal sustained the insurer’s demurrer, ruling against coverage for the insured. The Inns by the Sea v. California Mut. Ins. Co., D0079036, 2021 WL 5298480 (Cal. Ct. App. Nov. 15, 2021).