Short take away - Second District sides with insurer as to much-litigated COVID coverage issues currently before the California Supreme Court
The Second District, Division Two has ruled in favor of an insurance company denying coverage to an entertainment entity for losses from the COVID-19, or SARS CoV-2, virus. (Endeavor v. HDI Global (Sept. 21, 2023) B323865) Endeavor had a commercial liability insurance policy with HDI which required that, for there to be coverage:
(1) there be an “[i]nsured physical loss or damage” to some property, and (2) this physical loss or damage to some property “occur within [1 or 10] statute mile[s] from [Endeavor’s] premises. . . .
Endeavor maintained the inclusion of the phrase "event" in another clause in the policy obviated the requirement that all losses include "physical loss of damage" to tangible property and sued insurer HDI when coverage was denied. A demurrer challenged Endeavor's entire complaint, and this demurrer was sustained, without leave to amend, by the Hon. Elaine Lu, Judge of the Los Angeles County Superior Court.
Upon appeal Justice Hoffstadt wrote an opinion affirming the trial court and interpreting the policy as requiring not merely an event but also actual physical damage. As the Endeavor opinion noted at the outset, issues as to whether 1) loss of property, rather than mere loss of use of property, is required for coverage, and 2) whether the absorption of COVID-19 on the surface of the property qualifies for coverage as a "loss," are both currently pending before the California Supreme Court:
This question is one on which the Courts of Appeal have split, and is pending before our Supreme Court in John’s Grill, Inc. v. The Hartford Financial Services Group, Inc. (2022) 86 Cal.App.5th 1195 (John’s Grill), review granted Mar. 29, 2023, S278481, and Another Planet Entertainment, LLC v. Vigilant Ins. Co. (9th Cir. 2022) 56 F.4th 730, request for certification granted Mar. 1, 2023, S277893. Until that Court provides guidance, we side with the vast majority of cases holding that direct physical loss or damage to property, rather than mere loss of the property’s use, is a prerequisite for coverage. We further hold that two of the clauses in the policy here—namely, extension clauses dealing with orders by civil authorities and with impediments to access—do not, by their addition of the word “event,” eliminate the requirement of direct physical loss or damage to property.
Second, has “direct physical loss or damage to property” been sufficiently pled where, as here, the policy holder alleges that the virus that causes COVID-19 has either been deposited onto or “adsorbed” to the surface of the policy holder’s property? The Courts of Appeal have split on this question as well, and that question is pending before our Supreme Court in Shusha, Inc. v. Century-National Ins. Co. (2022) 87 Cal.App.5th 250 (Shusha), review granted Apr. 19, 2023, S278614. Until that Court provides guidance, we side with those cases holding that the ephemeral existence of COVID-19 or its predecessor virus on property does not constitute “direct physical loss or damage to property” as a matter of law. (Id., pp. 2-3.)
