California justices side with insurer in virus coverage fight

The California Supreme Court ruled Thursday that an insurer need not cover a concert promoter’s business losses caused by the COVID-19 pandemic.

In its unanimous ruling in Another Planet Entertainment LLC v. Vigilant Insurance Co., the court said that the presence of the virus at the company’s venues did not constitute physical loss or damage that would trigger coverage.

“Under California law, direct physical loss or damage to property requires a distinct, demonstrable, physical alteration to property. The physical alteration need not be visible to the naked eye, nor must it be structural, but it must result in some injury to or impairment of the property as property,” the court said.

San Francisco-based Another Planet claimed it sustained $20 million in losses as a result of government shutdown orders issued in the early stages of the pandemic. The promoter, which owns a number of concert venues, submitted a claim to Vigilant, which the insurer denied.

Another Planet sued Vigilant in federal court in San Francisco, bringing claims for breach of contract, bad faith and fraud. After the filing of an amended complaint, Vigilant moved to dismiss the suit, arguing Another Planet did not allege that the virus caused physical loss or damage to its properties. The trial court granted the motion.

The policyholder appealed to the Ninth Circuit, which certified a question to the California Supreme Court, due to a split in how appeals courts interpreted physical loss or damage. Some courts found that government closure orders that prevented the use of a property did not cause physical damage, while others ruled the presence of the virus constituted damage.

The California Supreme Court justices were persuaded by the majority of federal and state supreme court rulings that losses resulting from the pandemic were not the result of physical loss or damage, saying the damage must cause an alteration or make the property unusable.

“A property insurance policy does not cover a particular intended use; it covers the property itself. The property itself must suffer a direct physical loss, i.e., it must be so negatively affected that it is rendered effectively unusable or uninhabitable.” the court said.

Los Angeles-based Kirk Pasich of Pasich LLP, who represents Another Planet, said that while he “was disappointed at the outcome,” the ruling “does not mean that there never can be insurance coverage for losses associated with this pandemic, let alone future pandemics.”

Representatives for Vigilant did not respond to requests for comment.

Representatives for the parties did not respond to requests for comment.