Court Opinion

ID: 7803618
Source: CourtListenerOpinion
Date Created: 2022-08-25 18:02:02.621261+00
Date Added: 2024-06-11T16:29:40.475777
License: Public Domain

Filed 8/25/22 Butter Nails and Waxing v. Underwriters at Lloyd’s London CA2/5
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                        DIVISION FIVE

 BUTTER NAILS AND WAXING,                                         B311455
 INC.,
                                                                  (Los Angeles County
           Plaintiff and Appellant,                               Super. Ct. No. 20STCV22288)

           v.

 UNDERWRITERS AT LLOYD’S,
 LONDON,

           Defendant and Respondent.

      APPEAL from orders of the Superior Court of Los Angeles
County, William F. Fahey, Judge. Reversed.
      Law Office of Robert S. Gerstein and Robert S. Gerstein;
Sigelman Law and Paul Sigelman; Law Office of Stanton Lee
Phillips and Stanton Lee Phillips for Plaintiff and Appellant.
      Soltman, Levitt, Flaherty & Wattles and John S. Levitt;
Walker Wilcox Matousek, David E. Walker and Fred L. Alvarez
for Defendant and Respondent.
             ____________________________________

       Plaintiff and appellant Butter Nails and Waxing, Inc.
(plaintiff or Butter Nails) is a salon in Los Angeles. In March
2020, local governments issued public health orders requiring all
but essential businesses to cease in-person activities in order to
protect against the spread of the COVID-19 virus. Plaintiff filed
a claim seeking compensation for business losses under an
insurance policy issued by defendants and respondents
Underwriters at Lloyd’s, London (Underwriters). Underwriters
denied the claim, and plaintiff filed suit. The trial court entered
judgment against plaintiff after sustaining Underwriters’
demurrer to plaintiff’s first amended complaint and denying
leave to amend.
       On appeal, plaintiff contends the insurance policy’s civil
authority endorsement covered its business losses because the
public health orders required evacuation of the business
property. Underwriters contends the policy language does not
provide coverage because the orders did not require evacuation.
In addition, even if coverage exists under the civil authority
endorsement, the parties take opposing positions on whether
plaintiff’s claim is barred by the policy’s mold exclusion.
       We conclude that Butter Nails has alleged facts sufficient
to trigger coverage under the policy’s civil authority endorsement,
and that the mold exclusion does not apply to the circumstances
of the claim presented by Butter Nails. We therefore reverse the
judgment, and remand with directions to overrule Underwriters’
demurrer.

                                2
      FACTUAL AND PROCEDURAL BACKGROUND1

A. Public Health Orders

       Responding to the potential spread of COVID-19 in March
2020, the City of Los Angeles (City) and the County of Los
Angeles (County) each issued mandatory orders (the public
health orders) directing members of the public to remain in their
residences for all but essential activities and outdoor recreational
activities. The City also ordered all businesses, other than
essential businesses as defined in its public health order, “to
cease operations that require in-person attendance by workers at
a workplace” and “[to] remain closed to the public.” Similarly,
the County ordered “all businesses to cease in-person operations
and close to the public”, with the exception of specifically
identified essential businesses.2
      The public health orders contained provisions allowing for
limited access to the physical premises of non-essential
businesses so that the businesses could perform specified
functions. The City’s initial order on March 19, 2020 provided a
24-hour period for business owners and employees to gather
belongings and to address administrative needs, but emphasized
that workplaces would “remain closed to the public.” The

      1
      The factual background is taken from plaintiff’s complaint
and matters judicially noticed by the trial court.

      2 The parties acknowledge and do not dispute that Butter
Nails is not an essential business and its operations were covered
by the public health orders.

                                 3
County’s initial March 21, 2020 order required “immediate
closure” of all non-essential retail businesses.
       The County issued a revised order on April 10, 2020, still
requiring non-essential businesses to remain closed to the public,
but permitting some limited access for “Minimum Basic
Operations,” such as protecting inventory and facilities; ensuring
security, safety, and sanitation; processing employee payroll and
benefits; and, supporting remote work by employees from home.
The County’s order did not supersede stricter limitations imposed
by local public entities. On May 8, 2020, the City revised its
order to permit non-essential businesses to conduct specified
minimum basic operations similar to the County, but again
emphasizing that the businesses remain “locked to the public at
all times” with posted signage stating “the business is closed to
the public.”
       The City’s order provided that failure to comply would
constitute a misdemeanor, subject to fines and imprisonment,
and encouraged enforcement by the Los Angeles Police
Department and the City Attorney. A subsequent City order also
authorized the Department of Water and Power to shut off utility
services to businesses and properties that failed to comply with
the order.

B. Plaintiff’s Claim and Underwriters’ Denial of Coverage

       After closing its operations in compliance with the public
health orders, plaintiff submitted a claim to Underwriters for
business income losses on April 21, 2020. On May 29, 2020,
Underwriters denied plaintiff’s claim. The May 29, 2020 denial
letter set forth the reasons for Underwriters’ denial of coverage,

                                 4
including that the public health orders did not prohibit access to
the business property or order it to be evacuated, and that
coverage for losses due to a virus was precluded under an
exclusion titled “Total Mold, Mildew or Other Fungi.”

C. Insurance Provisions at Issue

      For purposes of this appeal, we are only examining the
coverage forms, endorsements, and exclusions of the property
portion of the Underwriters’ insurance policy, not the commercial
general liability (CGL) portion.3 The two endorsements at issue
are titled “Business Income for Off-Premises Utility Services and
Civil Authority Action” (Civil Authority Endorsement) and
“Exclusion – Total Mold, Mildew or Other Fungi” (Mold
Exclusion).

   1. Civil Authority Endorsement

       The portion of the Civil Authority Endorsement insuring
against losses related to government orders states, in relevant
part, that Underwriters “will pay for loss of Business Income or
Extra Expense at ‘described premises’ caused by interruption of
business due to ‘Civil Authority Action’ that requires evacuation

      3 Plaintiff’s first amended complaint alleged that plaintiff’s
CGL coverage included business income loss, but a review of the
exhibits and the full policy demonstrates that coverage for
business income and extra expenses was part of the property
coverage.

                                 5
of the ‘described premises.’”4 “Civil Authority Action” is defined
in the Civil Authority Endorsement as “a mandatory action from
a government authority requiring evacuation from the ‘described
premises,’” which was plaintiff’s business location. The term
“evacuation” is not defined in the Civil Authority Endorsement or
elsewhere in the policy.

   2. Mold Exclusion

       The Mold Exclusion excludes property insurance and
business loss insurance coverage for losses or costs “caused
directly or indirectly by, arising out of, in connection with,
resulting from, contributed to or related in any way by exposure
to or the manifestation, . . . appearance, presence or growth of
mold, mildew, mycotoxins, fungi or organic pathogens.” The
endorsement defines “organic pathogens” as “any organic irritant
or contaminant including but not limited to the following: mold,

      4  The Civil Authority Endorsement states that it modifies
insurance provided under the Business Income (and Extra
Expense) coverage form, which is one of the property coverages.
The Civil Authority Endorsement also addresses coverage for a
seemingly unrelated topic: namely, interruption of water,
communication, or power supply services to the insured business
premises. This provision states, in relevant part, that
Underwriters “will pay for loss of Business Income or Extra
Expense at ‘described premises’ caused by interruption of services
to the ‘described premises’. The interruption must result from a
Covered Cause of Loss OR wind, hail, flood or earth movement
damage” to specified water, communication, or power supply
infrastructure, as defined in the Civil Authority Endorsement.

                                6
fungus, bacteria, or virus including but not limited to their
byproducts such as mycotoxins, mildew, or biogenic aerosol.”5

      5 The complete endorsement language states “We do not
cover loss, damage, cost, fine, penalty or expense caused directly
or indirectly by, arising out of, in connection with, resulting from,
contributed to or related in any way by exposure to or the
manifestation, release, dispersal, seepage, migration, discharge,
appearance, presence or growth of mold, mildew, mycotoxins,
fungi or organic pathogens. Such loss or damage is excluded
regardless of any other cause or event that contributes
concurrently or in any sequence to the loss or damage.
       “The term ‘organic pathogen’ or ‘organic pathogens’ means
any organic irritant or contaminant including but not limited to
the following: mold, fungus, bacteria, or virus including but not
limited to their byproducts such as mycotoxins, mildew, or
biogenic aerosol. ‘Organic pathogen’ includes but is not limited to
the following fungi or mycotoxins produced by such fungi:
Aspergillus, Penicillium, Stachybotrys chartarum, Trichodema,
and Fusarium Memnoniella.
       “This exclusion also applies to any claim arising out of
allegations of acts or omissions by or on behalf of the insured in
connection with exposure to or the manifestation, release,
dispersal, seepage, migration, discharge, appearance, presence or
growth of mold, mildew, mycotoxins, fungi or organic pathogens.
There shall be no obligation to defend the insured against any
claim or loss excluded by this endorsement regardless of whether
the allegations forming the basis of the claim or loss are
groundless, false, or fraudulent.
       “This exclusion includes but is not limited to (l) any cost,
expense or charge to test, monitor, cleanup, remediate, remove,
contain, treat, detoxify, neutralize, rehabilitate, or in any way
respond to or assess the effects of mold, mildew, mycotoxins,
fungi or organic pathogen; or (2) any cost, expense or charge in
connection with the actual or alleged discharge, dispersal,
seepage, migration, release, escape, exposure to, manifestation,

                                  7
D. Complaint and Demurrer

      Plaintiff filed a first amended complaint in October 2020,
alleging causes of action for declaratory relief, breach of
insurance contract, and bad faith insurance claims practice
against Underwriters.6 Underwriters filed a demurrer arguing
that plaintiff had failed to adequately allege it was entitled to
coverage under the Civil Authority Endorsement and, in any
event, plaintiff’s claim was excluded from coverage under the
Mold Exclusion.
      In January 2021, the trial court sustained the demurrer
without leave to amend, finding that plaintiff had not shown it
was entitled to coverage for business losses, because there was no
evacuation within the clear meaning of the policy and the public
health orders. The trial court did not reach the issue of the Mold
Exclusion.

                             DISCUSSION

A. Standard of Review and Applicable Law

       “‘Because the function of a demurrer is to test the
sufficiency of a pleading as a matter of law, we apply the de novo
standard of review in an appeal following the sustaining of a
demurrer without leave to amend. [Citation.] We assume the
truth of the allegations in the complaint, but do not assume the

appearance, presence, or growth of mold, mildew, mycotoxins,
fungi or organic pathogens.”

      6   Plaintiff filed its initial complaint in June 2020.

                                    8
truth of contentions, deductions, or conclusions of law.’
[Citation.] A judgment or order of the lower court is presumed to
be correct, and the appellant has the burden of affirmatively
showing error. (Jameson v. Desta (2018) 5 Cal.5th 594, 608–609;
Denham v. Superior Court (1970) 2 Cal.3d 557, 564.)” (United
Talent Agency v. Vigilant Insurance Company (2022) 77
Cal.App.5th 821, 829 (United Talent).)
       “The principles governing the interpretation of insurance
policies in California are well settled. ‘Our goal in construing
insurance contracts, as with contracts generally, is to give effect
to the parties’ mutual intentions. (Bank of the West v. Superior
Court (1992) 2 Cal.4th 1254, 1264 [(Bank of the West)]; see Civ.
Code, § 1636.) “If contractual language is clear and explicit, it
governs.” (Bank of the West, at p. 1264; see Civ. Code, § 1638.) 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.’” (Bank of the
West, at p. 1265, quoting AIU Ins. Co. v. Superior Court (1990) 51
Cal.3d 807, 822.) 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. (Bank of the West, at p. 1264.)’
(Boghos v. Certain Underwriters at Lloyd’s of London (2005) 36
Cal.4th 495, 501.) The ‘tie-breaker’ rule of construction against
the insurer stems from the recognition that the insurer generally
drafted the policy and received premiums to provide the agreed
protection. [Citations.]” (Minkler v. Safeco Ins. Co. of America
(2010) 49 Cal.4th 315, 321 (Minkler).)
       “To further ensure that coverage conforms fully to the
objectively reasonable expectations of the insured, the corollary
rule of interpretation has developed that, in cases of ambiguity,

                                 9
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.
[Citations.]” (Minkler, supra, 49 Cal.4th at p. 322.)
      “The existence of a material ambiguity in the terms of an
insurance policy may not, of course, be determined in the
abstract, or in isolation. The policy must be examined as a whole,
and in context, to determine whether an ambiguity exists.
(MacKinnon [v. Truck Ins. Exchange (2003)] 31 Cal.4th 635, 648
[(MacKinnon)]; Waller v. Truck Ins. Exchange, Inc. (1995) 11
Cal.4th 1, 18.)” (Minkler, supra, 49 Cal.4th at p. 322.)

B. Analysis

      The parties disagree whether the term “evacuation” in the
Civil Authority Endorsement encompasses the public health
orders requiring non-essential businesses to close and
encouraging people to remain at home unless they are engaging
in essential activity. Even if the policy terms cover the public
health orders, the parties also disagree about whether the policy’s
Mold Exclusion nevertheless bars plaintiff’s claim. We consider
each issue separately.

   1. Coverage Under the Civil Authority Endorsement

    While the case law governing insurance contracts and
COVID-19 is relatively new, it is already “widely established that

                                10
temporary loss of use of a property due to pandemic-related
closure orders, without more, does not constitute direct physical
loss or damage.” (United Talent, supra, 77 Cal.App.5th at p.
831.) This “widely established” rule, however, has developed in
the context of insureds seeking coverage under policy provisions
requiring property loss or damage. Here, plaintiff does not seek
coverage under any portion of the policy that requires any type of
property loss or damage. Rather, plaintiff seeks coverage under
the Civil Authority Endorsement, which states, with very little
explanation or qualification: “[Underwriters] will pay for loss of
Business Income or Extra Expense at ‘described premises’ caused
by interruption of business due to ‘Civil Authority Action’ that
requires evacuation of the ‘described premises.’” The Civil
Authority Endorsement defines “Civil Authority Action” as “a
mandatory action from a government authority requiring
evacuation from the ‘described premises.’” Accordingly, we
consider the meaning of the term “evacuation,” and whether the
March 2020 public health orders fall within the meaning of that
term.7
      The trial court here found that the public health orders did
not fall within the plain meaning of the term “evacuation.” We
disagree. Considering the plain language at issue, and that
language in the context of the policy as a whole, we conclude that
the term “evacuation” is broad enough to encompass the public
health orders that required Butter Nails—a non-essential

      7Our analysis is limited to the question presented on
appeal, and we express no opinion on any other aspect of
coverage under the Civil Authority Endorsement, including
applicable coverage limits.

                                11
business providing a service that by its nature must be delivered
in person—to close its doors in order to prevent the spread of a
dangerous virus.
      Relying on dictionary definitions of the verb “evacuate” that
focus on removing contents or emptying, plaintiff contends that
an evacuation is a process defined by its result: a place is left
empty.8 According to plaintiff, because the public health orders
emptied the business of employees and customers, the orders
“evacuated” the business. Underwriters contends different
dictionary definitions are more relevant to the circumstances at
issue here; it argues the meaning of “evacuate” requires the
element of removing people from a danger presented at a specific
location.9 Underwriters contends that the public health orders
here—which do not use the word evacuate—did not remove
people, as there was no specific event where employees and
customers were at plaintiff’s business property, and were ordered
to leave the property. Underwriters also claims that the later
revised orders permitting owners and employees to perform some
business functions at the salon defeat any claim that the
premises was evacuated.
       “Although examination of various dictionary definitions of a
word will no doubt be useful, such examination does not
necessarily yield the ‘ordinary and popular’ sense of the word if it

      8
      Plaintiff cites, among others, the first definition in
Webster’s Encyclopedic Unabridged Dictionary of the English
Language (2001), stating: “to leave empty, vacate.”

      9 Underwriters cites a portion of the on-line version of
Merriam-Webster’s dictionary, stating “to remove from a military
zone or dangerous area.”

                                12
disregards the policy’s context. (Bank of the West[, supra,] 2
Cal.4th [at p.] 1265.) Rather, a court properly refusing to make
‘“a fortress out of the dictionary,”’ (Russian Hill Improvement
Assn. v. Board of Permit Appeals (1967) 66 Cal.2d 34, 42, quoting
Justice Learned Hand’s dictum in Cabell v. Markham (2d
Cir.1945) 148 F.2d 737, 739) must attempt to put itself in the
position of a layperson and understand how he or she might
reasonably interpret the . . . language. (AIU Ins. Co., supra, 51
Cal.3d at p. 822.)” (MacKinnon, supra, 31 Cal.4th at p. 649.)
       In an effort to strengthen their respective positions with
definitions that are more helpful to their arguments, both parties
overlook the most relevant, sensible, and straightforward
dictionary definition of the word “evacuation:” “1.b : any
organized withdrawal or removal (as of persons or things) from a
place or area especially as a protective measure.”10 (Merriam-
Webster’s Unabridged Dict. (2022) https://unabridged.merriam-
webster.com/unabridged/Evacuation> [as of August 23, 2022],
archived at .) Contrary to the
parties’ arguments, the term as it is used in the policy is not tied
solely to the process or the end result of the public health orders.
Evacuations commonly occur in anticipation of potentially
dangerous conditions, and pursuant to governmental direction
with which affected persons voluntarily comply to ensure safety.
An evacuation does not require authorities actively removing
persons. Nor is it sensible to interpret evacuations to apply only
to persons present in the affected area at the time evacuation is

      10 Underwriters ignores a very similar articulation of this
definition in the very same Merriam-Webster’s on-line dictionary
that Underwriters cites: “to withdraw from a place in an
organized way especially for protection.”

                                 13
ordered: persons outside of an affected area at the time an
evacuation is ordered are not exempt and free to return. The
public health orders here effected an organized withdrawal of
persons from all places operating as non-essential businesses for
the purpose of protecting all City and County inhabitants from
the spread of COVID-19. Therefore, it is of little import that the
orders used terms like “safer at home” or “cease in-person
operations and close to the public” rather than the term
“evacuation.” The public health orders plainly applied to all non-
essential businesses within the jurisdiction of the City and
County, and were not limited to only such locations where
persons were gathered at the moment the orders were issued:
indeed, the orders specifically provided for law enforcement to
enforce the evacuation from non-essential business premises for
prospective non-compliance, including through misdemeanor
criminal prosecution.
      Considering the language of the Civil Authority
Endorsement in the context of the overall policy supports our
view that the term “evacuation” has a broader meaning, and that
the public health orders effected an evacuation. The simplicity of
the applicable coverage statement—Underwriters will pay for
business income losses due to “mandatory action from a
government authority requiring evacuation from the [business
premises]”—stands in stark contrast to other coverage
statements included within the policy, most of which include
detailed qualifying language circumscribing available coverage.
For example, in addition to providing coverage when a
government authority requires an evacuation, the Civil Authority
Endorsement also includes language providing coverage for
business income losses stemming from water, power, and

                               14
communication service interruptions. But the circumstances of
coverage in that portion of the Civil Authority Endorsement are
carefully limited to circumstances where the interruption
“result[s] from a Covered Cause of Loss or wind, hail, flood or
earth movement damage to the following property not on
‘described premises.’” No such qualifiers are included when the
interruption of business is due to a “mandatory action from a
government authority requiring evacuation.”
       Comparing the language of the Civil Authority
Endorsement at issue here to a separate provision for “Civil
Authority Coverage” (which is not the basis for Butter Nails’s
current claim) further undermines the narrow interpretation
Underwriters advances. The Civil Authority Endorsement at
issue here modifies the Business Income (and Extra Expense)
coverage form, which includes, under the heading “A. Coverage”
and “5. Additional Coverages,” a section titled “Civil Authority
Coverage”. Under the Civil Authority Coverage—a provision
distinct from the Civil Authority Endorsement—Underwriters
would pay for business income loss and extra expenses “caused by
action of civil authority that prohibits access to the described
premises,” but only when multiple requirements are met.
Specifically, coverage exists only when (1) there is damage to
property other than the insured’s, (2) the damaged property is
not more than one mile from the insured property, (3) access to
the area is prohibited by the civil authority, and (4) the civil
authority has acted in response to dangerous physical conditions
or to enable unimpeded access to the damaged property. The
Civil Authority Endorsement at issue here, in contrast, contains
no requirement that any property must be damaged or contain
dangerous physical conditions for coverage to apply. Rather, a

                              15
“mandatory action from a government authority requiring
evacuation” is the only requirement for coverage.
      Finally, to the extent that there is ambiguity in the policy
as to whether the public health orders here fit within the
definition of an evacuation, we are guided by our obligation to
protect “‘the objectively reasonable expectations of the insured’”
and the rule that ambiguities relating to coverage are to be
broadly construed in favor of protection and resolved against the
insurer. (Bank of the West, supra, 2 Cal.4th at pp. 1264–1265;
Minkler, supra, 49 Cal.4th at p. 322.) Here, the public health
orders prohibited Butter Nails from providing in-person services
to their customers, resulting in business losses. We conclude the
public health orders required an evacuation of the premises,
consistent with the policy language and the reasonable
expectations of Butter Nails. Accordingly, the Civil Authority
Endorsement provided plaintiff with coverage, subject to any
applicable exclusions, as discussed next.

   2. Mold Exclusion

     Having determined that coverage exists under the Civil
Authority Endorsement, the question remains whether the Mold
Exclusion applies.11 “To be enforceable, any insurance provision

      11 Butter Nails protectively argues in its opening brief that
a different exclusion (the “seepage” exclusion) also does not apply.
However, Underwriters does not offer any argument on appeal as
to the applicability of that exclusion and further concedes that its
demurrer did not raise the seepage exclusion in the trial court.
We decline to consider whether the seepage exclusion applies to
Butter Nails’s claim.

                                16
that takes away or limits coverage reasonably expected by an
insured must be ‘“conspicuous, plain and clear.”’ (Haynes v.
Farmers Ins. Exchange (2004) 32 Cal.4th 1198, 1204.)” (St. Mary
& St. John Coptic Orthodox Church v. SBC Ins. Services, Inc.
(2020) 57 Cal.App.5th 817, 834.) Whether an exclusion meets
this requirement is a question of law. (Alterra Excess & Surplus
Ins. Co. v. Snyder (2015) 234 Cal.App.4th 1390, 1404; Croskey et
al., Cal. Practice Guide: Insurance Litigation (The Rutter Group
2021) ¶ 4:491.) We are guided by our obligation to protect “‘the
objectively reasonable expectations of the insured’” and the rule
that ambiguities relating to coverage are to be broadly construed
in favor of protection and resolved against the insurer. (Bank of
the West, supra, 2 Cal.4th at pp. 1264–1265; Minkler, supra, 49
Cal.4th at p. 322.)
       “Language in an insurance policy is ‘interpreted as a whole,
and in the circumstances of the case, and cannot be found to be
ambiguous in the abstract.’ [Citation.] ‘The proper question is
whether the [provision or] word is ambiguous in the context of
this policy and the circumstances of this case. [Citation.] “The
provision will shift between clarity and ambiguity with changes
in the event at hand.” [Citation.]’ (Bay Cities Paving & Grading,
Inc. v. Lawyers’ Mutual Ins. Co. (1993) 5 Cal.4th 854, 868.)
Ambiguity ‘“‘is resolved by interpreting the ambiguous provisions
in the sense the [insurer] believed the [insured] understood them
at the time of formation. [Citation.] If application of this rule
does not eliminate the ambiguity, ambiguous language is
construed against the party who caused the uncertainty to exist.
[Citation.]’ ‘This rule, as applied to a promise of coverage in an
insurance policy, protects not the subjective beliefs of the insurer
but, rather, “the objectively reasonable expectations of the

                                17
insured.”’” [Citation.] “Any ambiguous terms are resolved in the
insureds’ favor, consistent with the insureds’ reasonable
expectations.”’ (Safeco Ins. Co. v. Robert S. (2001) 26 Cal.4th 758,
763.)” (E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32
Cal.4th 465, 470–471 (E.M.M.I.).)
       Policy exclusions are strictly construed. (E.M.M.I., supra,
32 Cal. 4th at p. 471; MacKinnon, supra, 31 Cal.4th at p. 648.)
“‘[A]n insurer cannot escape its basic duty to insure by means of
an exclusionary clause that is unclear. As we have declared time
and again “any exception to the performance of the basic
underlying obligation must be so stated as clearly to apprise the
insured of its effect.” [Citation.] Thus, “the burden rests upon
the insurer to phrase exceptions and exclusions in clear and
unmistakable language.” [Citation.] The exclusionary clause
“must be conspicuous, plain and clear.”’ [Citation.] This rule
applies with particular force when the coverage portion of the
insurance policy would lead an insured to reasonably expect
coverage for the claim purportedly excluded.” (MacKinnon,
supra, at p. 648.)
       Here, the language of the Mold Exclusion does not
“conspicuously, plainly, and clearly” exclude losses stemming
from public health orders addressing a viral pandemic,
particularly where the insured does not allege that the virus was
present on the business premises. Rather, the title and language
of the Mold Exclusion is more reasonably understood to exclude
coverage for losses stemming from the presence of mold, mildew,
or organic pathogens on the business premises.
       The title of the Mold Exclusion is “Exclusion – Total Mold,
Mildew, or Other Fungi.” The exclusion states that Underwriters
will “not cover loss, damage, [etc.] caused directly or indirectly by,

                                 18
arising out of, . . . or related in any way by exposure to or the
manifestation, release, dispersal, seepage, migration, discharge,
appearance, presence or growth of mold, mildew, mycotoxins,
fungi or organic pathogens.” The next paragraph defines an
“organic pathogen” as “any organic irritant or contaminant
including but not limited to the following: mold, fungus, bacteria,
or virus including but not limited to their byproducts such as
mycotoxins, mildew, or biogenic aerosol.”
       Here, the inclusion of the term “virus” in the list of “organic
pathogens” does not make the Mold Exclusion applicable to every
claim stemming directly or indirectly from a virus. Rather, an
insured would reasonably understand the exclusion to apply only
where the claimed losses were related in some way to the
presence of the “organic pathogen” on the business premises.
Although the scope of a virus exclusion was not discussed in
United Talent, supra, 77 Cal.App.5th 821, and the court rejected
the insured’s argument that the virus caused physical damage,
part of the opinion helps to illuminate how the language of the
Mold Exclusion in the case we are considering would apply in
situations where the virus was present on the insured premises.
The complaint at issue in United Talent alleged that “the virus
damages property by ‘physically permeating’ and ‘binding to’ the
property, and ‘aerosolized droplet nuclei . . . , like toxic fumes,
make the premises unsafe.’ It alleged that the presence of the
virus ‘causes physical loss and physical damage by requiring
remedial measures to reduce or eliminate the presence of SARS-
CoV-2, including extensive cleaning and disinfecting; installing,
modifying, or replacing air filtration systems; remodeling and
reconfiguring physical spaces; and other measures.’” (Id. at 834–
835.) The United Talent opinion also includes a hypothetical

                                 19
scenario discussed in Inns-by-the-Sea v. California Mutual Ins.
Co. (2021) 71 Cal.App.5th 688, 704–705, where “‘“a business—
which could have otherwise been operating—had to shut down
because of the presence of the virus within the facility. For
example, a restaurant might need to close for a week if someone
in its kitchen tested positive for COVID-19, requiring the entire
facility to be thoroughly sanitized and remain empty for a
period.”’” (United Talent, supra, at p. 838.)
       In MacKinnon, our Supreme Court determined that a
pollution exclusion that defined pollution as including “any
irritant or contaminant” did not exclude a claim based on the
negligent spraying of pesticides at an apartment building. The
court reasoned that the insurance company’s proposed literal
reading of the express terms would make the meaning of the
term pollution too broad to be meaningful. (MacKinnon, supra,
31 Cal.4th at pp. 652–653.) Instead, the court turned to “the
common connotative meaning” of the term, which was reasonably
“‘limited to irritants and contaminants commonly thought of as
pollution and not as applying to every possible irritant or
contaminant imaginable.’” (Id. at p. 652.)
       In the present case, plaintiff’s first amended complaint
alleged the COVID-19 virus had not contaminated the property.
We agree with plaintiff that the Mold Exclusion is meant to
exclude coverage for losses stemming from the presence of mold,
mildew, or organic pathogens on the business premises, and not
anything beyond that. Just as the Supreme Court in MacKinnon
limited the role of the words “irritant” and “contaminant,” in
finding the scope of the pollution exclusion to be limited, when we
construe the meaning of the word “virus” in context of the
reasonably understood scope of the Mold Exclusion, it does not

                                20
exclude threats posed by viruses responsible for communicable
disease, when the insured has not claimed that the virus was
even present on the business premises.
       In the circumstances presented in the current case,
because COVID-19 was not present at the insured business
premises, the exclusion does not apply.

                         DISPOSITION

      The judgment and the order sustaining the demurrer filed
by defendant and respondent Underwriters at Lloyd’s, London is
reversed. The trial court is directed to enter an order overruling
the demurrer as to all causes of action alleged by plaintiff and
appellant Butter Nails and Waxing, Inc. Butter Nails and
Waxing, Inc. is awarded its costs on appeal.

                                          MOOR, J.

I concur:

            RUBIN, P. J.

                                21
Butter Nails and Waxing, Inc. v. Underwriters at Lloyd’s of
London
B311455

BAKER, J., Concurring

       I agree the judgment of dismissal should be reversed. I
disagree, however, with the majority’s understanding of the key
term “evacuation” that is used in the insurance policy at issue.
       The insurance policy endorsement for “Business Income for
Off-Premises Utility Services and Civil Authority Action” (the
Endorsement) provides coverage for loss of business income or
extra expense caused by “interruption of business due to ‘Civil
Authority Action’ that requires evacuation of the ‘described
premises.’” The Endorsement (redundantly) defines a Civil
Authority Action as “a mandatory action from a government
authority requiring evacuation from the ‘described premises.’”
       In my view, there was an evacuation of Butter Nails and
Waxing, Inc.’s (Butter Nails’s) premises only for the period of
time when Los Angeles County and City of Los Angeles public
health orders required Butter Nails to close and cease in-person
operations—without exception for “Minimum Basic Operations”
(which includes various things like maintaining business
inventory, ensuring security, processing payroll and benefits, and
facilitating remote work). This interpretation of “evacuation” is
consistent with the common understanding of the term, namely,
the exclusion of all (non-public-safety) personnel from a given
area because of some health or safety danger.
        The majority’s opinion does not precisely delineate its
different understanding of the term evacuation. The clearest the
opinion comes is a statement that any health officer order
requiring Butter Nails to “close its doors” (to whom and for how
long is left unspecified) is an evacuation. I believe that does not
provide the parties and the trial court with adequate guidance on
how this lawsuit should proceed. Further, insofar as the majority
holds an evacuation occurs even when the basic business
operations contemplated by the later health officer orders are
underway, I believe that is not how “evacuation” is understood in
its “‘ordinary and popular sense.’”1 (AIU Ins. Co. v. Superior
Court (1990) 51 Cal.3d 807, 822.)
        I do agree, however, with the majority’s analysis of why the
exclusion for “Total Mold, Mildew or Other Fungi” does not
preclude insurance coverage. I would accordingly reverse and
remand for further proceedings consistent with the views I have
expressed.

                            BAKER, J.

      1 To the extent the majority goes even further and holds
there is an evacuation anytime there is an organized withdrawal
or removal of one or more persons from a place, that would
appear to permit all manner of odd outcomes (e.g., insurance
coverage for lost income if a patron of the business were arrested
by the police—and, in the majority’s view, “evacuated” from the
premises).

                                 2