Recent COVID-related business interruption cases in conflict

Thank you for the article "Salon can sue over COVID closure as an 'evacuation" (Wed., Aug. 31). The distinguished commentators quoted on the case at issue, Butter Nails v. Underwriters (2022) B311455, disagreed about its significance for future litigation over claims of business interruption loss due to COVID closure orders.

Unsurprisingly, as appellate counsel for Butter Nails, I believe the decision to have substantial significance. Generally, it is one of very few such decisions among hundreds such around the country (mainly in Federal District Courts) in which the insured has prevailed. There are currently five published opinions from California courts in cases of this sort, in only one of which (Marina Pacific Hotel (2022) 81 Cal.App.5th 96) the insured won. More specifically, while the coverage language the court found applicable is virtually unique, the exclusion language which the Butter Nails court found inapplicable is not.

The Butter Nails exclusion bars coverage for loss caused by the "manifestation, release, dispersal, seepage, migration, discharge, appearance, presence or growth" of mold, mildew and other organic pathogens, including "mold, fungus, bacteria or virus," or the costs of what it takes "to test, monitor, cleanup, remediate, remove, contain, treat, detoxify, neutralize, rehabilitate, or in any way respond to or assess" their effects. It is similar to quite common exclusions which courts in every part of the country have almost unanimously found applicable, defeating the claims of insured businesses in many states, including California. They too exclude coverage for losses in any way caused by microorganisms such as fungus, bacteria or virus.

One of those decisions, the only one from a California (as opposed to Federal) court, is Musso & Frank v. Mitsui Sumimoto Ins. (2022) 77 Cal.App.5th 753. In it, that court follows a Ninth Circuit opinion, Mudpie Inc. v. Travelers Cas. Ins. (2021) 15 F.4th 885, in holding a popular exclusion (from the Insurance Services Office "ISO") barring coverage for loss caused by "any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness, or disease" applicable to losses from COVID order closures. 77 Cal.App.5th 753, 761.

There is language in the Butter Nails exclusion that points toward the excluded losses being from microorganism infestation of the premises, especially the provision excluding the costs of remediation. (See Opn., pp. 18-21). More fundamentally, Butter Nails court started from the premises that "[p]olicy exclusions are strictly construed," MacKinnon v. Truck Insurance Exchange (2003) 31 Cal.4th 635, 648, and that an "exclusionary clause must be conspicuous, plain and clear." Id. The court found the exclusion not to apply because it "does not conspicuously, plainly and clearly exclude losses stemming from public health orders addressing a viral pandemic." (Opn.18).

Nothing about construing exclusions strictly, or requiring that they "conspicuously, plainly and clearly exclude" the losses claimed appears in Mudpie or Musso & Frank. The contrast is striking, and indicates that the cases are in conflict.