Business closed amid pandemic after workers complained about symptoms consistent with COVID-19
In March 2020, the Santa Ynez Band of Chumash Mission Indians of the Santa Ynez Reservation California learned that employees of its casino and resort were complaining about COVID-19-like symptoms. Its business committee promptly ordered the closure of its establishment.
The case of Santa Ynez Band of Chumash Mission Indians of the Santa Ynez Reservation California v. Lexington Insurance Company involved the Chumash Casino and Resort, a large business enterprise consisting of a hotel, a gaming floor, video gaming machines, table games, a poker room, a bingo room, restaurants, a café, a food court, and a showroom. It employed more than 1,700 employees.
In March 2020, the casino and resort closed after the general manager concluded that the COVID-19 virus was present on and was interacting with the establishment’s surfaces. It remained closed until June 10, 2020.
Before the reopening, Chumash made repairs and upgrades to its establishment, including installing temperature check machines, plexiglass barriers at gaming machines and tables, and barriers between tables in the break areas of employees.
Chumash had an insurance policy with Lexington Insurance Company. The policy’s coverage provisions required proof of physical damage to property.
Read more: California hotel owner seeks insurance proceeds for physical loss caused by COVID-19
Chumash filed a claim with the insurer based on alleged property damage in the casino and resort due to the COVID-19 virus. The damage made its facilities unsafe and unusable, Chumash said.
The insurer denied the claim, which prompted Chumash to take the case to court. Chumash made claims for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing.
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The trial court granted summary judgment in the insurer’s favor. It decided that, as a matter of California law, COVID-19 did not cause direct physical loss or damage to property.
Insurance claim denied
The California Court of Appeal for the Second District agreed with the trial court’s decision in the insurer’s favor.
To make a sufficient claim for property damage insurance, the plaintiff had to show that the alteration was so material that it caused specific economic damage to its property, the appellate court noted.
In this case, Chumash failed to present sufficient evidence to prove that the COVID-19 virus actually caused physical property damage to its casino and resort such that its situation would trigger the property damage coverage provisions of the insurance policy, the appellate court concluded. Chumash also failed to specify which property was damaged and to submit a claim for the dollar amount of the loss, the appellate court said.
None of Chumash’s property was repaired, rebuilt, or replaced, the appellate court found. The physical building structure of the casino and resort remained intact and unchanged, and its employees kept working there before, during, and after the shutdown, the appellate court added.
In response to Chumash’s claim that it installed plastic barriers, the appellate court said that this did not amount to proof of property damage. Rather, this installation was in line with the standard pandemic-related precautions that many businesses made so that they could reopen to the public after the shutdown, the appellate court explained.