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COVID Virus Does Not Cause Physical Loss, Property Damage, C.A. Panel Declares
Contrary Opinions Are Repudiated
By a MetNews Staff Writer
Div. Two of the Court of Appeal for this district on Thursday weighed in on an issue before the California Supreme Court, holding that a demurrer was properly sustained to a complaint against insurers by a conglomerate that was precluded by the COVID-19 pandemic from staging sports and entertainment events across the globe, rejecting the notion that the virus adheres to surfaces, thus constituting property damage.
The plaintiff claims losses of “hundreds of millions of dollars.”
Justice Brian M. Hoffstadt authored the opinion which repudiates contrary reasoning advanced on July 13, 2022 by Court of Appeal Presiding Justice Dennis M. Perluss of this district’s Div. Seven in Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund Ins. Co. That decision reversed a judgment of dismissal following the sustaining of a demurrer without leave to amend by Los Angeles Superior Court Judge Craig D. Karlan to a complaint by the owner of a hotel and restaurant against an insurer for business losses occasioned by property damage.
The factual allegation that the virus is absorbed by surfaces had to be taken as true for purposes of a demurrer, Perluss declared. Rejection of the theory that the virus cannot cause “direct physical loss or damage to property” for purposes of coverage, he said, “might be the correct outcome following a trial or even a motion for summary judgment” but not at “this nascent phase of the case.”
That view was adhered to by Div. Seven in its Dec. 14, 2022 opinion by Justice Gail Ruderman Feuer in Shusha, Inc. v. Century-National Ins. Co. The California Supreme Court granted review in Shusha on April 19, 2023.
Dismissal Affirmed
In Thursday’s opinion, Div. Two rejected the contention by Endeavor Operating Company, LLC—a New York holding company that stages such events as the Wimbledon tennis tournament, New York Fashion Week, and Ultimate Fighting Championship matches, which were cancelled or postponed—that Div. Seven’s opinions (which represent a minority view) ought to be followed. Instead, it affirmed Los Angeles Court Judge Elaine Lu’s judgment of dismissal of the action by Endeavor against four insurance companies.
Hoffstadt wrote:
“[W]e respectfully disagree with Marina Pacific and Shusha that the general principle requiring factual allegations to be accepted as true at the demurrer stage obligates us to ignore that those allegations do not, as a matter of law, meet the applicable definition triggering coverage. We agree with Marina Pacific and Shusha that, at the demurrer stage, we must accept as a scientific fact how the SARS-CoV-2 virus interacts with surfaces….However, the trial court’s judgment for the insurers is nevertheless correct here because we are concluding that the type of viral interaction with surfaces alleged by Endeavor (and accepted as true) does not, as a matter of law, satisfy the default definition of ‘direct physical harm or loss to property.’ ”
Legal Contention
Hoffstadt added:
“And to the extent Endeavor’s allegation is read as an allegation that the presence of SARS-CoV-2 particles on surfaces satisfies the definition of ‘direct physical loss or damage to property,’ it is akin to an allegation that Endeavor’s loss is covered by the policy; as such, it is a conclusion of law that we may disregard on review of a demurrer.”
He indicated agreement with the April 22, 2022 opinion by Court of Appeal Justice Audrey B. Collins of this district’s Div. Four in United Talent Agency v. Vigilant Insurance Co. Collins wrote:
“Many courts have rejected the theory that the presence of the virus constitutes physical loss or damage to property. As the Seventh Circuit stated in rejecting a similar claim, ‘While the impact of the virus on the world ... can hardly be overstated, its impact on physical property is inconsequential: deadly or not, it may be wiped off surfaces using ordinary cleaning materials, and it disintegrates on its own in a matter of days.’ ”
Hoffstadt’s opinion comes in Endeavor Operating Company, LLC v. HDI Global Insurance Company, B323865.
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