California Supreme Court justices on Tuesday focused on the potential implications of ruling that the Covid-19 virus’ presence in surfaces is sufficient to show property damage for commercial insurance coverage.
Justices during oral argument questioned the contours of coverage and implications for policyholders and insurers as businesses and the insurance industry contend with the fallout from government-ordered shutdowns during the pandemic, with an eye toward future wildfires and other calamities in a disaster-prone California.
The potential billion-dollar answer now rests with the seven-member state supreme court.
Associate Justice
Chief Justice Patricia Guerrero asked about the consequences in cases involving noxious fumes and wildfires should the court side with the insurance industry arguments that there has to be direct, demonstrable damages for coverage.
“Our policy doesn’t include [treating] property as air,” said Vigilant attorney Jonathan D. Hacker with O’Melveny & Myers LLP. “It’s not even insurable property.”
Should coverage be mandated, California Covid-related business interruption losses for businesses with fewer than 250 employees would monthly range from $9.1 billion to $33.7 billion, according to 2020 analyses by the American Property Casualty Insurance Association. That compares to $480 million in total monthly premiums for commercial property policies in California, “of which business interruption premiums constitute a small fraction,” the trade association said in a brief supporting Vigilance.
Other Cases
The California court in July held that employers don’t owe a duty of care under state law to prevent the spread of Covid-19 to employees’ household members. The unanimous court, answering another Ninth Circuit question, cited “an intolerable burden on employers and society in contravention of public policy. ”
Associate Justice
, who authored that decision, on Tuesday asked the parties whether it would now mean “that every entity that had an insurance policy gets to recover from their insurer?”
No, said attorney Kirk Pasich, because “85% of policies out there” have virus exclusions. Pasich represents Another Planet Entertainment Inc., one of the plaintiffs seeking insurance coverage.
The case was dismissed at an early stage, and Another Planet didn’t have a chance to present evidence. “We deserve our day in court,” said Pasich, with Pasich LLP in Los Angeles.
Unlike the flu virus, the Covid-19 virus is sticky and can’t simply be cleaned, as the California Medical Association said in its brief supporting Another Planet, he said. The event centers that host concerts couldn’t be used for their intended purposes with the airborne virus that is reintroduced with each infected person who exhales.
Attorneys for both sides also cited the California Supreme Court’s November 2022 ruling in a duty-to-defend fight between Yahoo! Inc. and
-owned National Union Fire Insurance in which the justices, on a question from the Ninth Circuit, sided with Yahoo based on the plain reading of the policy language.
A decision is due within 90 days of oral argument.
Lead Case
Another Planet shuttered its operations including concerts when the government ordered shutdowns starting in March 2020. The company wants the state court to answer the question the US Court of Appeals for the Ninth Circuit posed to revive its dismissed lawsuit.
But for the closure orders, Another Planet could’ve continued to operate, said Associate Justice Kelli Evans said. “It was the orders that caused the buildings to close down,” she said.
Another Planet is the lead case of three the California Supreme Court granted review involving Covid insurance-coverage questions. The other cases involve the famed Napa Valley restaurant The French Laundry, in another question from the Ninth Circuit, and John’s Grill in San Francisco’s Union Square.
An array of supporters, including the Los Angeles Lakers Inc. and Major League Baseball and National Hockey League, all involved in litigation with their insurers, filed briefs supporting Another Planet. The insurance industry including Oregon Mutual Insurance Co., which said it’s been involved in hundreds of similar claims, backed Vigilant.
Clyde & Co. also represents Vigilant.
The case is Another Planet Entm’t, LLC v. Vigilant Ins. Co., Cal., No. S277893, oral arguments 3/5/24.
