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Ninth Circuit Asks S.C. Whether Policies Cover Business Losses From COVID Restrictions
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday asked the California Supreme Court to tell it whether, under state law, an insurance policy covering business losses from property damage extends to losses occasioned by government mandated shutdowns and restrictions on uses of premises during the COVID-19 pandemic.
Specifically, it certified this question:
“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?”
A three-judge panel—comprised of Circuit Judges Sandra S. Ikuta and Morgan Christen and Senior Circuit Judge Carlos T. Bea—is essentially asking if the state high could embraces the position, virtually an outlier one, articulated in by Div. Seven of this district’s Court of Appeal that a cause of action is stated where a policy-holder contends that presence of the virus physically alters the premises.
The panel said the circuit will normally adhere to state-law determinations by intermediate appellate courts, but noted the discrepancy between a determination by this district’s Div. Four and Div. Seven.
Div. Four’s View
In United Talent Agency v. Vigilant Insurance Co., decided by Div. Four on April 22, 2022, Justice Audrey B. Collins said:
“[W]e agree with the majority of the cases finding that the presence or potential presence of the virus does not constitute direct physical damage or loss….[T]he virus exists worldwide wherever infected people are present, it can be cleaned from surfaces through general disinfection measures, and transmission may be reduced or rendered less harmful through practices unrelated to the property, such as social distancing, vaccination, and the use of masks. Thus, the presence of the virus does not render a property useless or uninhabitable, even though it may affect how people interact with and within a particular space.”
The California Supreme Court on July 20, 2022, denied a request for an order directing depublication of that opinion and declined to grant review on its own motion.
Div. Seven’s Position
Div. Seven rejected Div. Four’s view—and that of other courts across the nation—in its July 13, 2022 opinion in Marina Pacific Hotel and Suites, LLC v. Fireman’s Fund Insurance Company. Presiding Justice Dennis M. Perluss wrote:
“The trial court sustained Fireman’s Fund’s demurrer to the insureds’ first amended complaint without leave to amend and dismissed the lawsuit, ruling the COVID-19 virus cannot cause direct physical loss or damage to property for purposes of insurance coverage. That might be the correct outcome following a trial or even a motion for summary judgment. It was error at this nascent phase of the case.”
Perluss acknowledged that in three Court of Appeal decisions other than United Talent, there was an affirmance of dismals of actions against insurers that denied coverage, but noted that in those cases, the insureds sought payments based on government edicts without alleging an alteration of the premises caused by presence of the virus.
Review was not sought.
On Dec. 14, Div. Seven, in an unpublished opinion in Shusha, Inc. v. Century-National Insurance Company, clung to the view articulated in Marina Pacific. Should review be sought in Shusha, the state’s high court might advise the Ninth Circuit panel to sit tight and await the outcome in that case.
Spencer A. Schneider, a partner in the West Los Angeles firm of Berman, Berman, Berman, Schneider & Lowary LLP, represented the insured in Shusha. He said yesterday that it is “undetermined at this time” whether review will be sought.
The Ninth Circuit’s request for an advisement by the California Supreme Court comes in Another Planet Entertainment, LLC 2 v. Vigilant Insurance Co., 21-16093.
Copyright 2022, Metropolitan News Company