56 F.4th 730
9th Cir.2022Background
- Another Planet Entertainment (insurer: Vigilant) held a commercial property policy covering May 1, 2019–May 1, 2020; COVID-19 pandemic closures forced venue shutdowns and caused business-income losses.
- Another Planet sought coverage under policy provisions (Business Income, Civil Authority, Loss Prevention Expenses) that require "direct physical loss or damage to property."
- Its amended complaint alleged the COVID-19 virus was present or would have been present on insured premises, that aerosolized virus and droplets physically alter air and surfaces, can remain infectious for long periods, render property unusable, and require remediation/physical changes.
- Vigilant denied coverage and moved to dismiss for failure to plead physical loss or damage; the district court dismissed with prejudice after amendment, noting uncertainty whether the virus was actually present.
- Two California appellate courts split: United Talent Agency held virus presence did not constitute physical loss; Marina Pacific held pleaded facts could suffice as a physical alteration; Ninth Circuit therefore certified the controlling legal question to the California Supreme Court and stayed further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the actual or potential presence of the COVID-19 virus on insured premises constitutes "direct physical loss or damage to property" under a commercial property policy | Alleged virus presence physically alters air and surfaces, renders property unusable for its intended purpose, and requires remediation or physical alterations — thus meets the policy's physical-loss requirement | Virus contamination is transient and remediable (cleaning/disinfection); it does not cause a distinct, demonstrable physical alteration amounting to "loss or damage" | Ninth Circuit did not decide on the merits; it certified the question to the California Supreme Court because California law is unsettled and appellate decisions conflict |
Key Cases Cited
- United Talent Agency v. Vigilant Ins. Co., 293 Cal. Rptr. 3d 65 (Ct. App. 2022) (held alleged COVID-19 presence is short-lived contamination remediable by cleaning and does not constitute physical loss)
- Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund Ins. Co., 296 Cal. Rptr. 3d 777 (Ct. App. 2022) (held allegations that virus bonded to surfaces and caused physical alteration, if assumed true, could plead direct physical loss)
- MRI Healthcare Ctr. of Glendale v. State Farm Gen. Ins. Co., 115 Cal. Rptr. 27 (Ct. App. 2010) (articulates definition of physical loss as a distinct, demonstrable physical alteration of property)
- Inns-by-the-Sea v. Cal. Mut. Ins. Co., 286 Cal. Rptr. 3d 576 (Ct. App. 2021) (recognizes that certain physical forces/contaminants can render property unusable and constitute physical damage)
- Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885 (9th Cir. 2021) (framework for predicting how state supreme court would decide unsettled state-law questions)