Court Opinion

ID: 9912298
Source: CourtListenerOpinion
Date Created: 2023-12-22 00:02:39.194095+00
Date Added: 2024-06-11T12:58:29.799752
License: Public Domain

Filed 12/21/23
                               CERTIFIED FOR PUBLICATION

                 IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                 SIXTH APPELLATE DISTRICT

 SAN JOSE SHARKS, LLC, et al.,                       H050441
                                                    (Santa Clara County
            Petitioners,                             Super. Ct. No. 21CV383780)

            v.

 THE SUPERIOR COURT OF SANTA
 CLARA COUNTY,

            Respondent;

 FACTORY MUTUAL INSURANCE
 COMPANY,

            Real Party in Interest.

        The parties to the underlying action dispute whether losses plaintiffs1 incurred as a
consequence of the COVID-19 pandemic are covered by a commercial insurance policy
issued by defendant Factory Mutual Insurance Company. Plaintiffs’ petition for writ
review of a trial court order striking the majority of their coverage theories calls for us to

        1
        Plaintiffs are the National Hockey League; NHL Enterprises L.P.; NHL
Enterprises Canada, L.P.; NHL Enterprises B.V.; San Jose Sharks LLC; Sharks Sports &
Entertainment LLC; Anaheim Ducks Hockey Club, LLC; IceArizona Holdings LLC;
Hockey Western New York, LLC; DCP HH LLC; Dallas Sports & Entertainment, L.P.;
Sunrise Sports & Entertainment LLC; Minnesota Hockey Ventures Group, LP; Club de
Hockey Canadien, Inc.; Predators Holdings LLC; Devils Holdco LP; NY Hockey
Holdings LLC; Capital Sports Holdings Inc.; Team Lemieux LLC; SLB Acquisition
LLC; Maple Leaf Sports & Entertainment LTD.; Aquilini Investment Group Limited
Partnership; Black Knight Sports and Entertainment LLC; Megill-Stephenson Company
Limited; and Osmington Inc.
assess whether plaintiffs adequately pleaded “covered physical loss or damage to
property due to COVID-19” and to interpret the terms of the operative insurance
agreements.
       We conclude that the policies’ contamination exclusion, which the trial court did
not reach, unambiguously operates to exclude viral contamination such that the trial
court’s ultimate determination that plaintiffs cannot allege covered physical loss or
damage to property is correct. Accordingly, we deny plaintiffs’ petition.
                                 I.     BACKGROUND
A.     Plaintiffs’ Allegations in the Operative Second Amended Complaint2
       Factory Mutual insured various of plaintiffs’ properties, including hockey arenas,
“against ALL RISKS OF PHYSICAL LOSS OR DAMAGE” except as excluded. The
“all risks” policies cover “TIME ELEMENT loss”—business interruption losses “directly
resulting from physical loss or damage of the type insured” subject to certain conditions,
including either gross earnings or gross profits and “expenses reasonably and necessarily
incurred . . . to reduce the loss otherwise payable” under the time element coverage.
       The policies contain “additional time element coverage extensions” for
“interruption by communicable disease,” which, subject to exclusions, are triggered when
“a location owned, leased or rented by the Insured has the actual not suspected presence
of communicable disease and access to such location is limited, restricted or prohibited
by [¶] [(1)] an order of an authorized governmental agency regulating the actual not
suspected presence of communicable disease; or [¶] [(2)] a decision of an Officer of the

       2
         In an amicus brief, the California Medical Association cautions against our
perpetuating “dangerous misinformation” about the virus. To be clear, in a challenge to a
complaint for failure to state a claim we are obliged to treat as true “ ‘ “ ‘ “all material
facts properly pleaded, but not contentions, deductions or conclusions of fact or
law.” ’ ” ’ ” (Mathews v. Becerra (2019) 8 Cal.5th 756, 768 (Mathews); see also Blank v.
Kirwan (1985) 39 Cal.3d 311, 318.) We take no position as to the merits of plaintiffs’
factual allegations.

                                             2
Insured as a result of the actual not suspected presence of communicable disease.”
(Capitalization & boldface omitted.) The interruption by communicable disease coverage
extension “covers the Actual Loss Sustained and EXTRA EXPENSE incurred . . . during
the PERIOD OF LIABILITY at such location with the actual not suspected presence of
communicable disease.” (Boldface omitted.)
       Further, the policies contain time element coverage extensions for “civil or
military authority.” The civil authority extensions cover “the Actual Loss Sustained and
EXTRA EXPENSE incurred by the Insured during the PERIOD OF LIABILITY if an
order of civil . . . authority limits, restricts or prohibits partial or total access to an insured
location provided such order is the direct result of physical damage of the type insured at
the insured location or within five statute miles/eight kilometres of it.” (Boldface
omitted.)
       Unless “directly resulting from other physical damage not excluded,” the policies
exclude “contamination, and any cost due to contamination including the inability to use
or occupy property or any cost of making property safe or suitable for use or occupancy.
If contamination due only to the actual not suspected presence of contaminant(s) directly
results from other physical damage not excluded . . . , then only physical damage caused
by such contamination may be insured,” although the policies include additional coverage
for specified decontamination costs. (Boldface omitted.) Contamination is defined as
“any condition of property due to the actual or suspected presence of any foreign
substance, impurity, pollutant, hazardous material, poison, toxin, pathogen or pathogenic
organism, bacteria, virus, disease causing or illness causing agent, fungus, mold or
mildew.”
       COVID-19 is a potentially deadly communicable disease caused by a coronavirus.
Throughout 2020, the virus was presumed to be present or imminently present
everywhere. As of March 22, 2022, there had been over 83 million cases of COVID-19
in the United States and Canada and over 6.1 million deaths worldwide. Many of these
                                                 3
illnesses were caused when people were exposed to “air and surfaces[ ]that had been
physically . . . altered by the COVID-19 virus.”
         People infected with COVID-19 expel the virus when they exhale. Viral droplets
may remain suspended in the air or adhere to surfaces. Viral droplets are also transferred
to surfaces when an infected individual touches a surface after touching their eyes or
nose. Plaintiffs further allege that the virus “changes the chemical composition of air . . .
amount[ing] to physical damage” and “alter[s] the molecular structure of . . . otherwise
inert property”: “The COVID-19 virus damages property . . . by adhering to and altering
the structure of its surfaces. Specifically, . . . it has been reported that the virus changes
the surfaces of that property as its spike proteins become entangled with, bound to, and
part of the molecular surface of the materials with which it comes into contact. When
that happens, the surfaces change in scientifically measurable and quantifiable ways.
Moreover, as studies have shown, these materials then become infectious when touched
and unfit for use.” “[B]ecause the virus renders otherwise inert materials dangerous, viral
contact with property, and the air within the property, means significant damage and
loss.”
         The virus was present in each of plaintiffs’ insured locations. As a result, the virus
“physically damage[d]” plaintiffs’ insured property by “chang[ing] the chemical
composition of air” and “altering the molecular structure of the physical surfaces of
otherwise inert property.”
         In March 2020, plaintiffs closed their hockey arenas prior to the issuance of any
relevant government orders because “of the presence of the COVID-19 virus at insured
arenas, and the resulting physical damage to the arenas,” including the “air and surfaces”
of those properties, and because of “the external peril of [the virus].” During certain
other time periods, government orders required either the closure of hockey arenas or
limited fan access to games. Plaintiffs lost earnings as a result of canceled hockey games
and limited fan access to games. Further, plaintiffs incurred losses to repair their
                                               4
property and mitigate the virus’s harmful physical effects—disinfecting areas and
equipment infected individuals used, cleaning and sanitizing high-touch surfaces,
developing COVID-19 and Mechanical/HVAC-R policies, and making various physical
modifications to arenas. Fans were only allowed to attend games after plaintiffs had
undertaken various remedial measures to mitigate the virus’s physical impact on surfaces
and the air, government restrictions and orders were relaxed, and COVID-19 vaccines
became more prevalent. If plaintiffs had allowed fans to attend games while COVID-19
rates were high during 2020, their properties would have suffered more damage from the
virus.
         Plaintiffs paid the required premiums on their insurance policies, provided a
timely notice of claim for their virus-related losses, and submitted a proof of loss.
Plaintiffs allege that their insurance policies cover COVID-19-related losses for property
damage and restoration costs, business interruption losses and extra expenses, civil
authority losses, losses due to the physical prevention of ingress of egress to insured
locations, communicable disease losses, and losses incurred to mitigate property damage.
Factory Mutual denied plaintiffs’ claims. Plaintiffs filed suit, alleging three causes of
action: (1) breach of contract; (2) declaratory relief; and (3) breach of the implied
covenant of good faith and fair dealing.
B.       Procedural History
         Factory Mutual demurred to the operative complaint. In the alternative, Factory
Mutual moved to strike allegations “concerning provisions of the Policies other than the
coverages for Communicable Disease Response and for Interruption by Communicable
Disease, which do not require physical loss or damage to the property.”
         The trial court overruled Factory Mutual’s demurrer because plaintiffs had at a
minimum stated a claim for relief based on communicable disease coverage. But the trial
court granted the motion to strike “in large part,” concluding that plaintiffs failed “to
allege covered physical loss or damage to property due to COVID-19.” The trial court
                                              5
declined to address Factory Mutual’s contention that the contamination exclusion barred
plaintiffs’ claims for coverage.
       By petition for writ of mandate, plaintiffs challenge the trial court’s ruling on the
motion to strike. We issued an order to show cause in which we asked the parties to
address whether the trial court’s analysis was appropriately deferential to plaintiffs’
factual allegations.
                                    II.    DISCUSSION
       Interpreting the parties’ insurance policy in the context of plaintiffs’ factual
allegations, we read the contamination exclusion as excluding from coverage both the
physical loss or damage caused by viral contamination and the associated time element
loss. Accordingly, although we consider plaintiffs to have adequately alleged physical
loss or damage from the coronavirus, we deny writ relief. (Cf. Atwell Island Water Dist.
v. Atwell Island Water Dist. (2020) 45 Cal.App.5th 624, 627, 634-635 (Atwell).)
A.     Standard of Review
       A defective portion of a cause of action is subject to a motion to strike. (Baral v.
Schnitt (2016) 1 Cal.5th 376, 393-394 [discussion of “conventional” motions to strike],
citing PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682; see also Code
Civ. Proc., §§ 435, subd. (b), 436, subd. (b).) “The grounds for a motion to strike shall
appear on the face of the challenged pleading or from any matter of which the court is
required to take judicial notice.” (Code Civ. Proc., § 437, subd. (a).) “We ‘read
allegations of a pleading subject to a motion to strike as a whole, all their parts in their
context, and assume their truth.’ ” (Atwell, supra, 45 Cal.App.5th at p. 628; see also
Marina Pacific Hotel and Suites, LLC v. Fireman’s Fund Ins. Co. (2022) 81 Cal.App.5th
96, 104-105 (Marina Pacific) [in demurrer context, “ ‘we accept as true even improbable
alleged facts, and we do not concern ourselves with the plaintiff’s ability to prove [the]
factual allegations’ ”]; Mathews, supra, 8 Cal.5th at p. 768.)

                                               6
       “The trial court’s ruling on a motion to strike a pleading . . . is generally reviewed
for abuse of discretion.” (Cal-Western Business Servs., Inc. v. Corning Capital Group
(2013) 221 Cal.App.4th 304, 309 (Cal-Western); see also Abbott Laboratories v.
Superior Court (2020) 9 Cal.5th 642, 651 (Abbott) [reviewing denial of motion to strike
for abuse of discretion].) Under that otherwise deferential standard, we review questions
of law de novo. (See Cal-Western, supra, 221 Cal.App.4th at p. 309; Abbott, supra, 9
Cal.5th at p. 651.)
B.     Interpretation of Insurance Contracts
       The judicial interpretation of an insurance contract presents a question of law.
(John’s Grill, Inc. v. The Hartford Financial Services Group, Inc. (2022) 86 Cal.App.5th
1195, 1206, review granted Mar. 29, 2023, S278481 (John’s Grill).) “ ‘ “While
insurance contracts have special features, they are still contracts to which the ordinary
rules of contract interpretation apply.” [Citation.] Thus, “the mutual intention of the
parties at the time the contract is formed governs interpretation.” [Citation.] If possible,
we infer this intent solely from the written provisions of the insurance policy. [Citation.]
If the policy language is “clear and explicit, it governs.” ’ . . . ‘If the terms are ambiguous
[i.e., susceptible to 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 must be
resolved against the insurer.’ ” (Yahoo Inc. v. National Union Fire Ins. Co. (2022) 14
Cal.5th 58, 67.)
       “Insurance policies typically contain two main components: . . . provisions that
specify the risks being covered and . . . exclusionary provisions that ‘remove coverage for
certain risks which are initially within the insuring clause.’ [Citation.] The grant of
coverage is generally interpreted broadly in favor of the insured to protect the objectively
reasonable expectations of the insured. [Citations.] And exclusionary provisions that
limit or take away coverage are ‘strictly construed against the insurer and liberally
                                               7
interpreted in favor of the insured’ [citation], while exceptions to exclusions are broadly
construed in favor of the insured [citation].” (John’s Grill, supra, 86 Cal.App.5th at
p. 1207, review granted.)
C.     Allegations of Physical Loss or Damage Caused by the Virus
       1.     Physical Loss or Damage
       Relying on United Talent Agency v. Vigilant Insurance Company (2022) 77
Cal.App.5th 821 (United Talent), the trial court ruled that the virus’s presence “in the air
and on surfaces is not physical loss or damage to property.” The trial court recognized
that a second decision, Marina Pacific, disagreed with United Talent, but found United
Talent persuasive. (See Another Planet Entertainment, LLC v. Vigilant Ins. Co. (9th Cir.
2022) 56 F.4th 730, 734, request for certification granted Mar. 1, 2023, S277893
[explaining split between United Talent and Marina Pacific in certifying question to
California Supreme Court].) Assuming the truth of plaintiffs’ factual allegations
regarding the interaction between the virus and the physical surfaces of the insured
property, we are persuaded that plaintiffs have alleged physical loss or damage within the
meaning of the policies.
       In United Talent, the plaintiff alleged that the virus damaged the air and surfaces
of its insured property. (United Talent, supra, 77 Cal.App.5th at pp. 826-827.) The court
noted that “[m]any courts have rejected the theory that the presence of the virus
constitutes physical loss or damage to property.” (Id. at p. 835.) Acknowledging that
“there are ‘some comparable elements between’ allegations that the virus physically
altered property and cases in which ‘a physical force rendered real property uninhabitable
or unsuitable for its intended use, without any structural alteration,’ because ‘the COVID-
19 virus—like smoke, ammonia, odor, or asbestos—is a physical force[,]’ ” the court
stated “that courts have rejected claims that ‘short lived’ contamination that can be
addressed by simple cleaning constitutes direct physical loss.” (Ibid.) The court held
“that the presence or potential presence of the virus does not constitute direct physical
                                              8
damage or loss. While the contamination of asbestos . . . or environmental contaminants
. . . constituted property damage in that they rendered a property unfit for a certain use or
required specialized remediation, the comparison to a ubiquitous virus transmissible
among people and untethered to any property is not apt. . . . [T]he virus exists worldwide
wherever infected people are present, it can be cleaned from surfaces through general
disinfection measures, and transmission may be reduced or rendered less harmful through
practices unrelated to the property, such as social distancing, vaccination, and the use of
masks. Thus, the presence of the virus does not render a property useless or
uninhabitable, even though it may affect how people interact with and within a particular
space.” (Id. at p. 838; see also, e.g., Endeavor Operating Co., LLC v. HDI Global Ins.
Co. (2023) 96 Cal.App.5th 420, 440-442, review granted Dec. 13, 2023, S282533;
Tapestry, Inc. v. Factory Mutual Ins. Co. (2022) 482 Md. 223, 250-251 (Tapestry);
Schleicher and Stebbins Hotel, LLC v. Starr Surplus Lines Ins. Co. (2023) 175 N.H. 744,
747; Monarch Casino & Resort, Inc. v. Affiliated FM Ins. Co. (10th Cir. 2023) 85 F.4th
1034, 1042-1044 (Monarch Casino); Circle Block Partners, LLC v. Fireman’s Fund Ins.
Co. (7th Cir. 2022) 44 F.4th 1014, 1022.)
       In Marina Pacific, the plaintiffs alleged that the virus bonded with surfaces to
physically damage property. (Marina Pacific, supra, 81 Cal.App.5th at p. 101.) The
court acknowledged cases requiring allegations that “an external force acted on the
insured property causing a physical change in the condition of the property to come
within the coverage provision for ‘direct physical loss or damage.’ ” (Id. at p. 107.) The
court held that the plaintiff’s allegations were sufficient. (Id. at p. 108.) Assuming the
truth of the plaintiffs’ allegations, the plaintiffs had “unquestionably pleaded direct
physical loss or damage to covered property” and “adequately alleged that physical loss
or damage caused a slowdown in, or cessation of, the operation of the insureds’
business.” (Id. at p. 109.) The court underscored that the policy contained
“communicable disease coverage” that “explicitly contemplates that a communicable
                                              9
disease, such as a virus, can cause damage or destruction of property and that such
damage constitutes direct physical loss or damage as defined in the policy.” (Id. at
p. 112.) The court declined to follow United Talent, reasoning that the United Talent
court “found—without evidence—the COVID-19 virus does not damage property. . . .
We are not authorized to disregard those allegations when evaluating a demurrer, as the
court did in United Talent, based on a general belief that surface cleaning may be the
only remediation necessary to restore contaminated property to its original, safe-for-use
condition.” (Id. at p. 111; see also Shusha, Inc. v. Century-National Ins. Co. (2022) 87
Cal.App.5th 250, 260, fn. 5, 265-266, review granted Apr. 19, 2023, S278614 (Shusha)
[following Marina Pacific in the absence of a communicable disease provision]; Tarrar
Enters., Inc. v. Associated Indemnity Corp. (2022) 83 Cal.App.5th 685, 687-689 [in the
wake of Marina Pacific, holding that trial court erred in denying leave to amend to
insured]; Huntington Ingalls Indus., Inc. v. Ace American Ins. Co. (Vt. 2022) 287 A.3d
515, 535-536.)
       Here, there is presently no dispute that “ ‘physical loss or damage’ requires a
‘distinct, demonstrable, physical alteration of the property,’ ” more than “ ‘mere loss of
use of physical property to generate business income, without any other physical impact
on the property . . . .’ ” At that level of generality, plaintiffs’ allegations pass muster. At
minimum, plaintiffs alleged droplets bearing the virus demonstrably and measurably
contaminated the surfaces of the insured properties. To the extent plaintiffs further
alleged that the virus altered their property’s molecular structure, Factory Mutual does
not contest that we must assume the truth of that allegation. (See Marina Pacific, supra,
81 Cal.App.5th at p. 108 [crediting allegations to the effect that the virus “bonds to
surfaces through physicochemical reactions involving cells and surface proteins, which
transform the physical condition of the property”].)
       Factory Mutual contends that even if the virus were to alter the surface molecular
structure of insured property so as to render the property unsafe, that alteration does not
                                              10
constitute physical loss or damage. In Factory Mutual’s reasoning: (1) the ordinary and
popular usage of “physical loss or damage” does not include “activity at the molecular
level that is imperceptible to any of the [unaided] human senses [even if] ‘scientifically
measurable[;]’ ” (2) the communicable disease coverage extension is triggered without a
showing of physical loss or damage, indicating an understanding that communicable
diseases do not cause physical loss or damage; and (3) cases concerning other noxious
substances have required that the substance make the property “physically
uninhabitable.” Our understanding of the policy before us does not require plaintiffs to
clear the hurdles Factory Mutual would have us raise.3
       Coverage extends to “all risks of physical loss or damage” not expressly excluded.
(Italics added.) The parties agreed to an exclusion for “contamination” caused by a virus,
unless the contamination directly results from “other physical damage” that is not
excluded.4 (Italics added.) If the parties did not contemplate that viral contamination
could constitute a form of physical loss or damage, there would have been no need to
specify that contamination resulting from “other” (covered) physical damage was not
excluded from coverage. Moreover, given this exclusion it is unsurprising that the
communicable disease coverage extension does not require physical loss or damage as a
trigger. (See Julian v. Hartford Underwriters Ins. Co. (2005) 35 Cal.4th 747, 759 [“an
insurer is not absolutely prohibited from drafting and enforcing policy provisions that
provide or leave intact coverage for some, but not all, manifestations of a particular
peril”]; Monarch Casino, supra, 85 F.4th at p. 1041 [contamination exclusion from all-
       3
         We do not reach plaintiffs’ contention that the policies insure physical damage to
air within their properties. (See Tapestry, supra, 482 Md. at pp. 249-250, fn. omitted
[“We are not aware of any reported decisions that have treated damage to air itself, as
opposed to loss or damage to property resulting from air contamination, as property
damage”].)
       4
           There is a similar exclusion applicable to “changes in color, flavor, texture or
finish.”

                                               11
risk and business-interruption coverage not inconsistent with additional (limited)
communicable disease coverage]; Out West Restaurant Group, Inc. v. Affiliated FM Ins.
Co. (9th Cir. Sept. 2, 2022, No. 21-15585) 2022 WL 4007998, at p. *2 (Out West) [no
conflict between contamination exclusion and communicable disease coverage]; see also
Marina Pacific, supra, 81 Cal.App.5th at p. 112 [assessing whether policy contemplated
that a communicable disease could cause physical loss or damage].)
       Factory Mutual contends that if plaintiffs may plead a claim for physical loss or
damage that is not perceptible by the unaided human senses, plaintiffs may be permitted
to state a claim “without pleading any facts specific to a location or property item.” This
contention mixes two distinct issues: the means by which the physical loss or damage is
ascertained is distinct from the specificity with which plaintiffs must identify the
damaged property in their pleadings.
       Here, plaintiffs allege that their insured property was damaged by a viral
contaminant. Further, plaintiffs allege that they discarded and replaced items as part of
their reopening process.5 Nothing in the policies suggests that the term “all risks of
physical loss or damage” excludes risks that, while altering property in a distinct,
demonstrable, and physical way, damage property in a way that is imperceptible to the
unaided human senses. Nor do the policies suggest that physical loss or damage is
covered only when the property is rendered “physically uninhabitable,” as opposed to

       5
         Factory Mutual argues that plaintiffs did not allege that such items were
damaged by the virus, leaving open the possibility that plaintiffs merely discarded
undamaged property in making general improvements. We acknowledge that the
ambiguity as to what property was discarded or replaced and why, but we note that
plaintiffs also alleged costs to sanitize contaminated surfaces, such as the purchase of
electrostatic sprayers. (Cf. Oregon Clinic, PC v. Fireman’s Fund Ins. Co. (9th Cir. 2023)
75 F.4th 1064, 1073, fn. omitted [disregarding allegations that “COVID-19 was present
and caused physical damage in numerous ways” as “conclusory” where the plaintiff
“merely alleged . . . physical damage without explaining how COVID-19 caused such
damage or whether replacement of physically lost or damaged property was necessary”].)

                                             12
rendered unsuitable for its intended purpose. (See generally Inns-by-the-Sea v.
California Mutual Ins. Co. (2021) 71 Cal.App.5th 688, 701-704 (Inns) [distinguishing
cases where noxious substances rendered property unsuitable for its intended purpose
where analysis turned on whether it was the presence of the virus on the premises or
government orders caused unsuitability].)
       2.     Causation
       Factory Mutual contends that even if the virus physically damaged insured
property, plaintiffs’ business interruption losses resulted not from that physical damage,
but from the risks posed by people assembling in the same space. As alleged, plaintiffs’
core business is “staging hockey games with world[-]class athletes in front of a live
audience.” The thrust of Factory Mutual’s argument is that—regardless of the condition
of plaintiffs’ insured property—those games could not have gone forward, because the
virus rendered attendance at indoor hockey games inherently unsafe. (See Inns, supra, 71
Cal.App.5th at pp. 713-714 [demurrer properly sustained where business interruption was
caused by government orders rather than physical damage to property]; Best Rest Motel,
Inc. v. Sequoia Ins. Co. (2023) 88 Cal.App.5th 698, 709 [even if hotel was uninhabitable
due to presence of COVID-19 fomites, summary judgment was properly granted because
there was “no evidence creating a triable issue that fomites—as distinguished from
massive reductions in tourism—caused” the plaintiff’s lost income].) But Factory
Mutual’s line of argument would require us to reject at the pleading stage facts that
plaintiffs adequately alleged in their complaint.
       Plaintiffs alleged that contaminated surfaces spread the virus. Plaintiffs alleged
that they closed hockey arenas during the season as a result of the presence and
associated physical damage the virus had caused in their facilities.6 The relative risk

       6
         Plaintiffs’ causation allegations are in the context of a complaint treating the
virus’s presence in the air and on surfaces as physical loss or damage. Above, we have
addressed only the virus’s presence on surfaces. However, nothing in the operative
                                             13
posed by surface-to-person transmission, the virus’s actual presence in insured properties,
and plaintiffs’ precise reasons for closing their arenas—as between extant contamination
within the insured properties and the risk inherent in staging hockey games during the
COVID-19 pandemic—are factual disputes beyond the scope of the present pleading
challenge. (See Shusha, supra, 87 Cal.App.5th at p. 266, review granted.)
D.     Contamination Exclusion
       Because plaintiffs alleged that it was a virus that caused the disputed physical
damage to their property, their allegations implicate the policies’ contamination
exclusion. Plaintiffs concede that the exclusion precludes recovery for the diminution of
property value as a result of contamination and costs due to the contamination, but they
contend that it does not exclude claims for lost earnings. Factory Mutual contends that
the exclusion encompasses any losses from viral contamination including business
interruption otherwise covered under the policy’s “Time Element” provision. Reading
the policy as a whole, we conclude that the policy is not reasonably susceptible to
plaintiffs’ interpretation. Rather, the policy unambiguously excludes physical loss or
damage in the form of viral contamination from the scope of coverage.7
       Although, as we have recognized, the policies cover “all risks of physical loss or
damage” except as excluded, the policies expressly exclude three categories “unless
directly resulting from other physical damage not excluded.” (Capitalization omitted.) In
relevant part, the three enumerated exclusions are: “1) contamination, and any cost due
to contamination . . .[;] 2) shrinkage[;] and (3) changes in color, flavor, texture or

complaint compels the conclusion that the presence of the virus on surfaces was
insufficient, in the early days of the pandemic, to cause closure by itself.
       7
       The policies’ communicable disease coverage does not require physical loss or
damage, and thus may be triggered notwithstanding this exclusion.

                                              14
finish.”8 (Boldface omitted.) Reading the list together and in context, it is clear that the
three exclusions are risks of physical loss or damage that are excluded from the all-risks
coverage. (Cf. Monarch Casino, supra, 85 F.4th at p. 1040 [“the policy provides all-risk
and business-interruption coverage except as excluded by the policy[] [a]nd . . . excludes
coverage under its Contamination Exclusion”]; see also JRK Property Holdings, Inc. v.
Colony Ins. Co. (2023) 96 Cal.App.5th 1, 6-7, 18-20 [pathogen exclusion unambiguously
precluded coverage for coronavirus losses].)
       “[C]ontamination” is “any condition of property due to the actual or suspected
presence of . . . virus . . . .” (Boldface omitted.) There is no dispute that the risk of
physical loss or damage on which plaintiffs rely constitutes contamination within the
meaning of the policy; plaintiffs dispute only whether earnings lost due to such damage
are excluded.
       We reject plaintiffs’ contention that the exclusion of “contamination, and any cost
due to contamination” makes the policy ambiguous.9 (See generally Schmier v. City of

       8
         Plaintiffs contend that the mortality and disease exclusion in Marina Pacific
swept more broadly than the one in this case and nevertheless did not bar the claims in
that case. (See Marina Pacific, supra, 81 Cal.App.5th at pp. 112-113.) But the “most
reasonable” interpretation of the mortality and disease exclusion was that it applied to
“losses resulting from a death caused by a virus or other disease, and not more broadly
any otherwise covered losses resulting from a virus or disease.” (Id. at p. 113, italics
added.) Put differently, viral contamination of property was beyond the scope of the
exclusion. Here, viral contamination of property is clearly within the scope, and the only
question is what losses flowing from such contamination are covered. Marina Pacific is
not helpful on this point.
       9
        The parties have identified divergent federal authorities addressing, at the
pleadings stage, whether the contamination exclusion is ambiguous. (Compare Monarch
Casino, supra, 85 F.4th at pp. 1039-1042; Out West, supra, 2022 WL 4007998 at p. *2
[because policy excludes contamination, exclusion extends to losses caused by the
presence of the virus]; Dana Inc. v. Zurich American Ins. Co. (6th Cir. July 6, 2022, 21-
4150) 2022 WL 2452381, at p. *3 (Dana) [time element loss caused by actual or
suspected presence of virus subject to policy’s exclusion for contamination and related
expenses]; with Live Nation Entertainment, Inc. v. Factory Mutual Insurance Company
(C.D. Cal. Feb. 3, 2022, No. LA CV21-00862 JAK (KSx)) 2022 WL 390712, at pp. *7-
                                              15
Berkeley (2022) 76 Cal.App.5th 549, 558 [“ ‘ “[W]here an ambiguous contract is the
basis of an action, it is proper, if not essential, for a plaintiff to allege its own construction
of the agreement. So long as the pleading does not place a clearly erroneous construction
upon the provisions of the contract, in passing upon the sufficiency of the complaint, we
must accept as correct plaintiff’s allegations as to the meaning of the agreement” ’ ”].)
Plaintiffs begin from a reasonable premise—if excluding “contamination” were by itself
sufficient to remove contamination from the scope of coverage for “all risks of physical
loss or damage” then “and any cost due to contamination” would be surplusage. Even so,
taking the policies as a whole, plaintiffs’ construction of the provision—that
“contamination, and any cost due to contamination” excludes only (1) the diminution of
property value due to contamination; and (2) any cost due to contamination—is
untenable. Nothing in the structure of the relevant section or the definition of
“contamination” supports the inference that “contamination” refers to a type of loss, as
opposed to a type of “risk”—that the property’s condition will be altered by viral
contamination—from which diverse losses may flow. Plaintiffs’ construction would
require us to disregard the structure of the contract—its coverage of “all risks of physical
loss or damage, except as hereinafter excluded” and subsequent exclusion of several
risks, including contamination—and to tailor the definition of “contamination” to fit

*8 [physical damage caused by COVID-19 contamination “directly results from other
physical damage not excluded” by policy’s ambiguous contamination exclusion]; Thor
Equities, LLC v. Factory Mutual Ins. Co. (S.D.N.Y. 2021) 531 F.Supp.3d 802, 808-809
[finding the contamination exclusion ambiguous, in isolation]; The Regents of the
University of Colorado v. Factory Mutual Ins. Co. (D. Colo. Jan. 26, 2022, No.
2021CV30206) 2022 WL 245327, at pp. *4-*5; see also Sacramento Downtown Arena
LLC v. Factory Mutual Ins. Co. (E.D. Cal. 2022) 637 F.Supp.3d 865, 871-872 [reasoning
that contamination exclusion could be reasonably interpreted not to encompass viruses, to
the extent a communicable disease can cause non-excluded physical damage].) Given
our own analysis, we naturally find Monarch Casino, Dana, and Out West persuasive
with respect to the contamination exclusion—accepting that COVID-19 causes physical
damage, that physical damage is subject to the viral contamination exclusion.

                                               16
plaintiffs’ coverage claim in lopsided hindsight bereft of textual support. This we are
unable to do. Where there is only one reasonable interpretation of contractual language,
the contract is unambiguous such that the parties’ dispute may be resolved at the pleading
stage. (See George v. Automobile Club of Southern California (2011) 201 Cal.App.4th
1112, 1128 [proper to sustain general demurrer without leave to amend where insurance
contract is not reasonably susceptible to the meaning alleged in the complaint].)
       Plaintiffs agree that the policies exclude the risk of radioactive contamination,
which is addressed in a distinct policy exclusion. Plaintiffs argue that if the policies
excluded the risk of viral contamination, the exclusion applicable to viral contamination
would have been in the same form as the exclusion applicable to radioactive
contamination. We disagree.
       The policies’ enumerated exclusions include three groups of excluded perils
subject to different treatment. As to one such group (including “nuclear reaction or
nuclear radiation or radioactive contamination”), the “[p]olicy excludes loss or damage
directly or indirectly caused by or resulting from any of [the listed perils] regardless of
any other cause or event, whether or not insured under this Policy, contributing
concurrently or in any other sequence to the loss.” In contrast, “contamination,”
“shrinkage,” and “changes in color, flavor, texture or finish” are designated for a more
qualified exclusion: the “Policy excludes the following unless directly resulting from
other physical damage not excluded by this Policy.” The difference between these sub-
sections is not whether they exclude risks—both do—but the scope of the exclusion. In
the former case, the exclusion applies even where loss or damage is “indirectly caused by
or result[s] from” the listed perils. In the latter, the exclusion does not apply if the loss or
damage directly results from other physical damage not excluded. The difference
between the treatment of radioactive contamination and viral contamination is immaterial
because plaintiffs did not allege contamination resulting from other physical damage not
excluded, but contamination as itself physical damage.
                                              17
       Plaintiffs suggest that the policies are ambiguous because their language could
have more clearly indicated to the insured that viral contamination is not the “type” of
physical loss or damage used to designate the scope of time element coverage. That an
exclusion “could have been written differently does not necessarily mean . . . it is
ambiguous when read in the context of the policy as a whole.” (Carolina Casualty Ins.
Co. v. L.M. Ross Law Group, LLP (2010) 184 Cal.App.4th 196, 207.) In interpreting the
policy before us, we do not “read into the policy what [the insurer] has omitted.” (See
Safeco Ins. Co. of America v. Robert S. (2001) 26 Cal.4th 758, 764.) It follows from the
contamination exclusion that time element or business interruption losses flowing from
viral contamination are not covered. For coverage, time element loss must directly result
“from physical loss or damage of the type insured.” Because viral contamination is
excluded from the type of physical loss or damage insured, it is not a predicate for time
element coverage.
E.      Civil Authority Coverage
       The civil authority coverage requires an order of civil authority that is “the direct
result of physical damage of the type insured.” Thus, it requires both “physical damage
of the type insured” and a nexus between that covered damage and the order. As such, it
echoes the coverage and causation questions addressed above. Having concluded that
physical damage consisting of viral contamination is subject to the contamination
exclusion, it, once again, follows that viral contamination is not “physical damage of the
type insured.” Accordingly, the civil authority coverage does not apply.
                                   III.   DISPOSITION
       The writ petition is denied. In the interests of justice, the parties shall bear their
own costs in this writ proceeding. (Cal. Rules of Court, rule 8.493(a)(1)(B).)

                                              18
                                               ____________________________
                                               LIE, J.

WE CONCUR:

____________________________
GREENWOOD, P. J.

_____________________________
BAMATTRE-MANOUKIAN, J.

San Jose Sharks LLC et al. v. Superior Court
H050441
Trial Court:                                   Santa Clara County Superior Court
                                               Court No.: 21CV383780

Trial Judge:                                   The Honorable
                                               Sunil R. Kulkarni

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

Attorneys for Real Parties in Interest         Simpson Thacher & Bartlett
Factory Mutual Insurance Company:
                                               Chet A. Kroneberg
                                               Bryce L. Friedman
                                               Isaac Rethy

                                               Carlson, Calladine & Peterson

                                               Joyce C. Wang

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

San Jose Sharks LLC et al. v. Superior Court
H050441