The Inns by the Sea, which operates hotels in California, is hoping to fast track its appeal of a state judge's August ruling dismissing its suit against California Mutual Insurance Co., by bypassing a midlevel appellate court and seeking immediate review by the Supreme Court of California. The case involves an issue of "great public importance" that is coming up in thousands of similar coverage disputes.
The Inns filed suit against California Mutual on April 20, after the insurer denied coverage for losses suffered when its hotels closed due to state and local officials' shelter-in-place orders.
The Inns sought coverage under its all-risk policy with California Mutual - citing the "civil authority" trigger. "Civil authority" coverage applies where a state or local government prohibits the policyholder from accessing its property due to direct physical loss of or damage to a property other than the policyholder's. The parties dispute the interpretation and application of the "civil authority" provision.
The Inns argued that COVID-19 can cause direct physical loss of or damage to property because the virus renders property "unsafe and unfit for its intended purpose." California Mutual, on the other hand, asserted that the provision requires "direct, tangible, and perceptible alteration" to the property to trigger coverage.
California Mutual moved to dismiss The Inns' complaint on June 18. The Court granted the insurer's motion on Aug. 4. The Inns not only appealed, but also sought immediate transfer to the Supreme Court of California - an extraordinary remedy. The Supreme Court will not order transfer under this rule unless the cause presents an issue of great public importance that the Supreme Court must promptly resolve. Here, the Inns argue that resolution of its dispute will affect tens of thousands of existing lawsuits concerning the availability of coverage for businesses' losses due to government-mandated COVID-19 shutdowns. We will watch this case closely and report developments.
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