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Courts continue grappling with the application of California insurance law to COVID-19 business interruption claims. After three years of insurance claims and litigation, the California Supreme Court has agreed to provide guidance as to whether the actual or potential presence of SARS-CoV-2 on insured property can qualify as physical loss of or damage to property in Another Planet Entertainment, LLC v. Vigilant Insurance Company.

District court proceedings

Another Planet operates and promotes concerts, events, and festivals in California and Nevada. After its insurer denied coverage for business income losses incurred, Another Planet filed suit in California federal court seeking coverage under its “all-risk” property insurance policy.

In its amended complaint, Another Planet alleged that the virus was present or would have been present had it not closed its venues in compliance with government orders. The insured further alleged that droplets of the COVID-19 virus physically altered the air and property surfaces, constituting physical loss or damage and rendering the property unusable for its intended purpose and function. The pleading further asserted that minimizing the spread of COVID-19 requires physical alterations, including physical distancing, regular disinfection, air filtration, and installation of physical barriers.      

Vigilant Insurance moved to dismiss on the basis that Another Planet had not sufficiently alleged direct physical loss or damage to property. On June 21, 2021, the District Court granted the insurer’s motion and dismissed the case with prejudice. …

Continue Reading California Supreme Court to offer guidance for COVID-19 coverage cases

With the onset of the Covid-19 pandemic in 2020, businesses across the country were forced to shut their doors and turn to their commercial property insurance companies to seek coverage. With their properties having been rendered useless for their intended (and insured) business purposes, these insureds reasonably expected their “all risk” policies would provide the promised “business income” protection due to the “physical loss” of their properties. The insurance industry, however, near-universally denied coverage, leading to a proliferation of lawsuits around the country – including in Pennsylvania. 

On November 30, 2022 the Pennsylvania Superior Court issued a pair of decisions that ostensibly addressed the same legal question posed in the vast majority of these cases – whether the term “physical loss” in a commercial property policy can reasonably be construed to mean the loss of use of property for its intended business purpose. Curiously, the Superior Court’s decisions in Ungarean v. CNA & Valley Forge Insurance Co., Nos. 490 WDA 2021, No. 948 WDA 2021, 2022 Pa. Super. LEXIS 467 (Pa. Super. Ct. Nov. 30, 2022) and MacMiles, LLC v. Erie Insurance Exchange, No. 1100 WDA 2021, 2022 Pa. Super. LEXIS 469 (Pa. Super. Ct. Nov. 30, 2022) reached opposite and seemingly contradictory conclusions, leaving the question far from settled within Pennsylvania.…

Continue Reading A tale of two opinions: The meaning of “physical loss” in the context of commercial property policies for Covid-19-related losses in Pennsylvania

On January 6, 2023, the Third Circuit affirmed lower court rulings in 14 consolidated appeals from orders dismissing claims for property damage and business interruption losses resulting from the coronavirus and/or COVID-19. Policyholder lawyers can (and will) find fault with many parts of Wilson v. USI Ins. Service LLC, Case No. 20-3124, in which the Third Circuit tries to predict how the state supreme courts of New York and Pennsylvania would interpret the phrase “physical loss of or damage to property.” 

The Wilson court distills the issue presented as, “whether the businesses’ inability to use their properties for their intended business purposes constitutes ‘physical loss of’ property.” In answering this question “no,” the Wilson court interpreted physical loss of property to require a “complete (or near complete) dispossession of the property, regardless of the purpose for which that property is used,” for there to be physical loss.

What this conclusion means to businesses that lease premises

This conclusion does little for business policyholders who rent space and commit resources towards a particular endeavor. According to Wilson, as long as the property has some function or use, there is no physical loss, even where the policyholder cannot, in whole or in part, conduct its chosen business due to the presence of a deadly virus or disease. In other words, as long an insured restaurant space can be used to, for example, store auto parts, in the court’s view, the policyholder has not been dispossessed of the property, and is not entitled to coverage. This interpretation is neither commercially reasonable nor in keeping with the expectations of policyholders who are tenants operating businesses in the buildings.…

Continue Reading Physical loss and reasonable expectations of policyholders: The Third Circuit whiffs

I recently wrote about lessons that could be learned from the ongoing insurance coverage jurisprudence related to the coronavirus / Covid-19 pandemic.  That article discussed broad trends that had developed and cohered across this vast litigation landscape, through multiple decisions in many courts over the course of several months or more.  Although descriptive, most of those trends have been and are anti-plaintiff, anti-policyholder, and anti-insurance recovery.

Is a pro-policyholder trend on the horizon? 

This piece is different in two important respects.  First, it focuses on a point that has not yet achieved a level of pervasiveness that could be fairly characterized as a trend, although it should and hopefully will reach that point soon.  Second, this piece discusses a positive outcome for policyholders seeking to recover for their coronavirus- and Covid-19-related losses.…

Continue Reading Policyholders seeking coverage for Covid-19-related losses may have reason to be optimistic

In the past few months, in cases considering whether SARS-CoV-2/COVID-19 can cause direct physical loss or damage to property so as to trigger business income coverage, policyholders have secured three wins in state appellate courts: Ungarean in the Superior Court of Pennsylvania, Huntington Ingalls in the Vermont Supreme Court, and Cajun Conti in the Louisiana…

The ongoing COVID-19 pandemic led to unprecedented closures and losses for businesses throughout the United States. Naturally, policyholders have sought recovery for pandemic-related losses under their “all risk” commercial property policies. According to the University of Pennsylvania Carey School of Law Covid Coverage Litigation Tracker, there have been approximately 2,300 of these COVID-19 coverage cases filed to date. Early pre-trial court decisions overwhelmingly favored insurers; however, recent appellate and high court decisions have demonstrated a slight shift in favor of policyholders.

For example, one of the first COVID-19 coverage decisions was issued by a Michigan state court in the summer of 2020:  Gavrilides Management Company LLC et al v. Michigan Insurance Company. The Gavrilides court rejected the policyholder’s arguments that (1) the loss use of property constitutes a “direct physical loss” covered by the policy and (2) the virus exclusion should not apply since the loss use was caused by government orders. This full dismissal was just the start of policyholders’ uphill court battles.  Since Gavrilides, nearly 70% of state court merits hearings have resulted in a full dismissal with prejudice. In federal courts, that number jumps to nearly 87%.…

Continue Reading Direct physical loss in COVID Coverage cases: Are policyholders seeing a litigation shift in favor of COVID-19 coverage?

On October 4, the California First Appellate District in Amy’s Kitchen, Inc. v. Fireman’s Fund Insurance Company, 2022 Cal. App. LEXIS 836, reversed a trial court’s order granting the insurer’s demurrer in a COVID-19 property damage claim, and remanded to allow the policyholder to amend its allegations of loss under a communicable disease coverage extension.  In so doing, the court applied correctly the pleading standards in California, and a process of careful evaluation of the policy language in context, existing physical loss or damage law in California, ultimately applying the clear language in the policy in a common sense manner.  The Amy’s Kitchen decision is important because it interpreted the policy in the way a reasonable layperson would read its language, focusing on the actual policy language, not terms of art defined by case law.  

The facts

Amy’s employs more than 2,500 people to manufacture meals at facilities in California, Oregon and Idaho.  As alleged in Amy’s complaint, COVID-19 was present at Amy’s locations because some of Amy’s employees had confirmed cases, prompting Amy’s to take measures to mitigate, contain, clean, disinfect, monitor and test for COVID-19.  Public health orders also required Amy’s to implement various measures, including decontamination, disinfection and sanitization of its facilities to continue operating.…

Continue Reading Amy’s Kitchen: A step in the right direction

Recently, a California federal court issued a favorable decision for policyholders seeking coverage for losses arising from COVID-19 who paid significant premiums to purchase substantial coverage limits including “coverage for business interruption losses from a virus.”  Sunstone Hotel Investors, Inc. v. Endurance Am. Spec. Ins. Co., Case No. SACV 20-02185 (C.D. Cal., June 15, 2022).

The facts

In Sunstone Hotel Investors, Inc., the Boston Marriott Long Wharf (the “Marriott”) hosted a three-day conference in February 2020.  Following the event, the Boston Public Health Department informed the hotel that three attendees tested positive for COVID-19.  Sunstone, the operator of the Marriott, timely filed an initial notice of loss with Endurance under its environmental impairment liability policy for the losses stemming from the presence of COVID-19.

In exchange for the placement of the policy, Sunstone paid a significant premium for an aggregate maximum of $40 million limit of insurance to protect itself against all kinds of events, including $25 million for “business interruption losses from a virus.”

After receiving the notice, Endurance denied the claim in full.  Following the notice but prior to denial, the Boston public health authorities informed the Marriott that the City would force it to quarantine and close immediately if the hotel failed to suspend its operations.  The Marriott thereafter suspended its operations for a period of 14 days.  Prior to the hotel’s reopening date, the State of Massachusetts issued a governmental order mandating the closure of all non-essential businesses, which included the hotel.  The Marriott thus remained closed until July 7, 2020, when the State permitted it to reopen at limited capacity. …

Continue Reading A policyholder win: Court finds coverage for COVID-19 related losses

It’s no secret that businesses of all shapes and sizes have suffered tremendous losses during the COVID-19 pandemic. From closures to the “Great Resignation” to ever-changing consumer demands, businesses have dealt with one problem after another. One of those problems is the denial of insurance coverage under  “all risk” commercial property policies. For the last two years, courts across the country have found in favor of insurers, ruling that SARS-CoV-2, the virus underlying the COVID-19 pandemic, does not cause physical damage to property.

Enter Marina Pacific Hotel, LLC, et al. v. Fireman’s Fund Insurance Company, 2022 Cal. App. LEXIS 608 (2nd Dist. 2022), a case in which the California Appellate Court looked beyond the preliminary question of whether SARS-CoV-2 causes damage to property and got back to legal basics in its analysis of the plaintiffs’ complaint. With Marina Pacific Hotel, policyholders landed a major victory, and the case may provide a winning framework for plaintiff-insureds facing similar legal battles in the future.

The Marina Pacific Hotel Case

The policy at issue in Marina Pacific Hotel contained much of the standard coverage language which has been heavily debated over the last two years, namely, that the insurer will pay for “direct physical loss or damage” caused by or resulting from a covered cause of loss. This language has proven problematic for policyholders dealing with COVID-19 losses as judges have been reluctant to find that a virus physically alters property when viewed through the lens of what is traditionally considered “property damage.”

However, the Marina Pacific Hotel plaintiffs set out detailed allegations of physical damage, including the fact that SARS-CoV-2 can bond with the surfaces of objects it touches altering the cells and surface proteins of that object. Like insurers around the country, Fireman’s Fund argued that SARS-CoV-2 cannot physically damage property, and that the insured’s loss of use of a piece of property does not constitute physical damage.…

Continue Reading Looking beyond “Physical Damage to Property”: Is Marina Pacific Hotel a winning framework for policyholders?

Nearly two years into the COVID-19 pandemic, the battles over threshold business interruption coverage issues like the presence of physical loss or damage, causation, and the applicability of policy exclusions continue to rage.  Results have been mixed, with insurers notching wins in federal courts, and policyholders faring better in state courts and in certain jurisdictions.

But scores of policyholders who have avoided pre-discovery dismissal are now grappling with how other policy terms will impact their recovery.

Chief among these – particularly for policyholders with diverse and widespread physical locations and operations – is the impact of a classic question typically dealt with in handling catastrophic liability claims: how many occurrences are there?

The answer has profound implications for the amount of recovery, as it affects not only how deductibles may (or may not) apply but also how primary and excess coverage might respond to a large loss.

Three “tests” have emerged in case law to deal with this problem in the liability context. The “cause” test (adopted by the majority of jurisdictions) determines the number of “occurrences” by looking to the number of causes of injury or loss. The “effect” test determines the number of “occurrences” by looking to the number of resulting injuries or losses. And the “continuous process” test determines the number of occurrences by looking at the number of processes resulting in damage that were continuous, repetitive, and interrelated. See, e.g., Unigard Ins. Co. v. United States Fid. & Guar. Co., 728 P.2d 780 (Idaho Ct. App. 1986).…

Continue Reading “Occurrences” in COVID-19 business interruption litigation