California Department of Insurance Leaving Virus Exclusion Questions up to the Courts


By: Jennifer Wilczynski

At the start of 2021, there were over 1,500 property insurance claims across the country due to COVID-19 business interruptions. These cases largely address interruptions caused by local and state ordinances, which forced the closure of many businesses generally open to the public. The policyholder claims allege that state-ordered closures deter people from coming to businesses, thus decreasing the profitability of the business and causing some to close. Most insurance policies include exclusions, such as virus exclusions or exclusions from civil authority and actions of government bodies. These exclusions have left businesses unable to receive insurance benefits from damages caused by business interruptions due to COVID-19.

California was one of the first states to take action regarding business interruption claims. Insurance Commissioner Ricardo Lara issued a notice to insurance companies to fairly investigate all business interruption claims caused by COVID-19. In 2020, AB 1552 (Ramos and Limón) was introduced and would have retroactively expanded insurance coverage under existing policies to cover losses incurred due to COVID-19 related business interruptions. Importantly, the bill would have provided that with respect to coverage for business interruption due to an order of civil authority, a rebuttable presumption applied that COVID-19 was present on property located within the geographical location covered by the order of civil authority and caused physical damage to that property. However, the bill died in a Senate committee. Because most insurance policies contain virus exclusions, the issue appears to be beyond the control of the Department of Insurance and must be resolved in the courts.

Court decisions in California regarding COVID-19 insurance coverage thus far have been favorable to insurers. For instance, on January 25, 2021, in Fink v. The Hanover Insurance Group, Inc., et al., Case No. CV03907 (N.D. Cal.), the United States District Court for the Northern District of California granted the defendant’s motion to dismiss COVID-19 business interruption insurance claims against it. The court found that the plaintiff policyholder failed to allege “loss at his property which can be fixed, replaced, or disinfected,” nor that there was any force responsible for loss of use of his property. In this case, the court decided that the policy did not provide civil authority coverage because the government closure orders were preventative and intended to mitigate the COVID-19 pandemic, thus, the plaintiff failed to establish a “causal link between prior property damage and the government’s closure order.” The judge, in this case, granted a leave to amend the complaint, thus giving the plaintiffs an opportunity to correct the deficiencies noted by the court in an amended complaint. On February 11, 2021, the claim was dismissed with prejudice after the plaintiffs chose not to amend the complaint.

Similarly, on January 26, 2021, in Colgan v. Sentinel Insurance Company, LTD., Case No. CV04780 (N.D. Cal.), the United States District Court for the Northern District of California granted the defendant’s motion for judgment regarding a COVID-19 business interruption claim. The court found that the losses incurred by the plaintiff were excluded by his policy’s virus exclusion. In both cases, the plaintiffs were granted leave to amend the pleadings to correct the deficiencies cited in the opinions. On February 11, 2021, the plaintiffs in Colgan filed a notice of intent not to file an amended complaint in order to appeal to the Ninth Circuit. Plaintiff requested the case be dismissed per the court’s January 26 order. The case was dismissed with prejudice on March 3, 2021.

California policyholders can refer to the Department of Insurance’s FAQ page on business interruption claims or contact the Department of Insurance with questions or issues regarding their insurance policy or insurance company at (800) 927-4357 or through the website,



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