San Jose Sharks, LLC v. Superior Court

Docket NumberH050441
Decision Date21 December 2023
CourtCalifornia Court of Appeals Court of Appeals

Santa Clara County Superior Court Court No.: 21CV383780 Trial Judge: The Honorable Sunil R. Kulkarni

Attorneys for Petitioner San Jose Sharks LLC et al Covington & Burling Rani Gupta Thomas Martecchini Sabrina T. McGraw Benedict M. Lenhart Matthew J. Schlesinger Kristin M. Cobb Allison C. Hawkins

Attorneys for Real Parties in Interest Factory Mutual Insurance Company: Simpson Thacher & Bartlett Chet A Kroneberg Bryce L. Friedman Isaac Rethy Carlson, Calladine & Peterson Joyce C. Wang

Attorneys for Amicus Curiae California Medical Association: California Medical Association Center for Legal Affairs Jamie Ostroff Shari Covington


The parties to the underlying action dispute whether losses plaintiffs[1] incurred as a consequence of the COVID-19 pandemic are covered by a commercial insurance policy issued by defendant Factory Mutual Insurance Company. Plaintiffs' petition for writ review of a trial court order striking the majority of their coverage theories calls for us to assess whether plaintiffs adequately pleaded "covered physical loss or damage to property due to COVID-19" and to interpret the terms of the operative insurance agreements.

We conclude that the policies' contamination exclusion, which the trial court did not reach, unambiguously operates to exclude viral contamination such that the trial court's ultimate determination that plaintiffs cannot allege covered physical loss or damage to property is correct. Accordingly, we deny plaintiffs' petition.

A. Plaintiffs' Allegations in the Operative Second Amended Complaint[[2]]

Factory Mutual insured various of plaintiffs' properties, including hockey arenas, "against ALL RISKS OF PHYSICAL LOSS OR DAMAGE" except as excluded. The "all risks" policies cover "TIME ELEMENT loss"-business interruption losses "directly resulting from physical loss or damage of the type insured" subject to certain conditions, including either gross earnings or gross profits and "expenses reasonably and necessarily incurred . . . to reduce the loss otherwise payable" under the time element coverage.

The policies contain "additional time element coverage extensions" for "interruption by communicable disease," which, subject to exclusions, are triggered when "a location owned, leased or rented by the Insured has the actual not suspected presence of communicable disease and access to such location is limited, restricted or prohibited by [¶] [(1)] an order of an authorized governmental agency regulating the actual not suspected presence of communicable disease; or [¶] [(2)] a decision of an Officer of the Insured as a result of the actual not suspected presence of communicable disease." (Capitalization &boldface omitted.) The interruption by communicable disease coverage extension "covers the Actual Loss Sustained and EXTRA EXPENSE incurred . . . during the PERIOD OF LIABILITY at such location with the actual not suspected presence of communicable disease." (Boldface omitted.)

Further, the policies contain time element coverage extensions for "civil or military authority." The civil authority extensions cover "the Actual Loss Sustained and EXTRA EXPENSE incurred by the Insured during the PERIOD OF LIABILITY if an order of civil . . . authority limits, restricts or prohibits partial or total access to an insured location provided such order is the direct result of physical damage of the type insured at the insured location or within five statute miles/eight kilometres of it." (Boldface omitted.)

Unless "directly resulting from other physical damage not excluded," the policies exclude "contamination, and any cost due to contamination including the inability to use or occupy property or any cost of making property safe or suitable for use or occupancy. If contamination due only to the actual not suspected presence of contaminant(s) directly results from other physical damage not excluded . . ., then only physical damage caused by such contamination may be insured," although the policies include additional coverage for specified decontamination costs. (Boldface omitted.) Contamination is defined as "any condition of property due to the actual or suspected presence of any foreign substance, impurity, pollutant, hazardous material, poison, toxin, pathogen or pathogenic organism, bacteria, virus, disease causing or illness causing agent, fungus, mold or mildew."

COVID-19 is a potentially deadly communicable disease caused by a coronavirus. Throughout 2020, the virus was presumed to be present or imminently present everywhere. As of March 22, 2022, there had been over 83 million cases of COVID-19 in the United States and Canada and over 6.1 million deaths worldwide. Many of these illnesses were caused when people were exposed to "air and surfaces[ ]that had been physically . . . altered by the COVID-19 virus."

People infected with COVID-19 expel the virus when they exhale. Viral droplets may remain suspended in the air or adhere to surfaces. Viral droplets are also transferred to surfaces when an infected individual touches a surface after touching their eyes or nose. Plaintiffs further allege that the virus "changes the chemical composition of air . . . amount[ing] to physical damage" and "alter[s] the molecular structure of . . . otherwise inert property": "The COVID-19 virus damages property . . . by adhering to and altering the structure of its surfaces. Specifically, . . . it has been reported that the virus changes the surfaces of that property as its spike proteins become entangled with, bound to, and part of the molecular surface of the materials with which it comes into contact. When that happens, the surfaces change in scientifically measurable and quantifiable ways. Moreover, as studies have shown, these materials then become infectious when touched and unfit for use." "[B]ecause the virus renders otherwise inert materials dangerous, viral contact with property, and the air within the property, means significant damage and loss."

The virus was present in each of plaintiffs' insured locations. As a result, the virus "physically damage[d]" plaintiffs' insured property by "chang[ing] the chemical composition of air" and "altering the molecular structure of the physical surfaces of otherwise inert property."

In March 2020, plaintiffs closed their hockey arenas prior to the issuance of any relevant government orders because "of the presence of the COVID-19 virus at insured arenas, and the resulting physical damage to the arenas," including the "air and surfaces" of those properties, and because of "the external peril of [the virus]." During certain other time periods, government orders required either the closure of hockey arenas or limited fan access to games. Plaintiffs lost earnings as a result of canceled hockey games and limited fan access to games. Further, plaintiffs incurred losses to repair their property and mitigate the virus's harmful physical effects-disinfecting areas and equipment infected individuals used, cleaning and sanitizing high-touch surfaces, developing COVID-19 and Mechanical/HVAC-R policies, and making various physical modifications to arenas. Fans were only allowed to attend games after plaintiffs had undertaken various remedial measures to mitigate the virus's physical impact on surfaces and the air, government restrictions and orders were relaxed, and COVID-19 vaccines became more prevalent. If plaintiffs had allowed fans to attend games while COVID-19 rates were high during 2020, their properties would have suffered more damage from the virus.

Plaintiffs paid the required premiums on their insurance policies, provided a timely notice of claim for their virus-related losses, and submitted a proof of loss. Plaintiffs allege that their insurance policies cover COVID-19-related losses for property damage and restoration costs, business interruption losses and extra expenses, civil authority losses, losses due to the physical prevention of ingress of egress to insured locations, communicable disease losses, and losses incurred to mitigate property damage. Factory Mutual denied plaintiffs' claims. Plaintiffs filed suit, alleging three causes of action: (1) breach of contract; (2) declaratory relief; and (3) breach of the implied covenant of good faith and fair dealing.

B. Procedural History

Factory Mutual demurred to the operative complaint. In the alternative, Factory Mutual moved to strike allegations "concerning provisions of the Policies other than the coverages for Communicable Disease Response and for Interruption by Communicable Disease, which do not require physical loss or damage to the property."

The trial court overruled Factory Mutual's demurrer because plaintiffs had at a minimum stated a claim for relief based on communicable disease coverage. But the trial court granted the motion to strike "in large part," concluding that plaintiffs failed "to allege covered physical loss or damage to property due to COVID-19." The trial court declined to address Factory Mutual's contention that the contamination exclusion barred plaintiffs' claims for coverage.

By petition for writ of mandate, plaintiffs challenge the trial court's ruling on the motion to strike. We issued an order to show cause in which we asked the parties to address whether the trial court's analysis was appropriately deferential to plaintiffs' factual allegations.


Interpreting the parties' insurance policy in the context of plaintiffs' factual allegations, we read the contamination...

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