Insurers secure victory in California COVID-19 BI case | Insurance business America
The judge’s ruling said the pandemic caused no direct physical harm
Legal insights
By Kenneth Araullo
The California Supreme Court has ruled that COVID-19 does not cause direct physical loss or property damage when it comes to insurance coverage, consistent with most court decisions across the country.
According to AM Best, the ruling means Chubb subsidiary Vigilant Insurance Co will not have to cover losses for a concert promoter that canceled several events during the COVID-19 pandemic.
“The actual or potential presence of the COVID-19 virus on an insured’s premises generally does not constitute ‘direct physical loss or property damage’ for commercial property insurance purposes,” the court explained.
The court noted that while it cannot determine that the COVID-19 virus can never cause direct physical property damage, its assessment is limited to the claims made by Another Planet LLC, which are “the most common claims in support of pandemic-related claims.” reflect property insurance coverage.”
Another Planet’s lawsuit alleged fraud, breach of contract and bad faith after Vigilant denied coverage. The complaint said the virus could remain active on the property for up to 28 days, rendering it unusable and causing physical loss or damage.
A district court dismissed the complaint, agreeing with Vigilant’s argument that Another Planet failed to prove that its property was damaged.
Subsequently, the Court of Appeals for the Second District of California ruled that the plaintiff, Marina Pacific Hotel & Suites, had “undoubtedly” alleged direct physical injury.
When Another Planet appealed the district court’s decision to the 9th U.S. Circuit Court of Appeals, the appeals court referred the case to the California Supreme Court to resolve the split in the lower courts.
“Under California law, direct physical loss or damage to property requires a clear, demonstrable physical alteration to the property,” the court said. “The physical change need not be visible to the naked eye or structural, but it must result in injury or impairment to the property as property.”
The court concluded that while Another Planet’s claims may be true, they do not meet this standard.
Although the company argued that the virus rendered its property unusable, the court found that the company restricted operations due to lawful government health orders.
The court added that a property could suffer immediate physical damage if a chemical contaminant or noxious odor entered the property, but that was not the case in this case.
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2024-05-28 14:57:23
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