Shusha v. Century-National Ins. Co. CA2/7

Filed 12/14/22 Shusha v. Century-National Ins. Co. CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

SHUSHA, INC., B313907

Plaintiff and Appellant, (Los Angeles County
Super. Ct.
v. No. 20STCV25769)

CENTURY-NATIONAL
INSURANCE COMPANY,

Defendant and
Respondent.

APPEAL from a judgment of the Superior Court of Los
Angeles County, Daniel J. Buckley, Judge. Reversed.
Hecht Partners, Katheryn Lee Boyd, Kristen L. Nelson;
Law Offices of Jonathan A. Sorkowitz and Jonathan A. Sorkowitz
for Plaintiff and Appellant.
Berman Berman Berman Schneider & Lowary, Spencer A.
Schneider and Karen E. Adelman for Defendant and Respondent.
 __________________________

Shusha, Inc., dba La Cava (La Cava) appeals from the
judgment of dismissal entered after the trial court sustained
without leave to amend the demurrer filed by Century-National
Insurance Company (Century-National) to La Cava’s first
amended complaint. La Cava sued Century-National for breach
of an insurance contract and related claims after Century-
National denied coverage for La Cava’s lost business income as a
result of its suspension of restaurant operations in March 2020
due to the COVID-191 pandemic and associated government
shutdowns.
On appeal, La Cava contends the trial court erred in
concluding the alleged presence of the COVID-19 virus in its
restaurant did not constitute “direct physical loss of or damage
to” the restaurant necessary for coverage under the terms of the
policy at issue. La Cava also argues Century-National acted in
bad faith by summarily denying coverage without investigating
La Cava’s claim. We agree La Cava’s allegations that
contamination by the COVID-19 virus physically altered its
restaurant premises were sufficient to withstand demurrer, and
we reverse.

1 For ease of reference, we refer, as do the parties, to the
SARS-CoV-2 virus, its variants, and the coronavirus disease
caused by them as COVID-19.

2
 FACTUAL AND PROCEDURAL BACKGROUND

A. The Century-National Insurance Policy
As alleged in the operative first amended complaint
(complaint), La Cava purchased from Century-National a
“commercial package” insurance policy, including commercial
property insurance and general liability coverage for a one-year
period beginning November 22, 2019 (the policy). A copy of the
policy was attached to the complaint.
Section A.1 of the “Business Income (and Extra Expense)
Coverage Form” provided in relevant part, “We will 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 premises which are described in the
declarations and for which a business income limit of insurance is
shown in the declarations . . . .” (Capitalization omitted and
italics added.) “Suspension” was defined to mean, in pertinent
part, “[t]he slowdown or cessation of your business activities.”
The “period of restoration” was defined in part as the period that
“begins with the date of direct physical loss or damage caused by
or resulting from any covered cause of loss at the described
premises” and ends on the earlier of “the date when the property
at the described premises should be repaired, rebuilt or replaced
with reasonable speed and similar quality” or “one year
immediately following the date of direct physical loss or damage
caused by a covered cause of loss.” (Capitalization omitted.)
Section A.5.a of the business income coverage form also
included civil authority coverage. This provision provided, “We
will pay for the actual loss of business income you sustain and

3
necessary extra expense caused by action of civil authority that
prohibits access to the described premises due to direct physical
loss of or damage to property, other than at the described
premises, caused by or resulting from any covered cause of loss.”
(Capitalization omitted and italics added.)

B. The Complaint
La Cava filed this action on July 7, 2020. The first
amended complaint alleged causes of action for declaratory
judgment, breach of contract, breach of the implied covenant of
good faith and fair dealing, and unfair business practices in
violation of the Unfair Competition Law (UCL; Bus. & Prof. Code,
§ 17200 et seq.). Each cause of action was premised on Century-
National’s denial of coverage for business income losses claimed
by La Cava as a result of the COVID-19 pandemic.
La Cava is a restaurant in the Sherman Oaks
neighborhood of Los Angeles. As alleged, La Cava “promptly
shut down operations” on or around March 16, 2020, “[o]nce the
La Cava management was made aware by [pandemic-related
government orders] of the clear and present danger of the virus
and its existence everywhere in LA County, including on the
surfaces and in the air in and around La Cava’s premises.” On
April 1, 2020 La Cava reopened with limited hours for take-out
and delivery only, “prohibiting customers from dining in.”
The complaint described and attached several government
orders relating to the pandemic. On March 4, 2020 the Governor
of California declared a state of emergency due to the rapid
spread of COVID-19 in California, and on March 15 the Mayor of
Los Angeles issued a public health order prohibiting restaurants
in the city from serving food on their premises. On March 19 the

4
Governor issued Executive Order No. N-33-20 requiring residents
of California to stay in their homes, with limited exceptions. Also
on March 19, the Mayor issued a “Safer at Home” public order,
finding “the COVID-19 virus can spread easily from person to
person and it is physically causing property loss or damage due to
its tendency to attach to surfaces for prolonged periods of time.”
(Capitalization omitted.) The Mayor’s order provided restaurants
could offer food to customers “but only via delivery service, to be
picked up, or drive-thru.” In May, restaurants were again
permitted to serve customers on-site by moving all dining
outdoors, limiting group size, and spacing tables, among other
restrictions. However, on November 22, 2020 the Los Angeles
County Department of Health suspended outdoor dining at
restaurants, and the Governor did not lift statewide stay-at-home
orders to allow restaurants to reopen for outdoor dining until
January 25, 2021.
The complaint included numerous allegations concerning
the transmissibility of the COVID-19 virus and unfolding
pandemic in California. Citing reports by the World Health
Organization (WHO) and the Center for Disease Control and
Prevention (CDC), the complaint alleged the COVID-19 virus can
spread through “[f]loating respiratory droplets, called aerosols”
that “behave like smoke,” and it can both “‘linger in the air for
minutes to hours’” and also “travel[] on air currents until they
attach to an object or other surface.” The WHO and CDC “have
recognized the tendency of the [COVID-19 virus] to attach to
objects and surfaces, ‘such as tables, doorknobs, and handrails,’”
and the virus “‘may remain viable for hours to days on surfaces
made from a variety of materials.’” The complaint alleged
further, “Numerous other scientific studies have discovered that

5
the [COVID-19] virus can survive and persist on surfaces and
buildings for nearly a month.” Moreover, “The scientific
community has confirmed that coronavirus and COVID-19 alter
the conditions of properties and buildings such that the premises
are no longer safe and habitable for normal use. Without
substantial physical alterations, systems changes to facilities,
and new protocols for air circulation, disinfection, and disease
prevention, an infected property cannot remain open to the
public. Cleaning of surfaces alone is insufficient.”
Specifically, according to one WHO publication, the
COVID-19 virus “adheres to, attaches to, and alters the surfaces
of the property and surfaces upon which . . . physical droplets
land, and physically changes these once safe surfaces to ‘fomites.’
Fomites are objects, previously safe to touch, that now serve as
agents and [a] mechanism for transmission of deadly, infectious
viruses and diseases.” “Thus, the coronavirus and COVID-19
physically change properties and surfaces such that contact with
these properties and surfaces, which previously would have been
safe, is now deadly and dangerous. This constitutes real and
severe damage to and loss of the properties.”
The complaint alleged La Cava suffered physical loss of or
damage to its dining rooms and other property “caused by the
actual presence of virus droplets in the air and on the surfaces in
the vicinity of and in [its] restaurant” and “in the form of virus
matter present on walls, floors, tables, chairs, silverware, dishes,
and other surfaces.” The complaint identified 10 commercial
businesses, including three restaurants, in Sherman Oaks and its
environs, where employees contracted COVID-19. Three of La
Cava’s employees suffered from COVID-19 in December 2020 and
January 2021. The complaint alleged on information and belief

6
that “La Cava is aware that it entertained customers since March
2020 who subsequently tested positive for COVID-19 and who
had the ability to use the restroom facilities during the time they
were outside dining.” “[T]he virus . . . is therefore certain to have
been present at La Cava at various times,” and “droplets
containing SARS-CoV-2 have been physically present at the La
Cava restaurant premises insured by the Policy at all relevant
times.” The complaint alleged further in paragraph 81, “The
presence of droplets containing coronavirus at La Cava led to its
closure and constitutes covered physical damage to [La Cava’s]
premises. Once the La Cava management was made aware by
the Orders of the clear and present danger of the virus and its
existence everywhere in LA County, including on the surfaces
and in the air in and around La Cava’s premises, it promptly
shut down operations.”
In addition to lost business revenue due to the suspension
of operations, La Cava “incurred substantial costs in an attempt
to mitigate the suspension of its operations, including but not
limited to expenses incurred for reconfiguration to outside dining
and increased sanitation procedures. [La Cava] would not have
incurred those costs but for the direct physical loss or damage
caused by the coronavirus, COVID-19, and the [government]
Orders.”
On March 18, 2020, two days after its initial suspension of
operations, La Cava submitted a claim to Century-National by
telephone for the income lost as a result of the virus and the
related government orders. As alleged, Century-National
“undertook no steps to determine whether the virus had caused
physical damage to the La Cava premises.” Instead, “without
engaging in any legitimate, true, meaningful, or thorough

7
investigation, [Century-National] denied [La Cava’s] claim.”
Specifically, on April 9, 2020 Century-National (through its
claims adjuster) responded in a letter stating the business income
coverage did not apply to the claim because “[t]he suspension of
your business was not caused by a ‘direct physical loss of or
damage to property’ at your designated premises” and “[t]he
government directives at issue did not ‘prohibit access’ to your
designated premises and did not result from a loss or damage
at . . . premises ‘other than’ your designated premises.”
(Capitalization omitted.)
La Cava’s first cause of action for declaratory judgment
sought a declaration that Century-National was obligated to
provide coverage for losses incurred in connection with La Cava’s
COVID-19-related claims. The second cause of action for breach
of contract alleged La Cava “suffered the direct physical loss of
property and lost business income following California’s Stay at
Home Order and due to the presence of the coronavirus in and
around its premises—losses which were covered under the Policy
purchased from [Century-National].” These losses included “loss
of and damage to some or all of [La Cava’s] covered property and
its functionality, which became useless, dangerous, or
uninhabitable, resulting in substantial loss of business income,
lost revenue from having to suspend or limit its operations, and
extra expenses incurred to mitigate the suspension of its
operations.” The complaint also alleged there were no relevant
policy exclusions, and La Cava complied with the terms and
conditions of the policy.
The third cause of action for breach of the implied covenant
of good faith and fair dealing alleged Century-National engaged
in bad faith by, among other things, denying La Cava’s claim

8
without undertaking steps to determine whether the virus had
caused physical damage to the premises, “[u]nreasonably
refusing to conduct a thorough investigation of [La Cava’s]
claims, and ignoring evidence that supports coverage instead of
inquiring into possible bases that might support [La Cava’s]
claim.” The fourth cause of action for violation of the UCL,
pleaded as a class claim,2 alleged Century-National engaged in
unlawful conduct in violation of Insurance Code section 790 et
seq. by categorically denying La Cava’s and other class members’
claims without a fair investigation.

C. Century-National’s Demurrer
On April 14, 2021 Century-National filed a demurrer to the
first amended complaint.3 Century-National argued that under
California law, the phrase “direct physical loss or damage to
property” in an insurance contract requires a physical alteration
of the insured property, but La Cava did not and could not allege
its loss of business income was attributable to any physical
alteration of La Cava’s property by the COVID-19 virus. In
support of its position, Century-National cited nearly two dozen
decisions from federal district courts in California holding
business closures due to the COVID-19 virus or related
government orders did not result from direct physical loss of or

2 The class allegations are not at issue in this appeal.
3 On February 19, 2021 the trial court sustained Century-
National’s demurrer to the original complaint with leave to
amend. The original complaint did not include the allegations
that since March 2020 three of La Cava’s employees and many of
its customers and the employees of nearby businesses tested
positive for the COVID-19 virus.

9
damage to property and dismissing the insured’s claims based on
the denial of coverage. In addition, the civil authority coverage
under the policy did not cover the losses because the government
shutdown orders did not prohibit access to La Cava’s premises
and were not issued “due to direct physical loss or damage to
property” at La Cava, as provided in the policy. Further,
Century-National did not act in bad faith because it properly
denied coverage based on an “undeniably” genuine dispute as to
the existence of coverage as shown by the fact “nearly every judge
in California to consider the coverage issues herein has found no
coverage for these COVID-19 business-interruption claims.”
After a hearing, on June 2, 2021 the trial court sustained
Century-National’s demurrer without leave to amend. Citing five
federal district court decisions in California denying coverage and
observing that “substantially all of the federal district courts”
were in agreement, the court found, “[C]ourts have routinely
held, and this Court agrees, that the existence of COVID-19 in
the air or on surfaces does not constitute ‘direct physical loss of or
damage to property’ within the meaning of the insurance policy.”
Accordingly, La Cava’s allegations were insufficient as a matter
of law to establish a covered loss. Civil authority coverage did
not apply for the additional reason that La Cava failed to allege
facts demonstrating it was “prohibited from accessing its
building.” Because La Cava could not allege it was entitled to
coverage under any provision of the policy, all four causes of
action failed, and La Cava had not demonstrated a basis for leave
to amend. The court entered a judgment of dismissal on June 16,
2021.
La Cava timely appealed.

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 DISCUSSION

A. Standard of Review
“‘In reviewing an order sustaining a demurrer, we examine
the operative complaint de novo to determine whether it alleges
facts sufficient to state a cause of action under any legal theory.’”
(Mathews v. Becerra (2019) 8 Cal.5th 756, 768; accord, T.H. v.
Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 162.)
When evaluating the complaint, “we assume the truth of the
allegations.” (Brown v. USA Taekwondo (2021) 11 Cal.5th 204,
209; accord, Lee v. Hanley (2015) 61 Cal.4th 1225, 1230.)
“However, we are not required to accept the truth of the factual
or legal conclusions pleaded in the complaint.” (Marina Pacific
Hotel and Suites, LLC v. Fireman’s Fund Insurance Company
(2022) 81 Cal.App.5th 96, 105 (Marina Pacific); accord, Mathews,
at p. 768 [“‘“‘We treat the demurrer as admitting all material
facts properly pleaded, but not contentions, deductions or
conclusions of fact or law.’”’”].)

B. Interpretation of Insurance Contracts
“In general, interpretation of an insurance policy is a
question of law that is decided under settled rules of contract
interpretation.” (State of California v. Continental Ins. Co. (2012)
55 Cal.4th 186, 194; accord, Marina Pacific, supra,
81 Cal.App.5th at p. 105.) “The principles governing the
interpretation of insurance policies in California are well settled.
‘Our goal in construing insurance contracts, as with contracts
generally, is to give effect to the parties’ mutual intentions.
[Citations.] “If contractual language is clear and explicit, it
governs.” [Citations.] If the terms are ambiguous [i.e.,

11
susceptible of more than one reasonable interpretation], we
interpret them to protect “‘the objectively reasonable expectations
of the insured.’” [Citations.] Only if these rules do not resolve a
claimed ambiguity do we resort to the rule that ambiguities are
to be resolved against the insurer.’” (Minkler v. Safeco Ins. Co. of
America (2010) 49 Cal.4th 315, 321; accord, Montrose Chemical
Corp. of California v. Superior Court (2020) 9 Cal.5th 215, 230;
Marina Pacific, at p. 105.)
“The ‘tie-breaker’ rule of construction against the insurer
stems from the recognition that the insurer generally drafted the
policy and received premiums to provide the agreed protection.”
(Minkler v. Safeco Ins. Co. of America, supra, 49 Cal.4th at
p. 321; accord, Marina Pacific, supra, 81 Cal.App.5th at p. 106.)
“To further ensure that coverage conforms fully to the objectively
reasonable expectations of the insured, . . . in cases of ambiguity,
basic coverage provisions are construed broadly in favor of
affording protection, but clauses setting forth specific exclusions
from coverage are interpreted narrowly against the insurer. The
insured has the burden of establishing that a claim, unless
specifically excluded, is within basic coverage, while the insurer
has the burden of establishing that a specific exclusion applies.”
(Minkler, at p. 322; accord, Montrose Chemical Corp. of California
v. Superior Court, supra, 9 Cal.5th at p. 230; Marina Pacific, at
p. 106.)

C. Coverage for COVID-19 Pandemic-related Losses
At the time the trial court sustained the second demurrer,
no California appellate court had addressed whether business
losses caused by the COVID-19 pandemic were covered by
commercial property insurance. Multiple California appellate

12
courts have now addressed this question, but with differing
results. In Marina Pacific, supra, 81 Cal.App.5th 96, we
addressed whether the owners of an insured restaurant and hotel
had sufficiently pleaded they had suffered “direct physical loss of
or damage to” the property supporting coverage under a
commercial property insurance policy based on allegations of
contamination of the insured premises with the COVID-19 virus.4
We concluded they had.
In Marina Pacific, the owners sued their insurer for breach
of contract and related claims after the insurer denied coverage
for losses claimed as a result of the COVID-19 pandemic.
(Marina Pacific, supra, 81 Cal.App.5th at p. 102.) The policy
provided business interruption coverage for “‘the actual loss of
business income and necessary extra expense you sustain due to
the necessary suspension of your operation during the period of
restoration arising from direct physical loss or damage to
[covered] property.’”5 (Id. at p. 99.) As we explained, the owners’

4 Our decision in Marina Pacific was filed on July 13, 2022,
after La Cava’s reply brief was filed. Century-National
addressed our decision in its July 26 answer to the amicus brief
filed by United Policyholders in support of La Cava, and the
American Property and Casualty Insurance Association and the
National Association of Mutual Insurance Companies addressed
the decision in their amicus brief in support of Century-National,
also filed on July 26, 2022. On July 27 we invited the parties to
address Marina Pacific in any answer to an amicus brief or a
supplemental brief. La Cava addressed our decision in its August
15 answer.
5 The policy at issue in Marina Pacific also included
“‘communicable disease coverage’” for “‘direct physical loss or
damage’ to insured property ‘caused by or resulting from a

13
complaint alleged the COVID-19 virus “not only lives on surfaces
but also bonds to surfaces through physicochemical reactions
involving cells and surface proteins, which transform the physical
condition of the property. The virus was present on surfaces
throughout the insured properties, including the hotel lobby,
kitchens at both the hotel and restaurant, employee breakroom,
service elevator and parking garage, as well as on the properties’
food, bedding, fixtures, tables, chairs and countertops. Because
of the nature of the pandemic, the virus was continually
reintroduced to surfaces at those locations. As a direct result, the
[owners] were required to close or suspend operations in whole or
in part at various times and incurred extra expense as they
adopted measures to restore and remediate the air and surfaces
at the insured properties. The [owners] specifically alleged they
were required to ‘dispose of property damaged by COVID-19 and
limit operations at the Insured Properties.’” (Id. at pp. 108-109.)
Based on these allegations, we reversed the trial court’s
order sustaining the insurer’s demurrer without leave to amend.
(Marina Pacific, supra, 81 Cal.App.5th at p. 114.) We assumed
for purposes of our opinion that the undefined policy term “direct

covered communicable disease event,’ including costs necessary
to repair or rebuild insured property damaged or destroyed by the
communicable disease and to ‘[m]itigate, contain, remediate,
treat, clean, detoxify, disinfect, neutralize, cleanup, remove,
dispose of, test for, monitor and assess the effects [of] the
communicable disease.’” (Marina Pacific, supra, 81 Cal.App.5th
at p. 100.) The communicable disease coverage also covered
losses from the suspension of operations “‘due to direct physical
loss or damage to property at a location caused by or resulting
from a covered communicable disease event.’” (Ibid.) The policy
at issue here does not contain a similar provision.

14
physical loss or damage” meant the owners needed to allege an
external force acted on the insured property causing a “distinct,
demonstrable, physical alteration of the property,” as stated in
MRI Healthcare Center of Glendale, Inc. v. State Farm General
Ins. Co. (2010) 187 Cal.App.4th 766 (MRI Healthcare). (See
Marina Pacific, at p. 108; MRI Healthcare, at pp. 770, 779
[failure of MRI machine to function after it was demagnetized to
enable roof repair following storms was not a covered loss
because “there was no ‘distinct, demonstrable [or] physical
alteration’ of the MRI machine”].)
We concluded the complaint adequately alleged physical
alteration of the premises, explaining, “Assuming, as we must,
the truth of those allegations, even if improbable, absent
judicially noticed facts irrefutably contradicting them, the
insureds have unquestionably pleaded direct physical loss or
damage to covered property within the definition articulated in
MRI Healthcare—a distinct, demonstrable, physical alteration of
the property.” (Marina Pacific, supra, 81 Cal.App.5th at p. 109.)
We recognized our holding was at odds with many federal district
court decisions dismissing claims for pandemic-related business
losses. (Ibid.) But those cases did not involve similar factual
allegations, and to the extent they were analogous, federal
pleading standards, unlike California’s, permitted the district
courts to dismiss the claims. (Id. at pp. 109-110.) We observed,
“Unlike in federal court, the plausibility of the insureds’
allegations has no role in deciding a demurrer under governing
state law standards, which . . . require us to deem as true,
‘however improbable,’ facts alleged in a pleading—specifically
here, that the COVID-19 virus alters ordinary physical surfaces
transforming them into fomites through physicochemical

15
processes, making them dangerous and unusable for their
intended purposes unless decontaminated.’” (Marina Pacific, at
pp. 109-110; see Hacker v. Homeward Residential, Inc. (2018)
26 Cal.App.5th 270, 280 [in considering the merits of a demurrer,
“‘the facts alleged in the pleading are deemed to be true, however
improbable they may be’”].)
We also addressed three published Court of Appeal
decisions that had addressed pandemic coverage, each affirming
an order sustaining the insurer’s demurrer. We concluded Musso
& Frank Grill Co., Inc. v. Mitsui Sumitomo Ins. USA Inc. (2022)
77 Cal.App.5th 753 and Inns-by-the-Sea v. California Mutual Ins.
Co. (2021) 71 Cal.App.5th 688 (Inns-by-the-Sea) were
distinguishable because both involved only allegations of loss of
use of the insured property as a result of government-ordered
closures to limit the spread of COVID-19, “rather than, as
expressly alleged here, a claim the presence of the virus on the
insured premises caused physical damage to covered property,
which in turn led to business losses.” (Marina Pacific, supra,
81 Cal.App.5th at p. 110; see Musso & Frank, at pp. 758-759
[policy requiring physical loss or damage to property did not
cover losses incurred as a result of pandemic-related order
mandating that restaurants close by midnight]; Inns-by-the-Sea,
at p. 703 [“Inns alleges that it ceased operations ‘as a direct and
proximate result of the Closure Orders.’ It does not make the
proximate cause allegation based on the particular presence of
the virus on its premises.”].)6

6 As argued by amicus curiae United Policyholders, the
Fourth District in Inns-by-the-Sea, supra, 71 Cal.App.5th at
page 710 observed that “a virus could cause a suspension of

16
 We recognized the decision by our colleagues in Division
Four of this district in United Talent Agency v. Vigilant Ins. Co.
(2022) 77 Cal.App.5th 821 was not distinguishable in that it
presented similar allegations to those at issue in Marina Pacific.
(Marina Pacific, supra, 81 Cal.App.5th at p. 111.) In United
Talent, the Court of Appeal affirmed an order sustaining the
insurer’s demurrer, concluding allegations that the presence of
the COVID-19 virus on property constituted direct physical loss
or damage were insufficient as a matter of law to trigger coverage
because “the virus exists worldwide wherever infected people are
present, it can be cleaned from surfaces through general
disinfection measures, and transmission may be reduced or
rendered less harmful through practices unrelated to the
property, such as social distancing, vaccination, and the use of
masks. Thus, the presence of the virus does not render a
property useless or uninhabitable, even though it may affect how
people interact with and within a particular space.” (United

operations through direct physical loss of or damage to property,”
and noted that “case law supports the view that . . . an invisible
substance or biological agent might give rise to coverage because
it causes a policyholder to suspend operations due to direct
physical loss of or damage to property.” (Id. at p. 710, fn. 21.)
Although such allegations were absent in Inns-by-the-Sea, the
court noted, “‘It could be a different story if a business—which
could have otherwise been operating—had to shut down because
of the presence of the virus within the facility. For example, a
restaurant might need to close for a week if someone in its
kitchen tested positive for COVID-19, requiring the entire facility
to be thoroughly sanitized and remain empty for a period.
Perhaps the restaurant could successfully allege that the virus
created physical loss or damage in the same way some chemical
contaminant might have.’” (Id. at pp. 704-705.)

17
Talent, at p. 838.) We rejected this approach, reasoning, “We are
not authorized to disregard those allegations when evaluating a
demurrer . . . based on a 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.) Moreover, “[e]ven if there had been evidence subject to
proper judicial notice to establish that disinfecting repaired any
alleged property damage, it would not resolve whether
contaminated property had been damaged in the interim, nor
would it alleviate any loss of business income or extra
expenses. . . . [T]he duration of exposure may be relevant to the
measure of policy benefits; it does not negate coverage.” (Id. at
p. 112.)
Since our Marina Pacific decision, Division Two of the First
District has published two opinions addressing COVID-19
pandemic-related losses under policies providing coverage for
direct physical loss of or damage to property. In Apple Annie,
LLC v. Oregon Mutual Ins. Co. (2022) 82 Cal.App.5th 919, 925,
the Court of Appeal affirmed an order sustaining the insurer’s
demurrer, holding a restaurant owner failed to allege direct
physical loss of or damage to its restaurant where the owner
alleged only that its business losses were due to suspension of
operations under state and county orders. In supplemental
briefing after Marina Pacific was decided, the owner
acknowledged Marina Pacific “‘does not directly implicate [the
owner’s] theory of coverage,’” but it argued there was a
reasonable possibility it could amend its complaint to include
allegations similar to those in Marina Pacific. (Id. at pp. 936-
937.) However, because at oral argument the owner’s attorney
stated as an officer of the court he could not state what facts he

18
could allege in an amended complaint, the Court of Appeal
concluded the owner did not meet its burden to obtain leave to
amend. (Id. at p. 936.) In Tarrar Enterprises, Inc. v. Associated
Indemnity Corp. (2022) 83 Cal.App.5th 685, 688-689, the Court of
Appeal held that although the trial court properly sustained the
insurer’s demurrer because the insured had not alleged direct
physical loss of or damage to property, the court abused its
discretion in denying leave to amend because the insured’s
appellate briefs set forth “in some detail” the proposed
amendments.7

D. The Trial Court Erred in Sustaining the Demurrer
1. La Cava adequately stated causes of action for breach
of contract and declaratory judgment based on alleged
direct physical loss or damage to its property caused
by the COVID-19 virus
On appeal, La Cava contends the alleged contamination of
its restaurant by the COVID-19 virus constituted a “physical
change” sufficient to trigger coverage under the Century-National
policy. Century-National and amici curiae argue the policy
language providing coverage for a direct physical loss of or

7 In Amy’s Kitchen, Inc. v. Fireman’s Fund Ins. Co. (2022)
83 Cal.App.5th 1062, 1070-1071, Division Four of the First
District interpreted a policy providing coverage for a
communicable disease event not to require physical alteration of
the premises because the policy language specifically referred to
coverage for the costs to disinfect, cleanup, and remove the
communicable disease. The Court of Appeal reversed the trial
court order, holding the court should have granted leave to
amend to plead a communicable disease event. (Id. at pp. 1072-
1073.)

19
damage to property required a distinct, demonstrable, physical
alteration of the property. Even assuming La Cava was required
to allege a distinct, demonstrable physical alteration of the
property to show coverage under the policy (as stated in MRI
Healthcare, supra, 187 Cal.App.4th at page 779),8 the allegations
of the complaint were sufficient.
The first amended complaint alleged the virus was “certain
to have been present at La Cava at various times,” including “in
the form of virus matter present on walls, floors, tables, chairs,
silverware, dishes, and other surfaces.” As alleged, this was
because thousands of people visited La Cava in the weeks
preceding the shutdown, and based on the spread of the
pandemic, it was “beyond doubt that some—likely many—of them
were infected with the virus and breathed virus matter onto
surfaces at La Cava.” Further, since March 2020 La Cava had
patrons who subsequently tested positive for COVID-19 and who
had the ability to use the restrooms although they were dining
outside, and three employees contracted COVID-19 in late
December 2020 and January 2021. (See Marina Pacific, supra,
81 Cal.App.5th at p. 108 [owners alleged virus “was present on
surfaces throughout the insured properties”].)

8 In its opening brief, La Cava argued the policy term “direct
physical loss of or damage to” should not be interpreted to require
a physical alteration, and the interpretive rule adopted in MRI
Healthcare, supra, 187 Cal.App.4th 766 should be limited to cases
involving intangible changes to personal property, not real
property. However, La Cava acknowledged in its supplemental
briefing that “in light of Marina Pacific Hotel’s holding that
identical circumstances to La Cava’s satisfy this standard, the
dispute is no longer relevant.”

20
 The complaint also alleged health authorities and medical
scientists advised that the virus “can remain on smooth surfaces
for at least 28 days,” and it “adheres to, attaches to and alters the
surfaces of the property and surfaces” it comes into contact with,
creating “fomites,” which are “objects, previously safe to touch,
that now serve as agents and mechanism for transmission of
deadly, infections viruses and diseases.” (See Marina Pacific,
supra, 81 Cal.App.5th at p. 101 [owners alleged COVID-19 virus
“‘actually bonds and/or adheres to such objects through physico-
chemical reactions’” and “‘caus[es], among other things, a
distinct, demonstrable or physical alteration to property’”].)
“Cleaning of surfaces alone is insufficient,” and safe operations
would require “substantial physical alterations, systems changes
to facilities, and new protocols for air circulation, disinfection,
and disease prevention.” Because routine cleaning was
insufficient, “[t]he presence of droplets containing coronavirus at
La Cava led to its closure and constitute[d] covered physical
damage to [La Cava’s] premises.” As a result, La Cava lost
business revenues and incurred substantial costs to mitigate the
damage by reconfiguring its property and increasing its
sanitization procedures. (See Marina Pacific, at pp. 108-109
[owners “were required to close or suspend operations in whole or
in part at various times and incurred extra expense as they
adopted measures to restore and remediate the air and surfaces
at the insured properties”].)
As discussed, the trial court found these allegations were
not sufficient as a matter of law, relying on federal decisions
ruling out the possibility of covered losses and the absence of
authority supporting La Cava’s position. We disagree with the
court’s reasoning, as stated in its order sustaining the demurrer

21
to the original complaint, that La Cava could not show the
COVID-19 virus permanently damages surfaces because “it is
well-known that SARS-CoV-2 surface contamination is
ephemeral, and [La Cava] has not presented the Court with any
authority holding that an ephemeral, pathogenic surface
contamination qualifies as ‘damage to’ property under this or
similar policies.” As we discussed in Marina Pacific, supra,
81 Cal.App.5th at page 109, the insured is not required to provide
authority at the pleading stage to support its position that
contamination with the COVID-19 virus caused damage to the
surfaces in its premises.
In its answer to the amicus brief filed by United
Policyholders, Century-National argues Marina Pacific embodies
a “narrow exception” to the general rule that pandemic-related
damages are not recoverable under business loss coverage, and it
urges us instead to follow the skeptical approach taken by
Division Four of this district in United Talent Agency v. Vigilant
Ins. Co., supra, 77 Cal.App.5th 821. We see no reason to deviate
from our decision in Marina Pacific, which did not carve out
simply a “narrow exception,” as suggested by Century-National.
Further, as discussed, the policy provisions at issue in Marina
Pacific are not materially different from those in the Century-
National policy.9 Although Century-National is correct that we

9 Amici curiae American Property and Casualty Insurance
Association and the National Association of Mutual Insurance
Companies seek to distinguish Marina Pacific on similar
grounds. They also contend that allowing La Cava’s complaint to
proceed would destabilize insurance markets by upholding claims
for losses due to any regulation that limits a business’s
operations, such as a noise ordinance mandating early closure or

22
considered the communicable diseases coverage in construing the
policy language in Marina Pacific, we concluded there was a
sufficient, independent basis for lost business income coverage
under the policy provision for losses due “to the necessary
suspension of your operation during the period of restoration
arising from direct physical loss or damage to [covered] property.”
(Id. at pp. 109, 112.)
Century-National’s argument that La Cava shut down
because of the government closure orders, and not the COVID-19
pandemic fares no better. Century-National points to La Cava’s
allegation in paragraph 81 that “[o]nce the La Cava management
was made aware by the Orders of the clear and present danger of
the virus and its existence everywhere in LA County, including
on the surfaces and in the air in and around La Cava’s premises,
it promptly shut down operations.” Although this allegation
references the government orders, a fair reading of the allegation
is that it was the orders that apprised La Cava of the existence
and danger of the COVID-19 virus, not that the shut down

a fire regulation reducing occupancy and requiring
reconfiguration. We are unpersuaded. These types of regulations
would not involve allegations that “an external force acted on the
insured property causing a physical change in the condition of the
property,” as alleged by La Cava with respect to the COVID-19
virus contamination of its restaurant. (Marina Pacific, supra,
81 Cal.App.5th at p. 107; accord, MRI Healthcare, supra,
187 Cal.App.4th at p. 779.) Moreover, to the extent amici
contend we should interpret the Century-National and similar
policies not to apply to COVID-19 virus contamination for policy
reasons, that is an argument best made to the Legislature, not
directed to our review of the adequacy of the allegations in the
first amended complaint.

23
happened as a result. Moreover, as alleged, the City of Los
Angeles Mayor’s May 15 public health order prohibited
restaurants from serving food on site, limiting restaurants to
delivery, pickup, or drive-through service of customers, but it did
not require restaurants to shut down entirely. To the extent the
complaint alleges La Cava initially shut down for two weeks,
then modified its operations, due to the COVID-19 virus and the
government orders, it is a question of fact for a summary
judgment motion or trial whether the restaurant closure and
modifications resulted from damage caused by the COVID-19
virus or the government orders.
Because La Cava sufficiently pleaded direct physical loss or
damage to its property caused by the COVID-19 virus to trigger
coverage, the trial court erred in sustaining the demurrer to the
causes of action for breach of contract and declaratory judgment.
“‘[T]he elements of a cause of action for breach of contract are
(1) the existence of the contract, (2) plaintiff’s performance or
excuse for nonperformance, (3) defendant’s breach, and (4) the
resulting damages to the plaintiff.’” (Marina Pacific, supra,
81 Cal.App.5th at p. 108; accord, Oasis West Realty, LLC v.
Goldman (2011) 51 Cal.4th 811, 821.) Century-National’s
demurrer challenged only the third element, contending it did not
breach its obligation to pay benefits under the policy because La
Cava failed to allege damage to or loss of La Cava’s premises
within the meaning of the policy.10 And the parties’ coverage

10 Because we conclude La Cava alleged loss of business
income caused by direct physical loss of or damage to its
property, we do not reach whether La Cava adequately alleged
entitlement to civil authority coverage, which under the policy

24
dispute is clearly a proper basis for a declaratory judgment cause
of action. (Code Civ. Proc., § 1060 [“Any person interested . . .
under a contract . . . may, in cases of actual controversy relating
to the legal rights and duties of the respective parties, bring an
original action . . . for a declaration of his or her rights and duties
. . . , including a determination of any question of construction or
validity arising under the . . . contract.”]; see Lee v. Silveira
(2016) 6 Cal.App.5th 527, 546 [declaratory relief claimant must
show “two essential elements: ‘(1) a proper subject of declaratory
relief, and (2) an actual controversy involving justiciable
questions relating to the rights or obligations of a party’”].)

2. La Cava adequately alleged causes of action for bad
faith and violation of the UCL based on Century-
National’s summary denial of its insurance claim
As discussed, Century-National argued in its demurrer that
even if the trial court were to find La Cava adequately alleged
breach of the policy, La Cava could not state a claim for breach of
the covenant of good faith and fair dealing because there was a
genuine dispute over policy coverage in light of the fact “nearly
every judge in California” that had considered the question of
coverage for COVID-19-related business losses found no coverage.
Although the trial court did not reach this argument, Century-
National contends on appeal the complaint independently failed
to state a claim for bad faith because the denial of La Cava’s
insurance claim turned on a disputed interpretation of the policy.

required government action that “prohibits access to the premises
due to direct physical loss of or damage to the property, other
than at the described premises . . . .”

25
La Cava has adequately alleged causes of action for bad faith and
violation of the UCL.11
“[I]n a claim against an insurance carrier, ‘there are at
least two separate requirements to establish breach of the
implied covenant [of good faith and fair dealing]: (1) benefits due
under the policy must have been withheld; and (2) the reason for
withholding benefits must have been unreasonable or without
proper cause.’” (Grebow v. Mercury Ins. Co. (2015)
241 Cal.App.4th 564, 581; accord, Tilbury Constructors, Inc. v.
State Comp. Ins. Fund (2006) 137 Cal.App.4th 466, 475.) It is
“settled law in California that an insurer denying or delaying the
payment of policy benefits due to the existence of a genuine
dispute with its insured as to the existence of coverage liability or
the amount of the insured’s coverage claim is not liable in bad
faith even though it might be liable for breach of contract.”
(Chateau Chamberay Homeowners Assn. v. Associated Internat.
Ins. Co. (2001) 90 Cal.App.4th 335, 347; accord, Case v. State
Farm Mutual Automobile Ins. Co., Inc. (2018) 30 Cal.App.5th
397, 402.) “[W]here there is a genuine issue as to the insurer’s

11 Century-National does not dispute that allegations
sufficient to support a cause of action for breach of the covenant
of good faith and fair dealing are also sufficient to support a claim
for violation of the UCL. (See Zhang v. Superior Court (2013)
57 Cal.4th 364, 380 [“[B]ad faith insurance practices may qualify
as any of the three statutory forms of unfair competition. They
are unlawful; the insurer’s obligation to act fairly and in good
faith to meet its contractual responsibilities is imposed by the
common law, as well as by statute. They are unfair to the
insured; unfairness lies at the heart of a bad faith cause of action.
They may also qualify as fraudulent business practices.”],
citations and footnote omitted.)

26
liability under the policy . . . , there can be no bad faith liability
imposed on the insurer for advancing its side of that dispute.”
(Chateau Chamberay, at p. 347; accord, Case, at p. 402.)
However, “‘[t]he genuine dispute rule does not relieve an
insurer from its obligation to thoroughly and fairly investigate,
process and evaluate the insured’s claim. A genuine dispute
exists only where the insurer’s position is maintained in good
faith and on reasonable grounds.’” (Ghazarian v. Magellan
Health, Inc. (2020) 53 Cal.App.5th 171, 186.) “‘“[T]he
reasonableness of an insurer’s claims-handling conduct is
ordinarily a question of fact, [but] becomes a question of law
where the evidence is undisputed and only one reasonable
inference can be drawn from the evidence.”’” (Hedayati v.
Interinsurance Exchange of the Automobile Club (2021)
67 Cal.App.5th 833, 843; accord, Chateau Chamberay
Homeowners Assn. v. Associated Internat. Ins. Co., supra,
90 Cal.App.4th at p. 350 [affirming summary adjudication of bad
faith claim in favor of insurer where insured offered only a two-
page expert declaration expressing conclusory opinion the insurer
had not conducted an adequate and thorough investigation of
loss].)
The first amended complaint alleged Century-National
“undertook no steps to determine whether the virus had caused
physical damage to the La Cava premises,” and “without
engaging in any legitimate, true, meaningful, or thorough
investigation,” it summarily denied the claim. Further, Century-
National responded to La Cava’s policy claim with what “appears
to be a form letter sent in response to business income claims
arising from [government shutdown orders]” stating, in relevant
part, “The suspension of your business was not caused by a ‘direct

27
physical loss of or damage to property’ at your designated
premises.”
Century-National does not challenge the sufficiency of the
allegations it failed to conduct any investigation of La Cava’s
claim; rather, it contends its denial was based on a disputed
interpretation of the policy. But a genuine dispute foreclosing a
bad faith claim exists only where the insurer’s position is
maintained “in good faith and on reasonable grounds.”
(Ghazarian v. Magellan Health, Inc., supra, 53 Cal.App.5th at
p. 186.) At the pleadings stage, Century-National’s denial of
coverage just three weeks after La Cava tendered its claim and in
the earliest days of our understanding of the novel COVID-19
virus, cannot be deemed as a matter of law to have been made in
good faith with reasonable grounds. Century-National treats
Marina Pacific as a sea change in the law and characterizes its
own position in April 2020 as clearly justified by the later
endorsement of that position by numerous district courts. But at
the time, it was settled law that environmental contamination
that resulted in physical damage could trigger business income
coverage. (See Inns-by-the-Sea, supra, 71 Cal.App.5th 688, 703
[surveying pre-pandemic cases recognizing an insured could
allege “the COVID-19 virus—like smoke, ammonia, odor,
asbestos—is a physical force” and was present on insured
premises and directly caused damage].) La Cava alleged COVID-
19 was present and physically damaged its restaurant, and it
alleged its insurance claim was not limited to civil authority
coverage. And, as alleged, Century-National did not take any
steps to determine whether COVID-19 caused physical damage to
the La Cava premises before denying coverage.

28
 DISPOSITION

The judgment is reversed. The matter is remanded for the
trial court to vacate its order sustaining the demurrer without
leave to amend and to enter a new order overruling the
demurrer. La Cava is to recover its costs on appeal.

FEUER, J.
We concur:

PERLUSS, P. J.

SEGAL, J.

29