COVID-19 Related Insurance Question Resolved

In May, an insurance coverage question that had been certified to the Supreme Court of California by the Ninth Circuit Court of Appeals was answered: 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? 

Duane Morris attorneys explain that in the case of Another Planet Entertainment, LLC v. Vigilant Ins. Co, Another Planet sued its insurer for pandemic-related business losses when its venues closed. In federal court, the plaintiff alleged that the actual or potential presence of the COVID-19 virus at its venues or nearby properties caused direct physical loss or damage to property and triggered coverage. 

The district court granted Vigilant’s motion to dismiss for failure to state a claim, and Another Planet appealed. The Ninth Circuit said the issue was whether Another Planet’s allegations, if true, were sufficient to show direct physical loss or damage to property as defined by California law, and certified the question to the Supreme Court of California.

On May 23rd, the Supreme Court concluded that allegations of the actual or potential presence of COVID-19 on an insured’s premises do not, without more, establish direct physical loss or damage to property within the meaning of a commercial property insurance policy. This is consistent with the vast majority of courts nationwide.

The Court explained that in rare situations a property could suffer direct physical loss where it is not damaged in a conventional sense, for example, if chemical contamination or noxious odor rendered it effectively unusable or uninhabitable, but Another Planet’s allegations failed to meet this standard.