Ninth Circuit Certifies Question to California Supreme Court on COVID-19 Claim

    The Ninth Circuit certified a question to the California Supreme Court asking whether the presence of COVID-19 constitutes “direct physical loss to property.'” Another Planet Entertainment, LLC v. Vigilant Ins. Co., 2022 U.S. App. LEXIS 35763 (9th Cir. Dec. 28, 2022). 

    Another Planet was an event promoter and venue operator that owned event venues in California and Nevada. It held a commercial property policy with Vigilant Insurance Company. After the COVID-19 pandemic began in early 2020, government closure orders forced Another Planet to suspend its operations, close its venues and cancel events, resulting in substantial financial losses. Another Planet submitted a claim to Vigilant. After the claim was denied, Another Planet filed suit 

    Another Planet alleged in its First Amended Complaint that COVID-19 was present on its properties. Droplets of the COVID-19 virus could stay suspended in the air and be infective for at least 16 hours and could remain active on surfaces for at least 28 days. Vigilant filed a motion to dismiss arguing that Another Planet had not sufficiently alleged direct physical loss or damage to property. The district court agreed and dismissed the case with prejudice after giving Another Planet one opportunity to amend its complaint.

    The Ninth Circuit noted two different divisions of the Second District of the California Courts of Appeal had issued conflicting decision regarding whether allegations like Another Planet’s sufficed to state a viable claim for “direct physical loss or damage to property.” In United Talent Agency v. Vigilant Ins. Co., 293 Cal. Rptr. 3d 65 (Ct. App 2022), the court sustained the insurer’s demurrer, concluding that the insured did not establish that the presence of the virus constituted physical damage to insured property. 

    Subsequently, in Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund Ins. Co., 296 Cal. Rptr. 2d 777 (Ct. App. 2022), a different division of the Courts of Appeal came to a different conclusion. The Marina Pacific court acknowledged that United Talent Agency was not distinguishable, but maintained that the court there improperly disregarded the insured’s factual allegations as improbable. 

    Therefore, the following question was certified to the California Supreme Court:

Can the actual or potential presence of the COVID-19 virus on an insured’s premises constitute “direct physical loss or damage to property” for purposes of coverage under a commercial property insurance policy?