Tarrar Enterprises, Inc. v. Associated Indemnity Corporation

(December 2022) - In Tarrar Enterprises, Inc. v. Associated Indemnity Corp., 83 Cal.App.5th 685 (September 22, 2022), the California First District Court of Appeal reversed the trial court’s order sustaining a demurrer filed by Associate Indemnity Corporation (“Associated Indemnity”) in response to a declaratory relief action filed by Tarrar Enterprises, Inc. (“Tarrar”) seeking coverage under a property policy for business income loss due to government shutdown orders related to COVID-19. The Court of Appeal acknowledged the Apple Annie decision affirming the dismissal of an action alleging property loss (see summary here), but found that Tarrar was entitled to amend its complaint to support a claim for business income loss based on “direct physical damage to or physical loss of” the insured property under the associated policy.

The Court of Appeal held as follows:

Apple Annie discussed the four prior cases, and others, and held as it did, affirming the judgment on the pleadings for the insurer. We adopt its reasoning here without the need to repeat it, and conclude that Tarrar’s complaint does not allege the necessary “direct physical loss of or damage to property” and thus that the demurrer was properly sustained.

That does not end the matter.

Here – and unlike Apple Annie – Tarrar argued in the trial court that if the demurrer be sustained, it be with leave to amend. Despite that, the trial court ruled to the contrary.

Tarrar maintained its request for leave to amend in its briefing here, in both its opening brief and reply briefs, the latter of which sets forth in some detail what Tarrar would allege in an amended complaint. And at oral argument counsel for Tarrar confirmed that, and more, noting among other things that leave to amend is appropriate when issues are developing.

But beyond that, given that the complaint here was the original complaint, other principles guide us as well, principles we confirmed in Eghtesad v. State Farm General Ins. Co. (2020) 51 Cal.App.5th 406, 411- 412 [265 Cal. Rptr. 3d 2277: “[F]or an original complaint, regardless whether the plaintiff has requested leave to amend, it has long been the rule that a trial court’s denial of leave to amend constitutes an abuse of discretion unless the complaint ‘shows on its face that it is incapable of amendment.’ (King v. Mortimer (1948) 83 Cal.App.2d 153, 158 [188 P.2d 502] ...; see also Adkins v. City & County of San Francisco (1935) 8 Cal.App.2d 620. 621 [47 P.2d 751] [where it appeared that plaintiff attempted in good faith to state a cause of action and it was ‘not at all clear that plaintiff could not have amended’ to overcome the demurrer, it was error for the trial court to refuse to grant plaintiff at least one opportunity to amend].)