1

Filed 12/27/22

CERTIFIED FOR PARTIAL PUBLICATION*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

JOHN’S GRILL, INC., et al.,

Plaintiffs and Appellants,

v.

THE HARTFORD FINANCIAL 

SERVICES GROUP, INC., et al.,

Defendants and Respondents.

A162709

(San Francisco Super. Ct.

No. CGC-20-584184)

John’s Grill, Inc. and its owner John Konstin (collectively, John’s Grill) 

appeal from the trial court’s orders (1) sustaining Sentinel Insurance 

Company, Ltd. (Sentinel)’s demurrer without leave to amend, and 

(2) granting The Hartford Financial Services Group, Inc. (HFSG)’s motion to 

quash service of summons.

John’s Grill alleges that Sentinel and HFSG wrongfully denied its 

claim for business interruption coverage for losses sustained in connection 

with the COVID-19 pandemic. The trial court sustained Sentinel’s demurrer 

on the ground that its business insurance policy affords no coverage for the 

claim, and granted the motion to quash on the ground that John’s Grill failed 

to show personal jurisdiction over HFSG. In the unpublished portion of this 

opinion, we conclude that the trial court correctly granted the motion to 

quash, and in the published portion of the opinion, we conclude that the court 

erred in sustaining the demurrer without leave to amend.

* Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this 

opinion is certified for publication with the exception of part II.A.
2

On the merits, we write in a rapidly evolving area of law. Over the last

18 months, a nearly uniform line of cases in California and across the country 

holds that temporary loss of use of property due to the COVID-19 pandemic 

does not constitute “direct physical loss of or damage to” property for 

purposes of first party insurance coverage. (See Apple Annie, LLC v. Oregon

Mutual Ins. Co. (2022) 82 Cal.App.5th 919, 930–935 [summarizing cases].) 

But nearly all of these cases turn on standard form language that was not 

customized in any material way by modifying endorsement.

The twist in this case is that Sentinel’s policy has customized triggerof-coverage language that is virus-specific. Unlike the undefined term “direct 

physical loss of or damage to” property in almost all of the COVID-19

business interruption cases decided to date, Sentinel’s policy, by 

endorsement, (1) contains an affirmative grant of coverage specifically for 

“loss or damage” caused by a virus, and (2) a special definition of “loss or 

damage” that includes “[d]irect physical loss or direct physical damage to” 

property, but is broad enough to encompass pervasive infiltration of virus 

particulates onto the surfaces of covered property, which is what is alleged 

here.

Although Sentinel’s grant of coverage for property “loss or damage”

caused by virus is expressly limited—principally by a condition that makes it 

applicable only if the virus is the “result of” one of a number of listed causes, 

none of which John’s Grill has alleged—the specified causes clause in 

Sentinel’s limited virus coverage endorsement, applied broadly, as Sentinel 

proposes to apply it here, effectively transforms the limited grant of coverage 

for virus-caused “loss or damage” into an empty promise. On this record, we 

conclude that it is unenforceable under the illusory coverage doctrine.
3

I. BACKGROUND

A. The Parties and the Policy

John’s Grill owns and operates a restaurant in downtown San 

Francisco. On March 16, 2020, in response to the COVID-19 pandemic, the 

City and County of San Francisco issued a shelter-in-place order that 

required nonessential businesses to close and restaurants to suspend inperson dining. Subsequent orders were issued that permitted limited indoor 

and outdoor dining beginning in September 2020. As a result of these orders

and the presence of COVID-19 on its premises, John’s Grill either had to 

remain closed or operate at a limited capacity.

Sentinel issued a “Spectrum Business Owner’s Policy” to John’s Grill 

for the policy period of November 1, 2019 to November 1, 2020 (the Policy).

In a mammoth, 217-page document, the Policy provides a variety of different 

types of commercial insurance to John’s Grill, including first party property 

coverage in a Special Property Coverage Form, third party liability coverage 

in a Business Liability Coverage Form, and umbrella liability coverage in an 

Umbrella Liability Supplemental Contract. All of these coverages are 

preceded by a Declarations summary stating per claim and per occurrence 

limitations, and by various Common Conditions of coverage. Within each 

form of coverage is an insuring agreement, various standard definitions,

exclusions, additional coverages, and coverage extensions. There are also

modifying endorsements that customize the respective coverages in different 

ways, including a number of modifications tailored specially to a restaurant 

business.1

1 These modifications, set forth in an endorsement entitled “Super

Stretch for Restaurants,” apply specifically to the Special Property Coverage

Form.
4

The Special Property Coverage Form is structured to provide all 

“Perils” coverage, meaning all risks of physical loss or damage are covered 

unless subject to a specific exception or exclusion.

2 At issue here is the first

party property insurance provided under two endorsements that modify the 

Special Property Coverage Form: (1) an “Actual Loss Sustained Business 

Income & Expense—Specified Limit Coverage” endorsement providing

coverage for losses due to suspended operations (the Lost Business Income 

and Extra Expense Endorsement), and (2) a “Limited Fungi, Bacteria or 

Virus Coverage” endorsement (the Limited Fungi or Virus Coverage 

Endorsement).

The most pertinent of these two endorsements is the Limited Fungi or 

Virus Coverage Endorsement, which includes provisions (1) that add limited 

coverage in certain circumstances for “loss or damage” “caused by” “virus”

(the Limited Virus Coverage), subject to certain conditions requiring that the 

virus was the “result of” one or more of a list of enumerated causes (the 

Specified Causes Clause), and (2) that exclude any “loss or damage caused 

directly or indirectly by” the “[p]resence, growth, proliferation, spread or any 

activity of ‘fungi’, wet rot, dry rot, bacteria or virus” (the Virus Exclusion),

subject to an exception where the loss or damage falls within the Limited 

Virus Coverage. Although we are presented with an issue of personal 

jurisdiction as a threshold matter, how to reconcile the Limited Virus 

Coverage with the Virus Exclusion is at the heart of the appeal on the merits.

2 An endorsement entitled “Perils Specifically Excepted” provides that, 

“As used herein, ‘Peril’ means a cause of physical loss or damage to property.” 

Paragraphs A and B of the endorsement go on to list a series of “excepted” 

“Perils.” And Paragraph B of the Special Property Coverage Form sets forth 

a list of exclusions.
5

B. The Proceedings in the Trial Court

Within days of what is now commonly known as the Great Shutdown 

due to the COVID-19 virus in late March 2020, John’s Grill submitted a claim 

to Sentinel for lost business income under the Lost Business Income and

Extra Expense Endorsement. The response came rapidly. On April 6, 2020, 

Sentinel issued a letter denying the claim.

Sentinel’s declination letter explained that “since the coronavirus did 

not cause property damage at your place of business or in the immediate 

area, this business income loss is not covered.” The letter further stated that 

even if there was property damage, such damage was excluded from the 

Policy and that the limited coverage for damage caused by virus did not 

apply.

On April 15, 2020, John’s Grill brought suit against Sentinel and 

HFSG,

3 alleging causes of action for breach of contract, bad faith denial of 

insurance coverage, unfair business practices, fraud, and declaratory relief.

John’s Grill claimed coverage under the Civil Authority, Limited Virus 

Coverage, Lost Business Income and Extra Expense provisions of the Policy.

Its primary theory of loss was that government orders compelled a shutdown 

of business operations, but it alleged in the alternative that it suffered

sufficient coverage-triggering damage or loss because “physical droplets 

containing COVID-19” that land on surfaces rendered its business premises

3 Sentinel, not HFSG, is the insurer named on the Policy, but in its 

opposition to HFSG’s motion to quash, John’s Grill argued the Policy was 

drafted and sold by The Hartford (the trade name that is commonly used for 

HFSG). John’s Grill had also named as a defendant Norbay Insurance 

Services, Inc., the insurance broker that sold the Policy to it. The trial court 

dismissed Norbay from the case in March 2021. John’s Grill does not appeal 

this dismissal.
6

“unusable” due to the “substantial risk of people getting sick, transmitting 

infection to others, and possibly dying as a result of touching those surfaces.”

Both Sentinel and HFSG filed demurrers. HFSG also filed a motion to 

quash service of summons for lack of personal jurisdiction. In its demurrer, 

Sentinel argued that the Virus Exclusion bars coverage for John’s Grill’s 

alleged losses and that John’s Grill has not alleged any of the listed causes of 

virus in the Specified Causes Clause. Sentinel further argued that there is 

no coverage under the Lost Business Income and Extra Expense 

Endorsement because John’s Grill fails to allege physical loss of or physical

damage to property.

In its motion to quash service of summons, HFSG argued that it is a 

holding company and parent corporation that does not underwrite any risks

itself and is not authorized to do business in California. It further argued 

that “The Hartford” (as referenced throughout the Policy) is a trade name

belonging to Hartford Fire Insurance Company, not HFSG, and is used by 

various entities, including Sentinel.

Following a hearing, the trial court sustained Sentinel’s demurrer 

without leave to amend. The trial court held that (i) the Virus Exclusion’s 

plain and unambiguous language excludes coverage for losses caused by 

COVID-19; (ii) the Limited Virus Coverage does not apply because John’s 

Grill failed to allege the COVID-19 virus “resulted from” a cause listed in the 

Specified Causes Clause; and (iii) the Specified Causes Clause, while perhaps 

difficult to meet, does not render the Limited Virus Coverage illusory.

The court also granted HFSG’s motion to quash service, holding that 

John’s Grill failed to present sufficient evidence to support specific 
7

jurisdiction over HFSG.

4 Finally, the trial court ruled that HFSG’s demurrer 

was moot in light of its order granting the motion to quash.

Following the trial court’s dismissal of the action with prejudice as to

both Sentinel and HFSG, John’s Grill timely appealed. In its appeal, John’s 

Grill argues that the trial court erred by sustaining Sentinel’s demurrer, and 

by granting HFSG’s motion to quash service of summons. After full briefing, 

argument and submission of the appeal, the parties notified us that they

reached a settlement (Cal. Rules of Court, rule 8.244(a)) and stipulated to 

dismissal (id., rule 8.244(c)).

“On receipt of a request or stipulation to dismiss, the court may dismiss 

the appeal and direct immediate issuance of the remittitur.” (Cal. Rules of 

Court, rule 8.244(c)(2), italics added; see City of Morgan Hill v. Brown (1999) 

71 Cal.App.4th 1114, 1121, fn. 5 [“After the record on appeal is filed, 

dismissal of the action based on abandonment or stipulation of the parties is 

discretionary, rather than mandatory.”].)

Because this appeal raises issues “of continuing public interest which

are likely to recur” (Bay Guardian Co. v. New Times Media LLC (2010) 

187 Cal.App.4th 438, 445, fn. 2; see Lucich v. City of Oakland (1993) 

19 Cal.App.4th 494, 500–502), we decline to dismiss at this late stage in the 

appellate proceedings and proceed to file our opinion. Below, we conclude 

that the court properly granted HFSG’s motion to quash, but that it erred in 

sustaining Sentinel’s demurrer without leave to amend.

4 In its motion to quash, HFSG argued that the court lacked both 

general jurisdiction and specific jurisdiction. In its opposition and opening 

brief on appeal, John’s Grill only argues that specific jurisdiction exists over 

HFSG. John’s Grill does not dispute that the court lacks general jurisdiction.
8

II. ANALYSIS

A. The Motion To Quash

We address first whether the trial court erred in granting HFSG’s 

motion to quash service of summons for lack of personal jurisdiction. We hold 

that it did not.

“The concept of minimum contacts embraces two types of jurisdiction—

general and specific.” (Sonora Diamond Corp. v. Superior Court (2000) 

83 Cal.App.4th 523, 536.) The sole issue here is whether there is a basis to 

exercise specific jurisdiction. Specific jurisdiction exists if: (1) the defendant 

has purposefully availed itself of forum benefits related to the matter in 

controversy; (2) the controversy relates to or arises out of the defendant’s 

contacts with the forum; and (3) the exercise of jurisdiction would comport 

with fair play and substantial justice. (Van Buskirk v. Van Buskirk (2020) 

53 Cal.App.5th 523, 531.) The relationship between the defendant and the 

forum state “must arise out of contacts that the ‘defendant [it]self’ creates 

with the forum [s]tate,” not out of “contacts between the plaintiff (or third 

parties) and the forum [s]tate.” (Walden v. Fiore (2014) 571 U.S. 277, 284.)

When, as here, a defendant has moved “to quash service of process on 

jurisdictional grounds, the plaintiff has the initial burden of demonstrating 

facts justifying the exercise of jurisdiction” by a preponderance of the 

evidence. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 

449; ViaView, Inc. v. Retzlaff (2016) 1 Cal.App.5th 198, 209–210.) To satisfy 

its initial burden, a plaintiff “must come forward with affidavits and other 

competent evidence . . . and cannot simply rely on allegations in an unverified 

complaint.” (ViaView, Inc. v. Retzlaff, supra, at p. 210; see Rivelli v. Hemm

(2021) 67 Cal.App.5th 380, 393 [jurisdictional allegations must be supported 

by “ ‘competent evidence of jurisdictional facts. Allegations in an unverified 

complaint are insufficient to satisfy this burden of proof’ ”].)
9

Here, the superior court held that John’s Grill “fail[ed] to present 

sufficient evidence to show specific jurisdiction against HFSG.” We agree. 

HFSG is not a party to the Policy. It is a holding company that indirectly 

owns Sentinel. Without alleging or attempting to present proof that Sentinel 

is the mere alter ego of HFSG, John’s Grill alleges that HFSG’s corporate

affiliation with Sentinel is enough to justify the exercise of personal 

jurisdiction over HFSG. According to John’s Grill, the Policy “is replete with 

references to and messages from ‘The Hartford’ ” and “The Hartford” 

maintains a website that invites California-based businesses to purchase 

insurance from it.

As the superior court found, however, The Hartford is merely a trade 

name, used by multiple entities and owned by Hartford Fire Insurance 

Company, not HFSG. The court also found that, since HFSG is not even 

authorized by the California Department of Insurance to do business in 

California, HFSG therefore cannot reasonably be confused with “The 

Hartford” that is referenced in Sentinel’s Policy. The court also found that 

John’s Grill failed to show that “discovery is likely to lead to the production of 

evidence of facts establishing jurisdiction,” and having so found, denied a 

request from John’s Grill for jurisdictional discovery. All of these findings are 

supported by substantial evidence.

B. The Demurrer

We review an order sustaining a demurrer de novo and exercise our 

independent judgment as to whether the complaint states a cause of action as 

a matter of law. (Moore v. Regents of University of California (1990) 

51 Cal.3d 120, 125.) This extends “even as to matters not expressly ruled 

upon by the trial court.” (Hayter Trucking, Inc. v. Shell Western E&P, Inc.

(1993) 18 Cal.App.4th 1, 13.) We accept as true all material facts properly 

pleaded and matters which may be judicially noticed but disregard 
10

contentions, deductions, or conclusions of fact or law. (Blank v. Kirwan

(1985) 39 Cal.3d 311, 318.) We “give the complaint a reasonable 

interpretation, reading it as a whole and its parts in their context.” (Ibid.)

“When a demurrer is sustained without leave to amend, it is the duty of 

the reviewing court to decide whether there is a reasonable possibility that 

the defect can be cured by amendment. If it can, the trial court has abused 

its discretion and we must reverse. If it cannot be reasonably cured, there 

has been no abuse of discretion. [Citation.] It is the plaintiff’s burden to 

show the reviewing court how the complaint can be amended to state a cause 

of action.” (Michaelian v. State Comp. Ins. Fund (1996) 50 Cal.App.4th 1093, 

1105.)

1. Insurance Policy Interpretation

Because insurance policies are contracts, judicial interpretation of 

them, like any other contract, is a question of law. (AIU Ins. Co. v. Superior 

Court (1990) 51 Cal.3d 807, 818; Bank of the West v. Superior Court (1992) 

2 Cal.4th 1254, 1264 [“While insurance contracts have special features, they 

are still contracts to which the ordinary rules of contractual interpretation

apply.”].) The “mutual intention of the parties at the time the contract is 

formed governs interpretation. [Citation.] Such intent is to be inferred, if 

possible, solely from the written provisions of the contract.” (AIU Ins. Co., at 

pp. 821–822.) The words in the contract are to be interpreted in their 

“ordinary and popular sense” unless “used by the parties in a technical sense, 

or unless a special meaning is given to them by usage.” (Civ. Code, § 1644.) 

Any ambiguous terms must be interpreted “in the sense [the insurer] believed 

[the insured] understood them at the time of formation,” and ambiguities 

must be resolved in favor of coverage. (AIU Ins. Co., at p. 822, citing Civ. 

Code, § 1649.)
11

“The rules for recognizing ambiguity are . . . straightforward. 

Ambiguity exists when an insurance policy provision is susceptible to two or 

more constructions that are reasonable and not based on strained 

interpretations. (Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 

41 Cal.3d 903, 912.) Contract language interpretation involves considering 

the whole instrument and the circumstances of the case; ambiguity is not an 

abstract question. (Id. at p. 916, fn. 7.) ‘A word generally has several 

meanings, even in the dictionary. You have to consider the sentence in which 

it stands to decide which of those meanings it bears in the particular case, 

and very likely will see that it there has a shade of significance more refined 

than any given in the wordbook.’ (Holmes, The Theory of Legal Interpretation

(1899) 12 Harv. L.Rev. 417.)” (Shell Oil Co. v. Winterthur Swiss Ins. Co.

(1993) 12 Cal.App.4th 715, 737.) Under this basic precept, every insurance 

contract must be interpreted by its particular wording and read in its 

entirety, with careful attention paid to context, the interrelationship of the 

provisions within the policy and how they work together, and the actual 

circumstances of the contracting parties.

Insurance policies typically contain two main components: on the one 

hand, provisions that specify the risks being covered and thus that mark out 

the affirmative grant of coverage, and on the other hand, exclusionary 

provisions that “remove coverage for certain risks which are initially within 

the insuring clause.” (Collin v. American Empire Ins. Co. (1994) 

21 Cal.App.4th 787, 802–803.) The grant of coverage is generally interpreted 

broadly in favor of the insured to protect the objectively reasonable 

expectations of the insured. (AIU Ins. Co. v. Superior Court, supra, 51 Cal.3d 

at p. 822.) And exclusionary provisions that limit or take away coverage are 

“strictly construed against the insurer and liberally interpreted in favor of 
12

the insured” (Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 

271), while exceptions to exclusions are broadly construed in favor of the 

insured (E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 

471).

The insurer bears the burden of proving that an exclusionary clause 

applies. (Travelers Casualty & Surety Co. v. Superior Court (1998) 

63 Cal.App.4th 1440, 1453.) Before exclusionary provisions are even 

considered, however, “a court must examine the coverage provisions to 

determine whether a claim falls within the potential ambit of the insurance. 

[Citations.] Where the scope of the basic coverage itself clearly creates no 

potential liability under the policy, a court may not give it a ‘strained 

construction’ to impose on an insurer a liability the insurer has not assumed. 

[Citation.] The burden is on the insured to prove that an event is a claim 

which falls within the basic coverage of the insurance.” (Hallmark Ins. Co. v. 

Superior Court (1988) 201 Cal.App.3d 1014, 1017.)

The phrase “ ‘trigger of coverage’ ” is a “term of ‘convenience’ ” used to

denote the occurrence of an event that “ ‘must happen in the policy period in 

order for the potential of coverage to arise. The issue is largely one of 

timing—what must take place within the policy’s effective dates for the 

potential of coverage to be “triggered”?’ ” (State of California v. Continental

Ins. Co. (2012) 55 Cal.4th 186, 196, italics omitted; see Montrose Chemical

Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 655, fn. 2.) But the 

occurrence of a coverage-triggering event simply means the insured may be 

entitled to coverage benefits. The remainder of the analysis requires 

consideration of whether limiting conditions to coverage have been satisfied

or an exclusion applies. There is no need to consider these additional issues
13

when an occurrence is not within the scope of the insuring clause in the first 

instance. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 16.)

2. The Main Grant of First Party Coverage in the Special 

Property Coverage Form

The insuring agreement in the Special Property Coverage Form states 

that Sentinel “will pay for direct physical loss of or physical damage to 

Covered Property . . . caused by or resulting from a Covered Cause of Loss.” 

The Policy provides additional coverages that supplement this basic grant of 

first party coverage, including under the Lost Business Income and Extra 

Expense Endorsement.

5 When applicable, the Lost Business Income and 

5 John’s Grill alleges that the Lost Business Income and Extra Expense 

coverages may be found at Subparagraphs A.5.o. and A.5.q. of the Special 

Property Coverage Form. But the Policy itself—which is attached to and 

incorporated in the operative complaint—shows that these provisions were 

replaced by an endorsement titled “Actual Loss Sustained Business Income & 

Extra Expense—Specified Limit Coverage.” Absent this modifying change, 

the business interruption coverage provided by the Special Property Coverage 

Form was “not subject to the Limits of Insurance” stated in the Declarations. 

(See Subparagraph A.5.o.; see also Subparagraph A.5.p.(3)(c).ii. [same for 

Extra Expenses].) Effectively, the applicable limit was temporal: Lost

Business Income and Extra Expense losses occurring “within 12 consecutive 

months after the date of direct physical loss or physical damage” and within 

24 months after the inception of the Policy were covered.

The language of the Lost Business Income and Extra Expense 

Endorsement tracks the original form language in Subparagraphs A.5.o. and 

A.5.q. of the Special Property Coverage Form, but modifies it by adding a 

“Specified Limit” ($50,000 per occurrence and $4,000,000 total) indicated in

the Declarations summary. The fact that the replacement language is 

virtually identical to the original form language presumably explains why in 

the main briefs none of the parties draws attention to it. In a supplemental

briefing order, we asked the parties to address the Lost Business Income and 

Extra Expense Endorsement, among other things. The supplemental briefs 

confirm that, while the parties disagree about whether John’s Grill’s claim in 

this case is covered under any provisions of the Policy, there is no dispute 
14

Extra Expense Endorsement covers net business interruption losses—subject 

to specified limits—incurred due to suspended business operations caused by 

a covered event of “physical loss of or physical damage to” covered property, 

together with expenses incurred to mitigate such losses or damage.

The lost business income provision affords coverage 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 physical damage to property at the ‘scheduled 

premises’ . . . caused by or resulting from a Covered Cause of Loss.” The 

Extra Expense provision provides coverage for “reasonable and necessary 

Extra Expense you incur during the ‘period of restoration’ that you would not 

have incurred if there had been no direct physical loss or physical damage to 

property . . . .” Thus, the grant of business interruption coverage in the Lost 

Business Income and Extra Expense Endorsement—at least before

customizing endorsement language is considered—parallels the main grant of 

first party coverage by requiring “physical” impairment and by contemplating 

a “period of restoration” of physically impaired property.

Faced with similar policy language in cases involving claims for 

business interruption losses sustained during the COVID-19 pandemic, many 

courts have ruled for the insurer under California insurance coverage law. 

These cases all conclude that “ ‘direct physical loss of or damage to’ property” 

requires a “ ‘distinct, demonstrable, physical alteration of the property’ ” and 

cannot be synonymous with mere “ ‘loss of use.’ ” (Mudpie, Inc. v. Travelers 

Casualty Ins. Co. (9th Cir. 2021) 15 F.4th 885, 892; see Apple Annie, LLC v.

that John’s Grill seeks coverage in this case under the Lost Business Income

and Extra Expense Endorsement, not under Subparagraphs A.5.o. and A.5.q.

of the Special Property Coverage Form.
15

Oregon Mutual Ins. Co., supra, 82 Cal.App.5th at pp. 930–935; United Talent

Agency v. Vigilant Ins. Co. (2022) 77 Cal.App.5th 821, 830; Musso & Frank 

Grill Co., Inc. v. Mitsui Sumitomo Ins. USA Inc. (2022) 77 Cal.App.5th 753; 

Inns-by-the-Sea v. California Mutual Ins. Co. (2021) 71 Cal.App.5th 688 

(Inns-by-the-Sea).

6 In recent months some courts have held that the issue of 

“physical” loss or damage cannot be decided as a pleading matter where the 

insured alleges a scientifically supportable theory of virus-caused alteration 

of property (see Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund Ins.

Co. (2022) 81 Cal.App.5th 96; cf. also Huntington Ingalls Industries v. Ace

American Ins. Co., 2022 VT 45 [applying Vermont law]), but even this strain 

of authority accepts (or at least assumes) the Mudpie premise that coverage 

can only be triggered by some form of physical alteration of property.

As one federal district court in the Mudpie line recently put it, if “a sick 

person walked into one of Plaintiffs’ restaurants and left behind COVID-19 

particulates on a countertop, it would strain credulity to say that the 

countertop was damaged or physically altered as a result.” (Unmasked Mngt.

6 The Mudpie line of cases applying California law is consistent with a 

nearly uniform trend across the country, primarily in federal diversity cases. 

(See, e.g., Q Clothier New Orleans v. Twin City Fire Ins. (5th Cir. 2022) 

29 F.4th 252, 259; Uncork & Create LLC v. Cincinnati Ins. Co. (4th Cir. 2022) 

27 F.4th 926, 933–934; 10012 Holdings, Inc. v. Sentinel Ins. Co. (2d Cir. 2021) 

21 F.4th 216, 220–223; Santo’s Italian Café LLC v. Acuity Ins. Co. (6th Cir. 

2021) 15 F.4th 398, 401; Sandy Point Dental, P.C. v. Cincinnati Ins. Co.

(7th Cir. 2021) 20 F.4th 327, 335; Oral Surgeons, P.C. v. Cincinnati Ins. Co.

(8th Cir. 2021) 2 F.4th 1141, 1144, 1145, fn. 3; Goodwill Industries v.

Philadelphia Indemnity (10th Cir. 2021) 21 F.4th 704, 710; see also NeuroCommunication Servs. v. Cincinnati Ins. Co., 2022-Ohio-4379, ¶ 17; Verveine

Corp. v. Strathmore Insurance (Mass. 2022) 184 N.E.3d 1266, 1275–1277; 

AC Ocean Walk, LLC v. American Guarantee and Liability Ins. Co. (N.J. 

Super.Ct.App.Div., June 23, 2022, No. A-1824-21) 2022 WL 2254864, 

*11–*12.)
16

v. Century-National Insurance Co. (S.D.Cal. 2021) 514 F.Supp.3d 1217, 1226.) 

We know by now that disinfectants provide no cure for the COVID-19 virus 

itself—the “debate” about this issue was famously short-lived in 2020—but 

we also know (and always did) that disinfectants and other cleaning methods 

can be used to eliminate the presence of virus on physical surfaces, which has 

been a commonly used precautionary mitigation measure during the 

pandemic. But under the Mudpie line of cases, as the Unmasked 

Management court explained, allegations merely “showing the alleged 

presence of COVID-19 in or on the covered property are not sufficient to 

trigger coverage when direct physical loss of or damage to property is 

required” (id. at pp. 1225–1226), and thus whatever cleaning or detoxification 

efforts may be undertaken do not qualify as “restoration” under standard 

first party insurance policies because of the absence of any “physical”

alteration of property.

7

7 There is a minority view. Some courts have concluded that “direct 

physical loss or damage” in COVID-19 business interruption coverage cases 

does not require a distinct, demonstrable physical alteration of property (see,

e.g., Kingray Inc. v. Farmers Group Inc. (C.D.Cal. 2021) 523 F.Supp.3d 1163, 

1173–1174), but so far as we can discern all of the appellate precedent on this 

point has adopted the contrary view, consistent with Mudpie and its progeny. 

We are also aware that, in the fall of 2021, some noted insurance coverage 

commentators published an article arguing that courts across the country 

have, in effect, engaged in a rush-to-judgment against policyholders in 

COVID-19 business interruption coverage cases. (See, e.g., Lewis et al., 

Couch’s “Physical Alteration” Fallacy: Its Origins and Consequences (Fall 

2021) 56 Tort Trial & Ins. Prac. L.J. 621 [discussing 10A Couch on Insurance 

(3d ed. 2016) § 148:46].) This article contends that the reasoning in cases like 

Mudpie is premised on a view expressed in a single treatise, Couch on 

Insurance, that is contrary to settled law in various areas of first party 

insurance coverage law predating the COVID-19 pandemic. (Lewis, supra, at 

p. 628 & fn. 36 [discussing cases recognizing first party coverage of claimed 

losses due to asbestos, odors, and other types of environmental 
17

In this case, the trial court did not address the meaning of “direct 

physical loss of or physical damage to” property in the Special Property 

Coverage Form or in the Lost Business Income and Extra Expense

Endorsement. Nor did it mention the Mudpie line of cases. On appeal, 

Sentinel defends the order sustaining its demurrer primarily on the grounds 

the trial court relied upon—that the Virus Exclusion bars coverage, and that

John’s Grill has failed to allege the COVID-19 on its premises was the “result 

of” any of the causes in the Specified Causes Clause. Even apart from the 

obstacles to coverage presented by the Virus Exclusion and the Specified 

Causes Clause, Sentinel adds in a last line of argument, the operative 

complaint fails to allege direct physical loss of or physical damage to 

property, thus precluding coverage as a matter of law under the Mudpie line 

of cases.

John’s Grill addresses Mudpie in a similarly roundabout way, 

discussing the issue only in its reply brief and emphasizing that it did allege 

“direct physical loss of property in the form of deprivation, loss of use, and 

being unable to use the property for its intended purpose due to . . . the 

presence of the coronavirus.” On the strength of that allegation, John’s 

Grill insists that it “suffer[ed] physical loss of and damage to its property”

within the meaning of the Special Property Coverage Form. It also contends 

that the depth of judicial consensus on the issue addressed in Mudpie is 

overstated by Sentinel. But John’s Grill nonetheless urges us to avoid 

contamination]; see Windt, Insurance Claims and Disputes (6th ed. 2013) 

§§ 11:40–11:41 [disagreeing with the Couch view].) A similar critique of 

Couch was addressed and rejected by a Second District, Division Four panel 

in United Talent Agency, supra, 77 Cal.App.5th at pages 832–833 (“We . . . 

decline [the] invitation to depart from the Couch treatise and the case law 

that relies upon it.”).
18

engaging with the Mudpie line of cases because of “the absence of a pertinent 

ruling on the issue” and the limited briefing on it. We are told by John’s Grill 

that “this case [is] a poor vehicle for addressing this important issue of first 

impression” and that it “would be better addressed by this Court in the 

context of another pending case in which the physical loss or damage issue 

was the basis of the decision below and the virtually exclusive focus of the 

parties’ briefing” on appeal.

Thus, while the parties joust with one another over the Mudpie line of 

cases in indirect ways, for different reasons they each focus their attention 

primarily on the Virus Exclusion and the Limited Virus Coverage. We

largely accept that framing of the issues. We say “largely” because the 

Limited Fungi or Virus Coverage Endorsement must be construed together 

with the remainder of the Policy, and we think the Mudpie line of cases 

provides an important contextual backdrop and helps inform our analysis of 

the Policy as a whole. Ultimately, however, we agree that we need not join 

the fray over whether “ ‘distinct, demonstrable, physical alteration of . . . 

property’ ” is required to trigger coverage under a first party property 

insurance policy which uses the undefined phrase “physical loss of or damage 

to” property (Mudpie, Inc. v. Travelers Casualty Ins. Co., supra, 15 F.4th at 

p. 892).

We so conclude not because this appeal is a “poor vehicle” to decide the 

issues addressed in Mudpie. Obviously, we are not a court of discretionary 

jurisdiction with the ability to pick and choose our cases, and where we wish 

to disregard nonbinding federal precedent or we have good reason to part 

ways with sister courts in California, we will not shrink from doing so. But 

in this case, the Mudpie line of cases may be dealt with in a more 

straightforward way: It is distinguishable. Because the Limited Fungi or 
19

Virus Coverage Endorsement adds virus-specific language to the Policy that 

is not present in COVID-19 business interruption insurance cases involving

form language without material modification, those cases involve “very 

different policy provisions” and are not controlling here. (Amy’s Kitchen, Inc.

v. Fireman’s Fund Ins. Co. (2022) 83 Cal.App.5th 1062, 1069 (Amy’s

Kitchen).)

3. The Limited Fungi or Virus Coverage Endorsement

a. Summary of Analysis

The trial court’s interpretation and application of the Limited Fungi or 

Virus Coverage Endorsement adopted the analytical framework Sentinel 

urged in support of the demurrer and continues to urge here on appeal. We 

conclude that that approach to analyzing coverage led to error. According to 

Sentinel, the Virus Exclusion applies by its clear and unambiguous terms; 

John’s Grill fails to allege that any COVID-19 virus on its premises was the 

“result of” some cause listed in the Specified Causes Clause; and the 

argument from John’s Grill that the Specified Causes Clause is unenforceable 

under the illusory coverage doctrine lacks merit, just as “every California 

court to address this argument has held.” Only in an alternative, secondary 

line of reasoning does Sentinel attempt to deal with the scope of the Limited 

Virus Coverage grant, and then it circles back to the Mudpie line of cases.

By starting with the Virus Exclusion, focusing next on the Specified 

Causes Clause, and dealing with the Limited Virus Coverage grant as an 

afterthought, Sentinel has the proper sequence of insurance coverage 

analysis backward. There may be cases in which the plain terms of an 

exclusion unequivocally foreclose any potential for coverage, without the need 

to consider anything else, but this is not one of them. Here, the first question 

to address is whether the insured’s coverage claim falls within the scope of 

the pertinent insuring agreement. And on this question, the reasoning in the 
20

Mudpie line of cases cannot be transposed onto the Limited Virus Coverage

grant. Unlike the undefined phrase “direct physical loss of or physical 

damage to” property in the Special Property Coverage Form, the key 

coverage-triggering phrase in the Limited Virus Coverage grant is simply 

“loss or damage,” which is specially defined in a manner that not only 

contemplates the possibility a virus may “cause[]” physical damage to covered 

property, but that includes the costs of “removal” of “virus”—a phrase 

capacious enough to include cleaning the surfaces of the property—as well as 

testing to detect whether virus is merely “present” on the property.

Analyzing the coverage issues in proper sequence, we conclude that 

(1) the insuring agreement in the Limited Virus Coverage, construed in 

accordance with the reasonable expectations of an insured in the position of 

John’s Grill, is broad enough to encompass forms of property “loss” that do 

not involve physical alteration of property; (2) John’s Grill has alleged enough 

here to warrant giving it another opportunity to plead that its claim falls 

within the scope of the Limited Virus Coverage grant; (3) the Specified 

Causes Clause, construed and applied expansively, as Sentinel urges us to do, 

leaves John’s Grill with what amounts to no virus coverage at all and thus is 

unenforceable under the illusory coverage doctrine; and (4) finally, turning to 

the exclusionary language Sentinel invokes—not first in the sequence of 

coverage analysis, but last—it is premature to say whether the Virus 

Exclusion applies, since that exclusion is subject to an exception wherever

there is coverage under the Limited Virus Coverage provisions, and the

applicability of this exception cannot be determined until the issue of 

coverage is ultimately decided.
21

b. The Virus Exclusion and the Limited Virus Coverage Provisions: 

Text and Structure

We begin our analysis with some observations about the text of the 

Limited Fungi or Virus Coverage Endorsement. Structurally, it has two 

parts. First, to the list of Exclusions set forth in the Special Property 

Coverage Form, Paragraph A of the Limited Fungi or Virus Coverage 

Endorsement adds a new exclusionary clause, the Virus Exclusion, specifying 

that Sentinel “will not pay for loss or damage caused directly or indirectly by

. . . [¶] . . . [the] [p]resence, growth, proliferation, spread or any activity of

‘fungi’, wet rot, dry rot, bacteria or virus.”

8 Second, to the list of Additional 

Coverages set forth in the Special Property Coverage Form, Paragraph B of 

the Limited Fungi or Virus Coverage Endorsement adds a series of 

subparagraphs (Subparagraph B.1.a.—Subparagraph B.1.f.) titled “Limited 

Coverage For ‘Fungi’, Wet Rot, Dry Rot, Bacteria and Virus,” which together 

set forth the terms of the Limited Virus Coverage.

The principal limitation placed on the Limited Virus Coverage is in the 

Specified Causes Clause, Subparagraph B.1.a. of the Limited Fungi or Virus 

Coverage Endorsement. This limitation—which tracks counterpart language 

stated as an exception to the Virus Exclusion (“But if ‘fungi’, wet rot, dry rot, 

bacteria or virus results in a ‘specified cause of loss’ to Covered Property, we 

will pay for the loss or damage caused by that ‘specified cause of loss’ ”)—

narrows the Limited Virus Coverage to circumstances where the virus is the 

“result of” certain enumerated “causes.” For purposes of the virus-caused 

risks, this effectively flips the all-perils structure of the Special Property 

Coverage Form. The Specified Causes Clause states as follows: The Limited 

8 In a proviso, the Virus Exclusion states, “Such loss or damage is 

excluded regardless of any other cause or event that contributes concurrently 

or in any sequence to the loss.”
22

Virus Coverage grant “only applies when the ‘fungi’, wet or dry rot, bacteria 

or virus is the result of one or more of the following causes that occurs during 

the policy period and only if all reasonable means were used to save and 

preserve the property from further damage at the time of and after that 

occurrence. [¶] (1) A ‘specified cause of loss’ other than fire or lightning; [¶] 

(2) Equipment Breakdown Accident occurs to Equipment Breakdown 

Property, if Equipment Breakdown applies to the affected premises.” (Italics 

added.)

“Specified Cause of Loss,” a defined term in Subparagraph G.19. of the 

Special Property Coverage Form (and the first of two conditions set forth in 

the Specified Causes Clause) means: “Fire; lightning; explosion, windstorm 

or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; 

leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; 

falling objects; weight of snow, ice or sleet; water damage.” “Equipment 

Breakdown Accident,” a defined term in Subparagraph A.5.c. of the Special 

Property Coverage Form (and the second of two conditions set forth in the 

Specified Causes Clause), means, slightly paraphrased: “Mechanical 

breakdown,” including rupture or bursting caused by centrifugal force; 

“Artificially generated electric current” such as arcing or other electrical 

disturbance affecting electrical devices, appliances or wires; or “Explosion” of 

or “Physical loss or physical damage” to steam boilers, steam piping, steam 

engines or steam turbines or hot water boilers.

The precise wording of the Limited Virus Coverage grant in 

Subparagraph B.1.b. of the Limited Fungi or Virus Coverage Endorsement is 
23

as follows: “We will pay for loss or damage by ‘fungi’,[9] wet rot, dry rot, 

bacteria and virus. As used in this Limited Coverage, the term loss or 

damage means: [¶] (1) Direct physical loss or direct physical damage to 

Covered Property caused by ‘fungi’, wet rot, dry rot, bacteria or virus, 

including the cost of removal of the ‘fungi’, wet rot, dry rot, bacteria or virus; 

[¶] (2) The cost to tear out and replace any part of the building or other 

property as needed to gain access to the ‘fungi’, wet rot, dry rot, bacteria or 

virus; and [¶] (3) The cost of testing performed after removal, repair, 

replacement or restoration of the damaged property is completed, provided 

there is a reason to believe that ‘fungi’, wet rot, dry rot, bacteria or virus are 

present.” (Italics added.)

c. “Loss or Damage” as Specially Defined Within the Affirmative 

Grant of Coverage in the Limited Fungi or Virus Coverage 

Endorsement

The Limited Virus Coverage does more than simply restore pre-existing 

coverage that is taken away by the Virus Exclusion. Not only does it contain 

an affirmatively phrased insuring agreement (“We will pay for”), which is in 

line with the phrasing of other affirmative grants of coverage in the Policy,10

9 “Fungi” is defined to mean “any type or form of fungus, including mold 

or mildew, and any mycotoxins, spores, scents or by-products produced or 

released by fungi.” There is no definition of “virus” or any of the other perils 

listed in the Limited Virus Coverage grant.

10 Compare the language of the endorsement titled “Exclusion—Fungi, 

Bacteria and Viruses,” which modifies the Business Liability Coverage Form. 

It provides as follows: “This insurance does not apply to: [¶] 1. Injury or 

damage arising out of or related to the presence of, suspected presence of, or 

exposure to: [¶] a. Fungi, including but not limited to mold, mildew, and 

yeast; [¶] b. Bacteria; [¶] c. Viruses; or [¶] d. Dust, spores, odors, particulates 

or byproducts, including but not limited to mycotoxins and endotoxins,

resulting from any of the organisms listed in a., b., or c. above; from any 

source whatsoever. [¶] 2. Any loss, cost or expense arising out of the testing 
24

but the triggering language in the insuring agreement for the Limited Virus 

Coverage (“loss or damage”) includes but is not restricted to “direct” and 

“physical” forms of loss or damage.

The term “loss or damage” is also specially defined in Subparagraph 

B.1.b. of the Limited Fungi or Virus Coverage Endorsement. And this special 

definition is more expansive than the counterpart, undefined phrase “direct 

physical loss of or physical damage to Covered Property” in the Special 

Property Coverage Form. First, by stating that “[d]irect physical loss or 

direct physical damage to” property can be “caused by” “virus,”11 the special 

definition expressly contemplates what the Mudpie line of cases places

outside the ambit of standard form first party trigger of coverage language: 

A virus can directly “cause” physical loss or physical damage to property in 

some circumstances.

Second, the language in a series of inclusively framed subparagraphs 

within the special definition of “loss or damage” extends beyond the limited 

scope of the trigger language in the Special Property Coverage Form in

several key respects. These subparagraphs sweep within the special 

for, monitoring of, cleaning up of, removal of, containment of, treatment of, 

detoxification of, neutralization of, remediation of, disposal of, or any other 

response to or assessment of, the effects of any of the items in 1.a., b., c. or d.

above, from any source whatsoever.”

This third party liability virus exclusion is subject to a simply stated 

exception (the “exclusion does not apply to ‘bodily injury’ or ‘property damage’

caused by the ingestion of food”), but is otherwise absolute and contains no 

affirmative grant of coverage. There is a virtually identical, following form 

exclusion for virus risk in the Umbrella Liability Supplemental Contract that 

also lacks an affirmative grant of virus coverage.

11 Subparagraph B.1.b.(1). (“Direct physical loss or direct physical 

damage to Covered Property caused by . . . virus, including the cost of 

removal of the ‘fungi’, wet rot, dry rot, bacteria or virus,” italics added).
25

definition the costs of structural mitigation work such as “tear[ing] out” and 

“replace[ment]” of property,12 but go further than that. They also refer to 

“removal of the virus”13—a phrase broad enough to encompass simply wiping 

and cleaning surfaces—and after the mitigating “repair,” “replacement” or 

“removal” work is done, the costs of “testing” for the “presen[ce]” of the virus 

is included as well, presumably to ensure that the mitigation was effective.

We think an insured in the position of John’s Grill could reasonably 

construe this trigger language to encompass what has been alleged here. The 

operative complaint avers that (1) the COVID-19 virus “can spread from 

person to person through small droplets from the nose or mouth which are 

spread when a person with COVID-19 coughs or exhales,” (2) “[t]hese 

droplets land on objects and surfaces around the person,” (3) the droplets 

“land indiscriminately on the surfaces of property with potentially fatal 

consequences,” (4) the insidious nature of the COVID-19 virus is that it can 

remain infectious on a variety of surfaces and objects from several hours to 

several days, and (5) on the premises at John’s Grill, “every surface and 

object [was] implicated, including the doors and their parts, door jambs, floors 

and carpeting, window panes, walls, countertops, light fixtures, the hostess 

desk, tables, chairs, dishes, drinking utensils, flatware, the entire kitchen 

and cookware, bathrooms, elevator, artwork and photos, and other fixtures 

and moveable personal property” inside the premises.

12 Subparagraph B.1.b.(2). (“The cost to tear out and replace any part of 

the building or other property as needed to gain access to the . . . virus,”

italics added).

13 Subparagraph B.1.b.(1). (“Direct physical loss or direct physical 

damage to Covered Property caused by ‘fungi’, wet rot, dry rot, bacteria or 

virus, including the cost of removal of the . . . virus,” italics added).
26

It is important to bear in mind the commercial context we are dealing 

with. Gathering people in a congregate setting is essential to the operation of 

John’s Grill’s business. For an enterprise of that type, the allegations of 

pervasive virus “presence” on property surfaces can reasonably be read to 

mean some type of “removal” of COVID-19 contamination by cleaning or 

detoxification was required, thus triggering Subparagraph B.1.b. of the 

Limited Virus Coverage provisions even if the mitigation steps that had to be 

taken did not involve physical alteration of property. As one of the leading 

cases in the Mudpie line puts the issue, “ ‘When the structure of the property 

itself is unchanged to the naked eye . . . and the insured alleges that its 

usefulness for its normal purposes has been destroyed or reduced, there are 

serious questions whether the alleged loss satisfies the policy trigger.’ ” 

(Inns-by-the-Sea, supra, 71 Cal.App.5th at p. 700, quoting 10A Couch on 

Insurance, supra, § 148:46.) The particular policy language in this case 

requires us to decide these questions in favor of the insured, just as we did in 

a case involving different but similarly customized language in Amy’s

Kitchen, supra, 83 Cal.App.5th at p. 1069.

14

Wholly apart from the issue of whether John’s Grill alleged “[d]irect 

physical loss or direct physical damage to” property, Sentinel pointed out at 

oral argument that John’s Grill does not allege any mitigation steps were 

taken to remove the alleged contamination on its premises. In response, 

John’s Grill argued that, to the extent more facts are necessary to show “loss 

14 See Amy’s Kitchen, supra, 83 Cal.App.5th at pages 1069–1070 

(COVID-19 virus contamination falls within trigger-of-coverage language in 

“communicable disease extension” specifying covered costs for “ ‘direct 

physical loss or damage’ ” to include “ ‘necessary costs incurred to [¶] . . . [¶] 

(c) [m]itigate, contain, remediate, treat, clean, detoxify, disinfect, neutralize, 

cleanup, remove, dispose of, test for, monitor, and assess the effects [of] the 

communicable disease’ ”).
27

or damage” within the special definition in Subparagraph B.1.b. of the 

Limited Fungi or Virus Coverage Endorsement, it should have been given 

leave to amend. We must agree. Because there is a reasonable possibility on 

this record that John’s Grill can allege that mitigation steps were taken to 

remove a virus that was present on its property, the trial court abused its

discretion in sustaining Sentinel’s demurrer without leave to amend.

d. The “Loss or Damage” Mitigation Provisions (Subparagraph

B.1.b.) and the Business Interruption Provisions (Subparagraph 

B.1.f.) Are Linked Together

If the pervasive presence of a virus on the interior surfaces of John’s 

Grill’s premises led patrons to cease coming to its restaurant for a period of 

time due to the fear of contracting a potentially fatal illness—which is what 

is alleged here—we believe a reasonable insured would also have an 

expectation of coverage under Subparagraph B.1.f. for the resulting loss of its 

ability to use the restaurant for its intended purpose. Subparagraph B.1.f. 

covers business interruption losses during a “ ‘period of restoration.’ ”

A “Period of Restoration” is defined in Subparagraph G.12. of the Special 

Property Coverage Form to begin on the date of “physical loss or physical 

damage caused by or resulting from a Covered Cause of Loss” and to end

when the property “should be repaired, rebuilt or replaced with reasonable 

speed and similar quality” or the business resumes at a new location.

Subparagraphs B.1.b. and B.1.f. are part of the same series of clauses 

setting forth terms of the Limited Virus Coverage and are therefore linked. 

The specially defined term “loss or damage” appears in both of them.

Subparagraph B.1.f. affords coverage “if a Time Element Coverage applies to 

the ‘scheduled premises’ and only if the suspension of ‘operations’ satisfies all 

the terms and conditions of the applicable Time Element Coverage.” As 

numerous courts that have construed property insurance policies in the wake 
28

of the pandemic have observed, Lost Business Income and Extra Expense 

coverages are forms of Time Element Coverage. (See Cosmetic Laser, Inc. v. 

Twin City Fire Insurance (D.Conn. 2021) 554 F.Supp.3d 389, 394 (Cosmetic 

Laser); Q Clothier New Orleans LLC v. Twin City Fire Ins. (E.D.La. 2021) 

535 F.Supp.3d 574, 585.)

Sentinel acknowledges the more expansive breadth of the trigger-ofcoverage language in the specially defined phrase “loss or damage,” but tries 

to confine it strictly to Subparagraph B.1.b., leaving Subparagraph B.1.f.

unaffected by the definition. We reject that argument. What Sentinel 

ignores is that the Limited Fungi or Virus Coverage Endorsement, by its 

terms—as stated in the lead-in sentence, following the title of the 

endorsement—“modifies insurance provided under the following: [¶] Special 

Property Coverage Form . . . .” That is what endorsements typically do. They 

modify the main body of an otherwise standardized form, thereby 

customizing it for purposes of the endorsement, which is an objective the 

parties to this insurance contract plainly had, given the tailored nature of 

several of the endorsements they agreed upon.

We decline to read Subparagraph B.1.b. in isolation, which would 

effectively give the specially defined phrase “loss or damage” in 

Subparagraphs B.1.b. and B.1.f. two different meanings. Instead, we think 

the special definition of “loss or damage” has the effect of broadening the 

trigger of coverage language in all provisions of the Limited Fungi or Virus 

Coverage Endorsement, and that the Limited Fungi or Virus Coverage 

Endorsement in turn modifies the Special Property Coverage Form for 

purposes of the endorsement—here specifically for risks of loss or damage 

caused by virus.
29

In another effort to wall off the Lost Business Income and Extra 

Expense coverage afforded by Subparagraph B.1.f. from being affected by 

whatever interpretation we place on Subparagraph B.1.b., Sentinel argues 

that Time Element Coverage is available only if “ ‘all the terms and 

conditions of the applicable Time Element Coverage’ ” are satisfied. And 

since John’s Grill has not alleged “direct physical loss of or physical damage

to Covered Property” sufficient to trigger coverage under the Special Property 

Coverage Form, so the argument goes, there cannot possibly be coverage 

under Subparagraph B.1.f. of the Limited Fungi or Virus Coverage 

Endorsement.

This position—which is where Sentinel’s argument circles back to the 

Mudpie line of cases—runs as follows. According to Sentinel, when, and only 

when, an event of “[d]irect physical loss of or physical damage to Covered 

Property” occurs, there may be coverage for the costs of tearing out or 

replacing property to gain access to a virus or to test for a virus. Similarly, 

when, and only when, an event of “[d]irect physical loss of or physical damage 

to Covered Property” occurs which does not itself cause a suspension of 

business operations, but a virus does cause such a suspension, then there 

may be coverage under the Lost Business Income and Extra Expense 

Endorsement (a form of Time Element Coverage), subject to the specified 

limits.

We are prepared to accept, and we assume arguendo, that the insuring 

agreement in the Special Property Coverage Form, read on its own, without 

change, would have established a baseline of coverage in accordance with the 

Mudpie rule limited to loss or damage of “a physical nature that can be 

physically fixed, or if incapable of being physically fixed because it is so 

heavily destroyed, requires a complete move to a new location.” (Inns-by-the-
30

Sea, supra, 71 Cal.App.5th at p. 707.) But at best for Sentinel, the Policy is 

ambiguous when read in light of the modifications made by the Limited 

Fungi or Virus Coverage Endorsement. Because the Limited Fungi or Virus 

Coverage Endorsement contains an additional affirmative grant of coverage, 

and because there is a special definition of “loss or damage” in the triggering 

clause for that additional coverage, we cannot simply import the reasoning of 

the Mudpie line of cases. What appears to have happened here is that the 

parties customized the first party insurance John’s Grill bought to 

accommodate additional coverage for losses caused by insidious, difficult to 

access and detect forms of property damage from fungi, wet rot, dry rot, 

bacteria or virus that may occur in a restaurant environment. And under the 

endorsement language the parties agreed upon to accomplish this objective, 

the wording is broad enough to bring within the scope of coverage loss of use 

of property.

Sentinel is adamant that a ruling for John’s Grill would run contrary to 

the avalanche of precedent nationwide agreeing with Mudpie, but we think 

not. What we decide today does no more than follow the established principle 

that we must interpret the provisions of a contract to avoid rendering the 

instrument “illusory.” (Scottsdale Ins. Co. v. Essex Ins. Co. (2002) 

98 Cal.App.4th 86, 94–95.) Contracts of insurance do not enjoy any special 

exemption from that basic principle. By insisting that Mudpie always 

supplies the bedrock rule despite the breadth of the particular insuring 

agreement we are dealing with, Sentinel’s interpretation violates “two related 

principles applicable to all insurance contracts: first, that ‘the policy or its 

endorsements cannot be so interpreted as to become meaningless, or to

withhold coverage which the [layperson] would normally expect from it . . . ,’

and second, that ‘ “. . . [t]he courts will not sanction a construction of the 
31

insurer’s language that will defeat the very purpose or object of the 

insurance.” ’ ” (Howell v. State Farm Fire & Casualty Co. (1990) 

218 Cal.App.3d 1446, 1468 (conc. opn. of Barry-Deal, J.), disapproved on 

another issue, Reid v. Google, Inc. (2010) 50 Cal.4th 512, 532, fn. 7.)

Accordingly, we hold as follows: Reading Subparagraphs B.1.b. and 

B.1.f. of the Limited Virus Coverage in harmony with each other, and 

consistently with the rest of the Policy, the specially defined triggering

phrase “loss or damage” in each provision encompasses virus contamination 

so pervasive within a covered building that the virus is present on surfaces 

throughout the premises, thereby requiring cleaning of the contaminated 

surfaces and rendering the building unfit for its intended purpose. Under 

this reading of the Policy, when Subparagraph B.1.b. is triggered, so is 

Subparagraph B.1.f., since the special definition of “loss or damage” in the 

Limited Fungi or Virus Coverage Endorsement broadened the scope of the 

Special Property Coverage Form trigger language for purposes of virus risk.

Physical alteration of property is not required.15

To the extent the allegations of the operative complaint are inadequate

to show other requisite elements of Time Element Coverage under 

Subparagraph B.1.f.—such as whether there was a “period of restoration”

during which business operations were suspended—here again leave to 

amend should have been granted. The operative complaint does allege 

generally that “some or all of the period of John’s Grill’s closure [was] within 

the period of restoration under the Policy.” It is reasonable to expect John’s 

Grill could have alleged further particulars showing that, after coverage was 

15 We have no occasion to address the contention in Sentinel’s 

supplemental briefing that Subparagraph B.1.f. does not supply an 

“independent” grant of coverage. We do not suggest that it does.
32

triggered under Subparagraph B.1.b., the alleged period of closure lasted

until it could complete whatever “repair[],” “rebuil[ding],” or “replace[ment]”

was necessary to permit a resumption of operations under safe conditions

(such as the construction of a parklet or the reconfiguration of its space to 

permit socially distanced dining). Whether John’s Grill can add specific facts 

in support of its allegation that there was a “period of restoration,” we are 

unable to say because the issue was not a focus of attention in the trial court.

We simply hold it was entitled to try.

e. The Specified Causes Clause, as Sentinel Seeks To Apply It on 

This Record, Renders the Limited Virus Coverage “Virtually 

Illusory”

To plead there is coverage under a first party insurance policy, it is not 

enough for an insured merely to allege a triggering event. All the “trigger of 

coverage” does, as we noted above in our summary of California insurance 

coverage principles, is show a potential for coverage. If there are conditions

attached to the grant of coverage, the insured must also plead that those 

conditions have been met. For Sentinel, that is the crux of the matter 

regardless of how we interpret and apply the specially defined phrase “loss or 

damage” in the Limited Virus Coverage provisions. Because the operative 

complaint fails to allege any of the listed causes of virus in the Specified 

Causes Clause, we are told, John’s Grill is ineligible for coverage under the 

Limited Virus Coverage as a matter of law. John’s Grill responds that the

Specified Causes Clause is written so broadly that it is effectively impossible 

to meet. As a result, John’s Grill argues, the Specified Causes Clause 

renders the Limited Virus Coverage virtually “illusory” (Julian v. Hartford

Underwriters Ins. Co. (2005) 35 Cal.4th 747, 760) and is therefore 

unenforceable.
33

We agree with John’s Grill. Under well-established principles of 

contract law, “ ‘Words of promise which by their terms make performance 

entirely optional with the “promisor” . . . do not constitute a promise.’ ” (Peleg

v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th 1425, 1438.)

16 Plain 

and clear coverage conditions or limitations will always be enforced. 

(Scottsdale Ins. Co. v. Essex Ins. Co., supra, 98 Cal.App.4th at p. 94

[“nonstandard but not unusual” clause obligating builder to obtain 

certificates of insurance from all subcontractors made coverage “conditional 

but not illusory”].) But in construing ambiguous policy language, California 

courts eschew interpretations of exclusionary or limiting language written so 

broadly as to make it optional for the insurer to recognize the existence of 

coverage. That, in our view, is just what Sentinel’s proposed application of 

the Specified Causes Clause would do.

Literally read, Subparagraph B.1.a. of the Limited Fungi or Virus 

Coverage Endorsement is indecipherable when applied to viruses. The 

critical limiting phrase is that, for the Limited Virus Coverage to apply, the 

virus must be the “result of” one of a number of enumerated causes. But

16 “ ‘Although such words are often referred to as forming an illusory

promise, they do not fall within the present definition of promise. They may 

not even manifest any intention on the part of the promisor. Even if a 

present intention is manifested, the reservation of an option to change that 

intention means that there can be no promisee who is justified in an 

expectation of performance.’ (Rest.2d Contracts, § 2, com. e, p. 10; accord, id.,

§ 77, com. a, p. 195; 1 Corbin on Contracts (rev. ed. 1993) § 1.17, p. 47.) ‘One 

of the most common types of promise that is too indefinite for legal 

enforcement is the promise where the promisor retains an unlimited right to 

decide later the nature or extent of his or her performance. This unlimited 

choice in effect destroys the promise and makes it illusory.’ (1 Williston on 

Contracts (4th ed. 2007) § 4:27, pp. 804–805, fns. omitted; accord, 1 Witkin, 

Summary of Cal. Law (10th ed. 2005) Contracts, §§ 230–231, pp. 264–266.)” 

(Peleg, supra, 204 Cal.App.4th at pp. 1438–1439.)
34

none of the listed causes has anything to do with the biological processes that 

actually cause a virus. For some of the other listed perils in Subparagraph 

B.1.a., it is readily apparent how they might be the “result of” an enumerated 

cause (e.g., wet rot resulting from water damage). Not so for viruses. Only if 

the words are taken to refer to circumstances in which a specified cause is a 

vector for transmission of a virus does the language begin to make any sense

in the context of this particular peril. But that is not what the words say, 

and more importantly, it is not the only interpretation to which the phrase 

“result of” is reasonably susceptible. Pathogenic causation—in the sense 

that, say, cancer may be said to be the “result of” a toxic carcinogen—is 

another perfectly reasonable interpretation that could be adopted,

17 and it 

tends to favor John’s Grill’s contention that the Specified Causes Clause is 

impossible to meet. The applicable principles for interpreting insurance 

contracts do not compel us to resolve the ambiguity by placing a gloss on the 

text of the Policy, friendly to Sentinel, so that Subparagraph B.1.a. makes 

sense as applied.

Sentinel’s first pass at this issue is to wave it off by pointing out that 

we are dealing not just with virus coverage, but as more fully stated in the 

title of the endorsement, with “Limited Fungi, Bacteria or Virus Coverage”

17 Causation in the pathogenic sense is a well-known standard in tort 

law scenarios where the decisional focus is on whether microscopic 

particulates “cause” disease. (See Rutherford v. Owens-Illinois, Inc. (1997) 

16 Cal.4th 953, 982 [asbestos exposure].) The operative complaint can be 

reasonably read to rely upon this theory of causation. John’s Grill alleges 

that “viruses are unique in that they cannot reproduce without access to a 

living host cell, whereas the other agents covered by the Policy’s [Limited 

Virus Coverage] can and often do reproduce outside a host organism, such as 

when fungus or mold spores land in a humid environment, reproduce, grow, 

and proliferate. By contrast, a virus may survive briefly outside a host 

organism (such as when virus is shed), but it cannot reproduce there.”
35

(italics added). Given the disjunctive phrasing in the covered risks, Sentinel 

argues, so long as there is a possibility of coverage under some combination of 

covered risks and specified causes (e.g., wet rot caused by water damage), the 

illusory coverage doctrine does not apply. We reject that argument. It not 

only flies in the face of the principle that we must give effect to all the words 

of the Policy, but is precisely the kind of “heads I win, tails you lose” position 

the illusory coverage doctrine forbids. (Cf. Energy Ins. Mutual Limited v. Ace

American Ins. Co. (2017) 14 Cal.App.5th 281, 306 [comprehensive general 

liability coverage afforded under umbrella liability policy not “completely 

withdraw[n]” for claims arising from failure to provide professional services, 

since grant of coverage was not for errors and omissions liability].) Insurers 

cannot take in premium for a coverage grant that names a specifically 

covered risk—here virus contamination—and then justify denying coverage 

for it under all circumstances because some other risk may be covered under 

the same coverage grant.

Sentinel’s fallback argument is that, if we squint hard enough, the 

Limited Virus Coverage grant, as narrowed by the Specified Causes Clause,

does indeed provide for a sliver of coverage, which is why the coverage is 

described as “Limited.” According to Sentinel, it is conceivable a virus can be 

the “result of” one of the enumerated perils and then cause property loss or 

damage, though those circumstances may be exceedingly rare, even freakish. 

We are then asked to imagine how. “It is . . . easy to imagine a virus 

resulting from other specified causes of loss,” Sentinel tells us. “For example, 

‘water damage’ could result in waterborne viruses infecting property, 

including plant[s] or animals. ‘Vandalism’ might also cause a virus to spread 

on property, causing physical loss or damage to living property. And even if 

it were impossible for a virus to result from a specified cause of loss, the 
36

Limited Coverage would still not be illusory if an equipment breakdown could 

cause a virus to spread on property.”

We do not think these possibilities are so easy to see. Focusing on the 

precise text of the Specified Causes Clause, we explored some of them with 

counsel at oral argument. The scenario of an equipment breakdown led 

nowhere, as it quickly became apparent during our colloquy with counsel that 

while, for example, a malfunctioning air conditioning system might in theory 

create a heightened risk of airborne disease transmission within a building

(as with, say, Legionnaires’ disease), that scenario would involve risk to 

people—and hence implicate liability coverage, not property coverage—so it 

led back to the essential problem of whether a virus can ever cause the 

alteration of, and thus damage to, property. Other than problems with an air 

conditioning system, Sentinel has suggested no other scenario in which 

“Equipment Breakdown Accident” might lead to virus-caused loss or damage, 

presumably because the definition of “Equipment Breakdown Accident”

speaks of explosions, electrical arcing, rupture, or bursting of various 

machinery, events which have no demonstrable connection to the spread of a 

virus or any other microbial phenomena, even if we were to interpret the 

phrase “result of” generously to refer to vectors of virus transmission.

When pressed for more and better examples at oral argument, 

Sentinel’s counsel retreated to the theme that there might be any number of 

scenarios in which a virus could damage “living property.” To illustrate how 

this could occur, Sentinel’s counsel cited Curtis O. Griess & Sons v. Farm 

Bur. Ins. (Neb. 1995) 528 N.W.2d 329, a first party insurance version of 

Palsgraf v. Long Island R. Co. (1928) 162 N.E. 99, but without the 

universally recognized legal significance that a weird causation scenario 

provided there. Griess, a more quotidian case, is best limited to its peculiar 
37

factual context. There, a farmer in Nebraska claimed coverage under a first

party policy for the value of his pigs after the animals became sick and died

when, due to a windstorm, a virus from a neighboring farm infected them. 

The court held that, “where a virus has been transmitted by means of a 

covered peril, the covered peril has been held to be the proximate cause of the 

loss,” citing an Iowa case, Qualls v. Farm Bureau Mutual Insurance Company

(Iowa 1971) 184 N.W.2d 710, in which “14 heifers owned by the insured died 

of pseudorabies transmitted by wild animals which had attacked the heifers.”

(Griess, supra, 528 N.W.2d at p. 333, quoting Qualls, supra, 184 N.W.2d at 

p. 712.) Under the efficient loss causation rule in those states, these courts 

found that there was coverage for “living property” despite the attenuated 

chain of causation that led to the claimed losses at issue.

We fail to see what these oddball scenarios have to do with this case. 

Even if Griess could be read to support a reading of the phrase “result of” 

that means vector of viral transmission, there is still the matter of finding 

some nexus to property loss or damage, which is presumably why Sentinel 

emphasizes the risk to “living property” that Griess illustrates. But John’s 

Grill is not a farm, and even assuming pets may be found on its premises

from time to time, coverage is afforded for animals under the Policy only if 

“[t]hey are owned by others and boarded by you, or owned by you and held for 

sale or sold but not delivered.” If John’s Grill were operating a dog kennel or 

a pet store, perhaps the Griess case might have some relevance, but not on 

the actual business circumstances we are dealing with here. Nor is it selfevident to us that plant viruses may be transmitted through the same vectors 

of transmission that we intuitively associate with human disease (after all, 

plants do not ingest water or breathe in the same way humans do), but even 

if plant viruses may be transmitted by air or water, we have no idea whether 
38

plants are, in fact, part of the covered property environment on John’s Grill’s 

premises. So in the end, all Griess shows is that it is possible to conjure up 

many scenarios that might notionally pose a risk of damage to some form of 

“living property” for some businesses. But on this record, none of these

abstract risks bear on the insurance policy Sentinel underwrote for this

insured.

The parties argue back and forth about how unlikely coverage must be 

in order to justify application of the illusory coverage doctrine. Sentinel 

suggests that John’s Grill is simply complaining it is “hard” to show that a 

claim falls within the Limited Virus Coverage, while John’s Grill urges us to 

hold that it has “no realistic prospect” of benefitting from the Limited Virus 

Coverage. According to John’s Grill, it “is misleading and contrary to the 

reasonable expectations of the insured to market an endorsement” with the 

word virus in the “title if there is no realistic prospect it will ever pay out a 

claim for losses caused by virus.” We are disinclined to transform the 

doctrine of illusory coverage into a species of false advertising by tying it to 

how a policy was “marketed,” but we agree that the test for illusory coverage 

must focus on objective reality and the insured’s reasonable expectations of 

coverage. (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc.

(2000) 78 Cal.App.4th 847, 874.) Imaginary exercises involving pigs caught 

in windstorms and cows encountering wild animals will not do.

It takes more than a “a mere drafting fiction” to overcome a wellpleaded illusory coverage argument. (Julian v. Hartford Underwriters Ins.

Co., supra, 35 Cal.4th at p. 760.) Where an insured properly raises the issue 

of illusory coverage, as John’s Grill has done here, unsubstantiated 

speculation, untethered to the insured’s actual business circumstances as 

underwritten by the insurer, is not enough to defeat the argument. (Cf.
39

Blackhawk Corp. v. Gotham Ins. Co. (1997) 54 Cal.App.4th 1090, 1096–1097

[in light of insured’s actual business “as developer of raw land,” subsidence 

exclusions not illusory when applied to housing development on property sold 

by insured].) Because Sentinel has not proffered enough to demonstrate a 

realistic prospect of John’s Grill ever benefitting from the Limited Virus 

Coverage based on events the parties might reasonably have anticipated 

during the Policy period, we agree that Sentinel has, “through sweeping 

language,” rendered the Policy’s virus coverage terms “virtually illusory.” 

(Julian, supra, at p. 756.)

f. We Decline To Apply The Federal Case Law Cited by Sentinel

Sentinel claims that “dozens of courts—in California and across the 

country—have agreed with the superior court that th[e] exact ‘Virus 

Exclusion’ ” found in its Policy “ ‘unambiguously forecloses coverage of . . . 

alleged losses due to either COVID contamination or the Closure Orders.’ ” It 

claims further that “[t]hese decisions join dozens more that have found that 

similar ‘virus exclusions clearly and without doubt preclude coverage for the 

losses and expenses alleged by’ businesses forced to shut down due to the 

coronavirus and related closure orders.” Half of this argument is correct. If 

all we had to do here was apply an absolute, unqualified exclusion, without 

an affirmative grant of coverage, the body of case law Sentinel relies upon 

would likely be dispositive. But we have more than that. At oral argument, 

Sentinel lowered the number of cases applying the same Limited Fungi or 

Virus Coverage Endorsement at issue in this case down from “dozens” to 

seventeen in total,18 and of those cases, nine have applied California 

18 All of these cases appear to involve Sentinel, Twin City Fire 

Insurance Company, or Hartford Fire Insurance Company, each of which is 

an affiliated company in the HFSG family of Hartford companies, a finding
40

insurance coverage law.

19 This appears to be the body of case law to which 

Sentinel refers in claiming that “every California court to address” the 

illusory coverage argument made by John’s Grill has rejected it. The cases 

are all non-binding decisions from federal district judges sitting in diversity.

The district judges in the nine cases applying California law take 

various analytical routes to rejecting the coverage theory asserted by John’s 

Grill under the Limited Fungi or Virus Coverage Endorsement. Some of the 

opinions construe the Policy to require physical alteration of property under 

the Mudpie line of cases, thus in effect giving the trigger clause in the 

Limited Virus Coverage no greater breadth than the coverage trigger in the 

main first party coverage grant, and failing to recognize that the special 

that the trial court in this case made with respect to Sentinel and that we see 

trial courts have made elsewhere with respect to Twin City Fire and Hartford 

Fire. (See, e.g., Rosalez v. Hartford Financial Services Group, Inc. (D.Ariz., 

Feb. 3, 2021, No. CV-20-00766-PHX-JJT) 2021 WL 363856.)

19 Barbizon School of San Francisco, Inc. v. Sentinel Ins. Co., Ltd.

(N.D.Cal., Dec. 3, 2021, No. 20-cv-08578-TSH) 2021 WL 5758890; Mostre

Exhibits, LLC v. Sentinel Ins. Co., Ltd. (S.D.Cal., Oct. 15, 2021, No. 20-cv1332-BAS-BLM) 2021 WL 4819411; Protégé Restaurant Partners LLC v.

Sentinel Ins. Co., Ltd. (N.D.Cal., Sept. 28, 2021, No. 20-cv-03674-BLF) 

2021 WL 4442652, *4, affd. (9th Cir. 2022) 2022 WL 14476377 (mem. opn.); 

Ets-Hokin v. Sentinel Ins. Co., Ltd. (N.D.Cal., Aug. 27, 2021, No. 20-cv-06518-

JST) 2021 WL 4472692; Hair Perfect International, Inc. v. Sentinel Ins. Co.,

Ltd. (C.D.Cal., May 20, 2021, No. LA CV20-03729 JAK (KSx)) 2021 WL 

2143459; French Laundry Partners, LP v. Hartford Fire Ins. Co. (N.D.Cal. 

2021) 535 F.Supp.3d 897 (French Laundry); Westside Head & Neck v.

Hartford Fin. Servs. Group (C.D.Cal. 2021) 526 F.Supp.3d 727; Colgan v.

Sentinel Ins. Company, Ltd. (N.D.Cal. 2021) 515 F.Supp.3d 1082 (Colgan); 

Franklin EWC, Inc. v. Hartford Fin. Servs. Group (N.D.Cal. 2020) 

506 F.Supp.3d 854 (Franklin EWC).
41

definition of “loss or damage” creates ambiguity.

20 Some say that any

conceivable “possibility of coverage” is enough to defeat the illusory coverage 

doctrine, either accepting the Griess case as an example of how the grant of

Limited Virus Coverage might be triggered,

21 or accepting the idea that any 

potential for coverage for one peril in a multi-peril grant of coverage is 

enough to show the requisite possibility of coverage,

22 or both. Some 

complete their coverage analysis by invoking the Virus Exclusion without 

considering the principle that exclusions are construed narrowly and 

exceptions to exclusions are construed broadly, and without addressing the 

illusory coverage doctrine at all.

23 And some rule on a combination of these 

grounds, with most of the cases citing to one another.24

We reach a different conclusion at each step of the analysis. We 

recognize that the nine cases Sentinel cites are in line with a number of 

federal district court opinions in diversity cases across the country that have 

applied the same Limited Fungi or Virus Coverage Endorsement form we are 

dealing with, but we find none of the others any more persuasive than the 

20 See, e.g., Mostre Exhibits, LLC v. Sentinel Ins. Co., Ltd., supra, 

2021 WL 4819411 at pages *6, *8; Colgan, supra, 515 F.Supp.3d at pages

1086–1087.

21 See, e.g., French Laundry, supra, 535 F.Supp.3d at pages 903–904; 

Franklin EWC, supra, 506 F.Supp.3d at page 861.

22 See, e.g., Barbizon School of San Francisco, Inc. v. Sentinel Ins. Co.,

Ltd., supra, 2021 WL 5758890 at page *9.

23 See, e.g., Colgan, supra, 515 F.Supp.3d at page 1088.

24 See, e.g., Ets-Hokin v. Sentinel Ins. Co., Ltd., supra, 2021 WL 

4472692 at page *2; French Laundry, supra, 535 F.Supp.3d at pages 903–904; 

Franklin EWC, supra, 506 F.Supp.3d at pages 860–861; Hair Perfect

International, Inc. v. Sentinel Ins. Co., Ltd., supra, 2021 WL 2143459 at 

page *9; Westside Head & Neck v. Hartford Fin. Servs. Group, supra, 

526 F.Supp.3d at pages 733–734.
42

diversity cases from California. Rather than deal with all the non-California 

cases applying the Limited Fungi or Virus Coverage Endorsement form, we 

will treat one particular case, Cosmetic Laser, supra, 554 F.Supp.3d 389, as 

illustrative because it is one of the more thoroughly reasoned and frequently 

cited of the cases of its type. In our view, Cosmetic Laser highlights

particularly well why this vein of precedent cannot be transplanted to 

California.

Applying Connecticut and Ohio law, the Cosmetic Laser court first 

analyzes the Virus Exclusion, and finds its exclusionary language clear and 

unambiguous. (Cosmetic Laser, supra, 554 F.Supp.3d at p. 401 & fn. 9.) It

then goes on to say that the insured’s proposed reading of Subparagraph 

B.1.f.—the Time Element Coverage clause—“would swallow the Virus 

Exclusion as a whole.” (Cosmetic Laser, at p. 404.) The court explains: “The 

Virus Exclusion begins by firmly stating that loss or damage resulting from a 

virus ‘is excluded regardless of any other cause or event that contributes 

concurrently or in any sequence to the loss.’ ” (Ibid.) After observing that 

“Cosmetic Laser’s interpretation of Subsection B.1.f. would conflict with the 

function of the Virus Exclusion” (ibid.), the court concludes as follows: “On 

[the insured’s proposed] reading, that same Virus Exclusion, just one page 

later, would grant coverage—without limitation—for suspension of business 

operations due to a virus. I will not ‘read[] the Limited Coverage provision in 

the Virus Exclusion to subsume the Policy and the exclusion, itself’ ” (ibid., 

italics added).

We have no reason to delve into whether the principles of Connecticut 

law, Ohio law, and California law are the same. We also recognize that the 

insured in Cosmetic Laser made different arguments in favor of coverage

than John’s Grill does, but that court’s conflation of the Virus Exclusion and 
43

the Limited Virus Coverage grant demonstrates why a different analysis is 

required here. What the Cosmetic Laser court perceived as an internal 

conflict between the Virus Exclusion and the Limited Virus Coverage grant 

(at least as it was proposed to be construed by the insured there) is easily 

resolved under California law by giving primacy to the insuring agreement in 

the Limited Virus Coverage provisions, broadly read, and dealing with the 

Virus Exclusion, narrowly read, only after completing the first step of the 

analysis (since the Virus Exclusion is inapplicable by its plain terms 

wherever there is Limited Virus Coverage).

Instead, the Cosmetic Laser court gave primacy to the Virus Exclusion, 

and went on from there, never directly addressing the full scope of the 

coverage grant in the Limited Virus Coverage provisions. This approach to 

analyzing the Limited Fungi or Virus Coverage Endorsement—which 

happens to be the same general approach Sentinel persuaded the trial court 

to take in this case (probably not coincidentally, since counsel for the insurer 

in Cosmetic Laser is also counsel for Sentinel in this case)—follows the 

organization of the endorsement itself: Virus Exclusion first, Specified 

Causes Clause second, Limited Fungi or Virus Coverage provisions third. 

But the layout of the Limited Fungi or Virus Coverage Endorsement cannot 

dictate the proper approach to analyzing coverage. The legal analysis we 

must apply is governed by settled principles of insurance contract 

interpretation, not by the format of the endorsement. Using the Limited

Fungi or Virus Coverage Endorsement as a self-contained map to the 

analysis effectively treats it in isolation from the rest of the Policy, contrary 

to those principles.

That is not how we proceed in this state. The sequence of analysis 

matters. Because insuring agreements and exceptions to exclusions are to be 
44

read broadly in favor of coverage, the key question here is not whether the 

Limited Virus Coverage would swallow the Virus Exclusion, which was a

stated concern of the Cosmetic Laser court. Rather, it is just the opposite. 

Under California law we are concerned with giving an affirmative grant of 

coverage its fullest reach, in accord with its text and structure, while bearing 

in mind that ambiguities must be resolved in accordance with the reasonable 

expectations of the insured. The applicability of the Virus Exclusion may be 

determined only after that threshold question is answered, keeping in mind 

the exclusion is to be given narrow scope.

III. DISPOSITION

The judgment is affirmed in part (as to HFSG) and reversed in part (as 

to Sentinel) and remanded for further proceedings, if any are warranted

following the reported settlement. The parties are to bear their own costs on 

appeal.

STREETER, J.

WE CONCUR:

POLLAK, P. J.

GOLDMAN, J.
John’s Grill, Inc., et al. v. The Hartford Financial Services Group, Inc., et al. - A162709

Trial Court: Superior Court of California, County of San Francisco

Trial Judge: Hon. Ethan P. Schulman

Counsel: Cotchett, Pitre & McCarthy, Nanci E. Nishimura, Brian Danitz,

Andrew F. Kirtley, Julia Q. Peng, for Plaintiffs and 

Appellants.

Steptoe & Johnson, Anthony J. Anscombe; Wiggin and Dana, 

Tadhg Dooley, David R. Roth, for Defendants and 

Respondents.