In a ruling that reverberates across the insurance landscape, the California Supreme Court has declared that COVID-19 does not constitute direct physical loss or damage to property, aligning with the prevailing legal stance observed nationwide. This landmark decision has far-reaching implications, particularly in the realm of insurance coverage for losses incurred during the pandemic.
The judgment, detailed in a report by AM Best, serves as a pivotal outcome for Chubb subsidiary Vigilant Insurance Co, absolving it from covering losses sustained by a concert promoter who canceled multiple events amid the COVID-19 crisis.
Quoting the court’s statement from the case, “The actual or potential presence of the COVID-19 virus on an insured’s premises generally does not constitute ‘direct physical loss or damage to property’ for purposes of coverage under a commercial property insurance policy.” This succinctly encapsulates the essence of the court’s ruling, grounded in legal precedent and expert analysis.
The legal proceedings stemmed from a lawsuit filed by Another Planet LLC, alleging fraud, breach of contract, and bad faith after Vigilant denied coverage for pandemic-related losses. Central to the dispute was whether the presence of the virus rendered the property unfit for use, thereby constituting physical loss or damage.
Despite Another Planet’s assertions that the virus’s persistence on the property for up to 28 days amounted to tangible harm, the court maintained a stringent interpretation of the term “physical loss or damage.” Emphasizing the need for a discernible alteration to the property, the court underscored that governmental health orders, rather than the virus itself, prompted the cessation of operations—a distinction pivotal in its deliberations.
Furthermore, the court elucidated that while scenarios involving chemical contaminants or noxious odors penetrating a property may constitute physical loss, such circumstances were not applicable in the present case.
The legal saga surrounding Another Planet’s appeal traversed through various judicial echelons, including district courts and appellate tribunals, underscoring the complexity and significance of the issue at hand. Ultimately, the California Supreme Court’s definitive pronouncement provides clarity and guidance to insurers and policyholders grappling with the intricacies of coverage amidst unprecedented challenges posed by the pandemic.
