(COVID-19 Losses Resulting From Closure Orders And Presence of Virus Itself Does Not Constitute "Direct Physical Loss Or Damage")
(July 2022) - In United Talent Agency v. Vigilant Insurance Co., 77 Cal. App. 5th 821 (April 22, 2022), the California Second District Court of Appeal, Division Four, affirmed the trial court's order sustaining Vigilant Insurance Company's ("Vigilant") and Federal Insurance Company's ("Federal") demurrer to United Talent Agency's ("UTA") first amended complaint for breach of contract, bad faith, and declaratory relief without leave to amend. UTA purchased property insurance policies from Vigilant and Federal, which included "business income and extra expense" provisions, as well as a "civil authority" provision. The parties' dispute arose out of the insurers' denial of coverage for financial losses UTA allegedly suffered as a result of the COVID-19 pandemic and focused on two sections of the policies.
The "business income and extra expense" provisions within the policies addressed business income loss and extra expenses incurred due to "impairment of... operations," if the impairment was "caused by or result[ed] from direct physical loss or damage by a covered peril to property." These provisions covered losses "during the period of restoration," defined as beginning "immediately after the time of direct physical loss or damage by a covered peril to property," and continuing until "operations are restored," including "the time required to ... repair or replace the property." The civil authority provision provided coverage for income loss or expenses incurred "due to the actual impairment of... operations, directly caused by the prohibition of access to" covered premises "by a civil authority." However, the "prohibition...
