Court Opinion

ID: 9385909
Source: CourtListenerOpinion
Date Created: 2023-04-10 18:02:32.699838+00
Date Added: 2024-06-11T17:17:58.086696
License: Public Domain

Filed 4/10/23

                              CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                              FOURTH APPELLATE DISTRICT

                                       DIVISION THREE

 COAST RESTAURANT GROUP, INC.,

      Plaintiff and Appellant,                         G061040

          v.                                           (Super. Ct. No. 30-2020-01153185)

 AMGUARD INSURANCE COMPANY,                            OPINION

      Defendant and Respondent.

                  Appeal from a judgment of the Superior Court of Orange County, Richard
Y. Lee, Judge. Affirmed.
                  Shernoff Bidart Echeverria, Michael J. Bidart, Ricardo Echeverria, Kristin
Hobbs, and Reid Ehrlich-Quinn for Plaintiff and Appellant.
                  United Policyholders, Covington & Burling, Sabrina T. McGraw, Rani
Gupta and Richard Z. Lee, as Amicus Curiae, on behalf of Appellant.
                  Simpson Thacher & Bartlett, Chet A. Kronenberg and Brooke Jarrett for
Defendant and Respondent.
                               *             *             *
              Coast Restaurant Group appeals from a judgment of dismissal following the
trial court’s order sustaining respondent AmGUARD Insurance Company’s demurrer to
the operative complaint without leave to amend. Appellant contends the court erred in
sustaining the demurrer because it has shown that business income losses resulting from
governmental orders prohibiting on-site dining at its restaurant due to the COVID-19
virus were covered under the relevant insurance policy. As explained below, we
conclude appellant has shown there is potential coverage under the policy, but respondent
has shown that an exclusion in the policy applies to preclude coverage as a matter of law.
Accordingly, we affirm.
                                              I
                       FACTUAL AND PROCEDURAL BACKGROUND
A. First Amended Complaint
              On April 28, 2021, appellant filed a first amended complaint (FAC),
alleging causes of action for breach of implied covenant of good faith and fair dealing
                                          1
and breach of contract against respondent. The FAC alleged that appellant operates the
Cedar Creek Inn, a restaurant in North Orange County, which offers a variety of fine
food, an extensive wine list and craft beer, and live musical performances from Tuesday
through Saturday. Appellant obtained business interruption insurance from respondent,
covering the period from March 30, 2019 to March 30, 2021. Business interruption
insurance “‘protects against the loss of income and other losses caused by an interruption
to the normal operations of the business.’”
              The FAC further alleged that in January 2020, COVID-19, a coronavirus,
was present in California, and on March 4, 2020, the Governor of California proclaimed a
state of emergency “exist[ed] in California “‘as a result of the threat of COVID-19.’””
On March 17, 2020, the Orange County health officer issued an order that, among other
1
   Appellant also alleged a negligence cause of action against its insurance broker, which
is not at issue in this appeal.

                                              2
things, “prohibited restaurants from serving food on their premises and prohibited all
gatherings of people.” The next day, the county health officer issued an amended health
order and uidance requiring “[a]ll restaurants and other business establishments that serve
food shall close all onsite [sic] dining. Pickup, delivery and drive thru [sic] services may
remain open. . . .” The FAC alleged the orders “forced [appellant] to shut its doors for in
person dining and resulted in a loss of functional use of its premises and an interruption
of its business.”
              The FAC alleged appellant submitted a claim for its business income loss.
The FAC asserted that appellant “did not lose any business income as a result of virus
contamination,” but rather its “losses of business income were caused by, and a direct
result of, government stay-at-home orders in California.” However, respondent
“abruptly, unreasonably and with a callous disregard for the interests of its insured,
denied the claim in its entirety.” Respondent’s grounds for denying coverage were that
appellant did not claim the property sustained any direct physical loss or damage and the
virus exclusion under the policy would also bar coverage. The FAC alleged that
respondent’s actions breached the insurance contract and the related implied covenant of
good faith and fair dealing.
               The FAC attached a copy of the insurance policy. Under “Additional
Coverages” for “Business Income,” the policy provides: ‘“[w]e [respondent] will pay for
the actual loss of [b]usiness [i]ncome you sustain due to the necessary suspension of your
‘operations’ during the ‘period of restoration.’ The suspension must be caused by direct
physical loss of or damage to property at the described premises. The loss or damage
must be caused by or result from a Covered Cause of Loss.”’ The policy defines
“suspension” of operations as the “partial slowdown or complete cessation of your
business activities” and “[t]hat a part of or all of the described premises is rendered
untenantable.” ‘“Period of restoration”’ is defined as beginning “72 hours after the time
of direct physical loss or damage” and ending on the earlier of “(a) [t]he date when the

                                              3
property at the described premises should be repaired, rebuilt, or replaced with reasonable
speed and similar quality; or (b) [t]he date when business is resumed at a new permanent
location.” The policy limits payment for business income loss on “[r]esumption [o]f
[o]perations,” providing that business income loss will be reduced “to the extent you can
resume your ‘operations’ in whole or in part, by using damaged or undamaged property
(including merchandise or stock) at the described premises or elsewhere.”
              The policy defines “Covered Causes of Loss” as all “[r]isks of direct
physical loss” except those specifically excluded in “Paragraph B. Exclusions in Section
1.” Section 1 provides: “We will not pay for loss or damage caused directly or indirectly
by any of the following. Such loss or damage is excluded regardless of any other cause
or event that contributes concurrently or in any sequence to the loss. These exclusions
apply whether or not the loss event results in widespread damage or affects a substantial
area.” The relevant exclusions include: B.1.a.(1) “The enforcement of any ordinance or
law: [¶] (a) Regulating the construction, use or repair of any property”; and B.1.j. (1)
“Any virus, bacterium or other microorganism that induces or is capable of inducing
physical distress, illness or disease.” Paragraph B, Section 2.b., provides that the insurer
will not pay for loss or damage caused by “Consequential Losses,” which are defined as
“[d]elay, loss of use or loss of market.”
              The FAC also attached the governmental orders restricting on-site
gatherings at restaurants. The March 17, 2020 order states: “All restaurants and other
business establishments that serve food shall close all on-site dining . . . All food served
shall be by delivery, or through pick-up or drive-thru.” In Paragraph 4, the order states:
“This Order is necessary to protect and preserve the public health from, and prevent, the
increasing transmission of COVID-19 in California, and the significant risk of
widespread introduction and transmission of COVID-19 into the County.” The March
18, 2020 amended order, restricted the service of food to “delivery, pick-up or
drive[]through,” also provides that it was issued “to protect and preserve the public health

                                              4
from, and prevent, the increasing transmission of COVID-19 in California, and the
significant risk of widespread introduction and transmission of COVID-19 into the
County.”
B. Demurrer
              Respondent demurred to the FAC. In the demurrer, respondent contended
there was no breach of contract claim because the insurance policy does not cover “losses
arising from the COVID-19 virus, including government[al] directives issued in response
to the virus.” Separately, respondent contended that appellant did not allege any “direct
physical loss or damage to” the covered property because governmental orders limiting
the use of respondent’s property do not amount to “direct physical loss of or damage to
property.” Respondent further asserted the “Ordinance or Law” exclusion precludes
coverage for “losses arising from government-imposed use restrictions.” Respondent
also asserted the claim for breach of the implied covenant of good faith and fair dealing
should be dismissed because its denial decision is “consistent with the plain language of
the [insurance policy] and supported by numerous recent cases denying similar COVID-
19-related business interruption claims.”
               Appellant opposed the demurrer, arguing the insurance policy covers the
loss of beneficial use or possession of the property as a “direct physical loss of . . .
property,” which occurred here because the governmental orders effectively deprived
appellant of possession and use of its restaurant. Appellant also argued the policy’s virus
exclusion did not apply because under the efficient proximate cause doctrine where the
loss is the product of two perils (the virus and the governmental orders), there is coverage
if the predominating cause is a covered peril (the governmental orders) even if the non-
covered peril (the virus) is the “triggering cause.”
              In reply, respondent argued the governmental orders did not cause direct
physical loss of property because appellant did not lose physical possession of its
property permanently. Additionally, respondent argued, appellant’s loss of use claim is

                                               5
barred by the policy’s “Ordinance or Law” exclusion which excludes coverage for any
ordinance or law “‘[r]egulating the construction, use or repair of any property.’”
Respondent also argued that the efficient proximate cause doctrine did not apply because
the virus was the sole cause of loss.
              On September 13, 2021, the trial court sustained without leave to amend the
demurrer to the FAC. In its written ruling, the court did not determine whether
appellant’s claim for business loss was covered under the policy as a “risk of physical
loss.” Rather, it determined that the virus exclusion applies to deny any coverage, stating
the “governmental orders affecting [appellant’s] business operations, and ultimately loss
of business income, was a result of the COVID-19 virus. In other words, . . .
[respondent] properly denied coverage because the loss was ‘indirectly’ caused by the
virus.”
                                              II
                                        DISCUSSION
              Appellant contends the trial court erred in sustaining respondent’s demurrer
without leave to amend. “On appeal from a judgment dismissing an action after
sustaining a demurrer without leave to amend, the standard of review is well settled. We
give the complaint a reasonable interpretation, reading it as a whole and its parts in their
context. [Citation.] Further, we treat the demurrer as admitting all material facts
properly pleaded, but do not assume the truth of contentions, deductions or conclusions
of law. [Citations.] When a demurrer is sustained, we determine whether the complaint
states facts sufficient to constitute a cause of action. [Citation.]” (City of Dinuba v.
County of Tulare (2007) 41 Cal.4th 859, 865.) In reviewing the sustaining of a demurrer,
we address whether the results, and not the court’s reasons, are correct. (Perkin v. San
Diego Gas & Electric Co. (2014) 225 Cal.App.4th 492, 501.)
              Resolution of this appeal requires the interpretation of appellant’s insurance
policy. “The principles governing the interpretation of insurance policies in California

                                              6
are well settled. ‘Our goal in construing insurance contracts, as with contracts generally,
is to give effect to the parties’ mutual intentions. [Citations.] “If contractual language is
clear and explicit, it governs.” [Citation.] If the terms are ambiguous [i.e., susceptible of
more than one reasonable interpretation], we interpret them to protect “‘the objectively
reasonable expectations of the insured.’” [Citations.] “‘Only if these rules do not resolve
a claimed ambiguity do we resort to the rule that ambiguities are to be resolved against
the insurer. [citation]’” (Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315,
321 (Minkler).)
              “[I]n cases of ambiguity, basic coverage provisions are construed broadly
in favor of affording protection, but clauses setting forth specific exclusions from
coverage are interpreted narrowly against the insurer. The insured has the burden of
establishing that a claim, unless specifically excluded, is within basic coverage, while the
insurer has the burden of establishing that a specific exclusion applies.” (Minkler, supra,
49 Cal.4th at p. 322.) “The policy must be examined as a whole, and in context, to
determine whether an ambiguity exists.” (Id. at p. 322.) “It is black-letter insurance law
that exclusions are only considered after it is established that coverage exists under the
policy.” (Apple Annie, LLC v. Oregon Mutual Ins. Co. (2022) 82 Cal.App.5th 919, 924.)
A. Coverage Under the Insurance Policy
              Here, appellant has the burden of showing that its business income loss was
within basic coverage. Accordingly, appellant must show the governmental orders
prohibiting on-site dining is a “risk of physical loss” and that the orders resulted in
“direct physical loss of or damage to the property.” Appellant contends “direct physical
loss” includes deprivation or dispossession of property even if the property has not been
physically damaged or altered. Appellant’s contention has merit.
              “Words in an insurance policy, unless given special meanings by the policy
itself, must be understood in their ordinary sense.” (Scott v. Continental Ins. Co. (1996)
44 Cal.App.4th 24, 28.) The policy here does not define “direct physical loss” as a whole

                                              7
or separately. Thus, we may resort to dictionary definitions, taking care to “consider the
policy context in which the word or term was used and attempt[ing] to put [our]self in the
position of a layperson and understand how he or she might reasonably interpret the
particular language.” (Jordan v. Allstate Ins. Co. (2004) 116 Cal.App.4th 1206, 1216.)
              Webster’s Third New International Dictionary (2002) defines
              • “direct” as “marked by absence of an intervening agency, instrumentality,
or influence: immediate”;
              • “physical” as “of or relating to natural or material things as opposed to
things mental, moral, spiritual, or imaginary”; and
              • “loss” as “failure to keep possession: deprivation,” “act or fact of failing
to gain, win, obtain or utilize,” or “destruction, ruin, perdition.” (Webster's 3d New
Internat. Dict. (2002) pp. 640, 1706, 1338.)
              Based on the above dictionary definitions, the governmental orders at issue
directly affected the property because there was no intervening cause. The orders also
physically affected the property because they affected how the physical space of the
property and the physical objects (chairs, tables, etc.) in that space could or could not be
used. The remaining issue is whether the orders caused a “loss.” We conclude that
appellant suffered a covered loss under the policy because the governmental restrictions
in this case deprived the appellant of important property rights in the covered property.
              A governmental order that temporarily deprives the insured of possession
and use of covered property can qualify as a “direct physical loss.” American Alternative
Ins. Corp. v. Superior Court (2006) 135 Cal.App.4th 1239 (American Alternative) is
illustrative. There, the insured obtained coverage that “‘promised indemnity for any
‘physical damage’ to [a specific] aircraft. The term ‘physical damage’ was specifically
defined to include a “direct and accidental physical loss” of the aircraft.” (Id. at p. 1246.)
A county sheriff seized the aircraft on April 2, 2003, as part of a civil forfeiture
proceeding, before returning the aircraft on May 22, 2003, after a court found no

                                               8
probable cause to seize the airplane. (Id. at p. 1243.) The appellate court concluded that,
“[o]n its face, such a coverage promise could reasonably extend to a governmental
seizure or confiscation.” (Id. at p. 1246.) Similarly, here, the governmental orders
temporarily deprived appellant of its right to use the covered property for on-site dining,
which would be a “loss” under the coverage provisions.
              Respondent argues American Alternative is distinguishable because in that
case there was an exclusion precluding coverage for seizure and confiscation, but the
insured purchased an endorsement deleting that exclusion. Respondent also argues
interpreting “loss” to include loss of use contradicts provisions in the policy excluding
loss of use. For example, the policy excludes “loss or damage caused directly or
indirectly by . . . enforcement of any ordinance or law . . . [that] [r]egulates the
construction, use or repair of any property[.]” It also excludes “[c]onsequential losses,”
including “delay, loss of use or loss of market.” Those arguments, however, persuade us
that our interpretation is correct. As the appellate court in American Alternative
explained, “[the insurer] presumably . . . construed the policy [as applying to
governmental seizures and confiscation] since there was an explicit exclusion included in
the policy precluding such coverage. The insureds, however, had purchased an
endorsement expressly deleting that exclusion. In our view, this supports an objectively
reasonable expectation that [the policy] provided coverage for a governmental seizure.”
(American Alternative, supra, 135 Cal.App.4th at pp. 1246-1247.) Similarly, here, the
explicit exclusion for governmental orders restricting use of covered property supports
                                                                   2
our interpretation that loss of use is covered under the policy.
              Respondent contends our interpretation that loss of use is covered is
inconsistent with the policy’s definition of the term “period of restoration.” As noted, the
policy only covers business income loss from a “direct physical loss” during “the period
2
  Whether respondent met its burden to show that one or more of those exclusions apply
to deny coverage is a separate issue that will be discussed in the next section.

                                               9
of restoration.” “Period of restoration” is defined as beginning “72 hours after the time of
direct physical loss or damage” and ending on the earlier of “(a) [t]he date when the
property at the described premises should be repaired, rebuilt or replaced with reasonable
speed and similar quality” or “(b) [t]he date when business is resumed at a new
permanent location.” Appellant argues that because there is no ending date for
governmental orders restricting use under the above policy definitions, interpreting those
orders as creating a “loss” would render the “period of restoration” superfluous. We
disagree. First, the “period of restoration” only provides one method of calculating the
duration of coverage, and does not purport to define the scope of coverage. Second, the
ending date provisions in the “period of restoration” are not superfluous because they
provide an ending date calculation for those cases where covered property is
“damage[d].” In cases of a “loss” arising from governmental-use restrictions, those
provisions would result in an open-ended “period of restoration” because there would be
                  3
no ending date.
                Respondent also contends American Alternative is factually distinguishable
because there the insured “lost actual possession of and access to an aircraft when it was
confiscated . . . not just the inability to use property in a particular way.” The policy
here, however, does not distinguish between a partial loss or a total loss. Thus, even if
appellant’s deprivation here is less than the insured’s deprivation in American
Alternative, there is still a “loss” under the policy, although the amount of the loss would
be different.

3
  The open-ended “period of restoration,” however, would not create unlimited coverage
because the “period of restoration” only provides one method of calculating the duration
of coverage. As noted, the policy limits payment for business income loss upon
“[r]esumption [o]f [o]perations,” providing that business income loss will be reduced “to
the extent you can resume your ‘operations’ in whole or in part, by using damaged or
undamaged property (including merchandise or stock) at the described premises or
elsewhere.” Thus, the insurer must provide coverage until the insured is able to resume
full operations.

                                              10
               MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co. (2010)
187 Cal.App.4th 766 (MRI Healthcare) does not persuade us that our interpretation that
“a direct physical loss” can include loss of use, even if the subject property is not
physically altered or damaged, is incorrect. In MRI Healthcare, the insured obtained
coverage for “accidental direct physical loss to business personal property.” (Id. at p.
771, italics omitted.) After storms damaged the roof over the room housing the insured’s
magnetic resonance imaging (MRI) machine, the insured demagnetized the MRI machine
to allow for the roof repairs. However, when the insured tried to remagnetize the
machine, it could not do so and had to extensively repair the machine. (Id. at p. 770.)
The appellate court concluded the insured could not recover the amount it expended to
repair the MRI machine and the income loss sustained while the machine was inoperable
because there was no “accidental direct physical loss” to the MRI machine. (Id. at
p. 778.) In reaching its conclusion, the appellate court discussed the term “physical
loss.” The court first noted that a well-respected treatise, Couch on Insurance, states that
the “physical loss or damage” coverage trigger is “[c]learly” met when an item of
tangible property has been “‘physically altered,’” but “serious questions crop up in
instances when the structure of the property itself is unchanged to the naked eye and the
insured claims its usefulness for its normal purposes has been destroyed or reduced.”
(Id. at pp. 778-779, quoting 10A Couch on Insurance (3d ed. 2010) § 148:46, p. 148-80.)
The appellate court then concluded that “[f]or there to be a ‘loss’ within the meaning of
the policy, some external force must have acted upon the insured property to cause a
physical change in the condition of the property, i.e., it must have been ‘damaged’ within
the common understanding of that term.” (MRI Healthcare, supra, 187 Cal.App.4th at
           4
p. 780.)

4
  The appellate court also found there was no coverage because the undisputed facts
showed that “the [demagnetization] of the MRI machine was not ‘accidental.”’ (MRI
Healthcare, supra, 187 Cal.App.4th at pp. 780-781.)

                                             11
              MRI Healthcare, is factually and legally distinguishable. First, MRI
Healthcare involved business personal property, not real property as is the case here, and
there was no governmental order involved. Second, the insuring clause in MRI
Healthcare only covered “accidental direct physical loss,” without any mention of
“damage.” The conclusion there was no “loss” was directly attributed to lack of
“damage.” (See id., 187 Cal.App.4th at pp. 778-780 [“[f]or there to be a ‘loss’ . . . it must
have been ‘damaged’ . . . .”].) It was reasonable for the appellate court in MRI
Healthcare to include “damage” as an aspect of “loss” because “damage” was not
specifically included in the insuring clause. However, where “loss” and “damage” are
both included in the insuring clause, as in the policy here, “loss” must mean something
different from “damage.” Thus, the MRI Healthcare court’s reasoning is not helpful for
this case.
              Finally, while physical alteration to covered property could trigger
coverage under a “physical loss or damage” insuring provision, that is not the only
possible trigger for coverage. As discussed above, deprivation or dispossession also
would trigger coverage, even if the property has not been physically altered. (See
American Alternative, supra, 135 Cal.App.4th at pp. 1246-1247.) In sum, we are not
persuaded by MRI Healthcare and the numerous cases citing its reasoning that “loss” of
property requires physical alteration or damage to covered property. We conclude
appellant has met its burden to show there can be coverage under the policy for
                                                5
governmental orders resulting in loss of use.

5
  We decline to consider the issues addressed in amicus curiae’s briefing because they
are not relevant to this case. Amicus curiae argues that COVID-19 itself can cause
“direct physical loss,” but in this case appellant alleged that the governmental orders, not
the virus itself, caused direct physical loss.

                                             12
B. Exclusions Under the Insurance Policy
              Having concluded that appellant has demonstrated potential for coverage
under the terms of the policy, we turn to whether respondent has shown an exclusion
applies to deny coverage. In its demurrer, respondent argued two exclusions in the policy
apply to this case: (1) the ordinance or law exclusion, and (2) the virus exclusion. We
address each exclusion in turn.
              1. The Ordinance or Law Exclusion
              Under the ordinance or law exclusion, “loss or damage caused directly or
indirectly by . . . enforcement of any ordinance or law . . . [that regulates] the
construction, use or repair of any property” are not covered. The governmental orders at
issue clearly regulate the use of covered property by prohibiting on-site dining.
Accordingly, the ordinance or law exclusion would apply to preclude coverage.
              Appellant contends we should apply the rule of noscitur a sociis to interpret
the ordinance or law exclusion to apply only to governmental orders that regulate “the
physical structural integrity of the property” because the term “use” is part of the phrase
“construction, use, or repair.” Noscitur a sociis means “‘a word takes meaning from the
company it keeps. [Citation]’” (People v. Hernandez (2017) 10 Cal.App.5th 192, 200.)
Under this rule, “‘“[a] word of uncertain meaning may be known from its associates and
its meaning ‘enlarged or restrained by reference to the object of the whole clause in
which it is used.’ [Citation.]” [Citation.]’ [Citation.] ‘“‘In accordance with this principle
of construction, a court will adopt a restrictive meaning of a listed item if acceptance of a
more expansive meaning would make other items in the list unnecessary or redundant, or
would otherwise make the item markedly dissimilar to the other items in the list.
[Citations]’”” (Ibid.) We decline to do so because nothing suggests the term “use” is
limited to structural integrity even when interpreted in connection with “construction”
and “repair.” For example, a governmental order regulating the number of occupancy or
the permitted use of properties under applicable zoning laws does not necessarily relate to

                                              13
the structural integrity of a building, but could affect construction, use or repair of the
building.
              At oral argument, appellant argued interpreting the ordinance or law
exclusion as applying to loss of use from governmental orders would cause the basic
coverage to be illusory. We disagree. “A contract is illusory if performance is
‘conditional on some fact or event that is wholly under the promisor’s control and
bringing it about is left wholly to the promisor’s own will and discretion.’” (Forecast
Homes, Inc. v. Steadfast Ins. Co. (2010) 181 Cal.App.4th 1466, 1483, quoting Asmus v.
Pacific Bell (2000) 23 Cal.4th 1, 15.) In this case, respondent would be obliged to cover
business income losses from a loss of use, except from governmental orders restricting
use, which is an event not within respondent’s control. Thus, the policy is not illusory.
              2. The Virus Exclusion
              In the alternative, the virus exclusion applies to deny appellant coverage for
its business income loss. As detailed above, the policy does not cover “loss or damage
caused directly or indirectly by” “[a]ny virus, bacterium or other microorganism that
induces or is capable of inducing physical distress, illness or disease.” As the FAC
acknowledges, COVID-19, a coronavirus, is a “virus.” It is undisputed that COVID-19
“induces or is capable of inducing physical distress or illness.” In addition, the
governmental orders at issue specifically state that they were promulgated “to protect and
preserve the public health from, and prevent, the increasing transmission of COVID-19 in
California, and the significant risk of widespread introduction and transmission of
COVID-19 into the County.” Thus, at a minimum, COVID-19 triggered the
governmental orders and it “indirectly” caused appellant’s business income loss. The
virus exclusion thus applies here.

                                              14
              Appellant argues that even if the virus exception applies, the efficient
proximate cause doctrine would apply to provide coverage. Under the efficient
proximate cause doctrine, “[w]hen a loss is caused by a combination of a covered and
specifically excluded risks, the loss is covered if the covered risk was the efficient
proximate cause of the loss,” but “the loss is not covered if the covered risk was only a
remote cause of the loss, or the excluded risk was the efficient proximate, or predominate
cause.” (State Farm Fire & Casualty Co. v. Von Der Lieth (1991) 54 Cal.3d 1123, 1131-
1132.) The efficient proximate cause of a loss is the “predominant” or “most important”
cause of the loss. (Julian v. Hartford Underwriters Ins. Co. (2005) 35 Cal.4th 747, 754.)
              The efficient proximate cause doctrine does not apply because the doctrine
requires a combination of covered and specifically excluded risks. Both the virus and the
governmental orders here are specifically excluded. Additionally, the two possible
causes of appellant’s business income loss are not conceptually distinct perils. In Roberts
v. Assurance Co. of America (2008) 163 Cal.App.4th 1398, this court explained that “the
[efficient proximate] cause doctrine applies only when two or more conceptually distinct
perils combine to cause the loss.” (Id. at p. 1409.) In other words, the perils must be
such that “‘they could each, under some circumstances, have occurred independently of
the other and caused damage.’” (Ibid., quoting Finn v. Continental Ins. Co. (1990)
218 Cal.App.3d 69, 72.) Here, COVID-19 and the governmental orders are inextricably
intertwined. The governmental orders could not under any circumstance have occurred
independent of COVID-19. Thus, the governmental orders are not a conceptually distinct
peril, and the efficient proximate cause doctrine does not apply. (See also Chadwick v.
Fire Ins. Exchange (1993) 17 Cal.App.4th 1112, 1117 [“When, however, the evidence

                                             15
shows the loss was in fact occasioned by only a single cause, albeit one susceptible to
various characterizations, the efficient proximate cause analysis has no application.”].)
The trial court properly sustained the demurrer.

                                            III
                                       DISPOSITION
              The judgment is affirmed. The parties are to bear their own costs on
appeal.

                                                   DELANEY, J.

WE CONCUR:

GOETHALS, ACTING P. J.

SANCHEZ, J.

                                            16