Insurers Prevail in California Supreme Court on COVID-19 Business Interruption Coverage

By Todd Norris, Max Stern, Brian Kelly, Terrance Evans and Jessica La Londe.

Earlier today, the Supreme Court of California issued a long-awaited opinion answering an insurance coverage question that had been certified to it by the Ninth Circuit Court of Appeals in Another Planet Entertainment, LLC v. Vigilant Ins. Co. (Cal. May 23, 2024, No. S277893) 2024 WL 2339132:  “Can the actual or potential presence of the COVID-19 virus on an insured’s premises constitute ‘direct physical loss or damage to property’ for purposes of coverage under a commercial property insurance policy?” (Another Planet Entertainment, LLC v. Vigilant Insurance Co. (2022) 56 F.4th 730, 734.)

“[T]he question [arose] in the context of a civil lawsuit filed by Another Planet Entertainment, LLC (Another Planet) against its property insurer, Vigilant Insurance Company (Vigilant). Another Planet operates venues for live entertainment. It suffered pandemic-related business losses when its venues closed, and Vigilant denied Another Planet’s subsequent claim for insurance coverage. Another Planet filed suit in federal district court, alleging that the actual or potential presence of the COVID-19 virus at its venues or nearby properties caused direct physical loss or damage to property and triggered coverage under its insurance policy. The district court granted Vigilant’s motion to dismiss for failure to state a claim, and Another Planet appealed. According to the Ninth Circuit, the issue on appeal “[was] whether [Another Planet’s] allegations, if taken as true, were sufficient to show ‘direct physical loss or damage to property’ as defined by California law.’ (Another Planet, supra, 56 F.4th at p. 731.) Because the Ninth Circuit concluded that resolution of this question of California law could determine the outcome of the case pending before it, the Ninth Circuit certified the question to [the Supreme Court of California.]”  (Another Planet, 2024 WL 2339132, at *1.) Continue reading “Insurers Prevail in California Supreme Court on COVID-19 Business Interruption Coverage”

Two Novel Ways to Lose Attorney-Client Privilege According to Recent Special Master Decisions

There are well-known ways to waive the protection of the attorney-client privilege: for example, the intentional disclosure of an initially confidential communication to someone outside of the privileged relationship waives the privilege; accusing your lawyer of malpractice also waives the privilege. But there are also some less well-known ways to waive the attorney-client privilege that can trip up the unwary…

Read the full article by Kevin P. Allen on the Duane Morris website.

Coverage Denied in NJ Environmental Suit Based on Policy’s Pending Litigation Exclusion

By: Sheila Raftery Wiggins

The New Jersey Appellate Division ruled that an insurer is not obligated to indemnify an insured for natural resources damages that it may pay in the underlying lawsuit brought by the New Jersey Department of Environmental Protection (“NJDEP”) because of the Policy’s Prior or Pending Litigation Exclusion.  This exclusion applies because the NJDEP’s suit is based on the same environmental contamination alleged in a 1987 Administrative Consent Order between the NJDEP and the insured.  Handy & Harman, et. al v. Beazley USA Services Inc. (Syndicates 623 and 2623 at Lloyd’s London), A-2068-20 (N.J. App. Div. March 2, 2023) (unpublished).

Lesson:  An administrative consent order – required by an environmental statute in order for the property to be sold in the 1980’s – is sufficient to constitute a “claim,” as defined by the Policy’s Prior or Pending Litigation Exclusion.

Continue reading “Coverage Denied in NJ Environmental Suit Based on Policy’s Pending Litigation Exclusion”

Duane Morris Insurance Team Expands Services in Washington State

Duane Morris is pleased to announce that Bill Baron has been admitted to practice law in the State of Washington. The firm has a team of coverage lawyers representing clients in insurance matters in Washington State.

The Team

About Duane Morris

Duane Morris is a recognized leader in the insurance and reinsurance industry, nationwide and internationally. The firm handles the full range of insurance matters, from the routine to the most complex, and our attorneys have a depth of experience in the field that is unsurpassed in the United States. Led by a core team representing commercial liability insurers in general, excess and professional lines, we also vigorously represent clients operating in all lines of the insurance and reinsurance business, including property and casualty, life, accident and health, management and professional liability, financial lines, surety and financial guaranty. Continue reading “Duane Morris Insurance Team Expands Services in Washington State”

Coverage Was Not In the Cards for Circus Circus Casino, Holds Ninth Circuit

By Max H. Stern and Holden Benon

Yesterday, the United States Court of Appeals for the Ninth Circuit issued a succinct but well-reasoned decision that there was no coverage for a Las Vegas Hotel & Casino’s COVID-19-related business interruption loss under the coverage provided by an “all risks” insurance policy. See Circus Circus LV, LP v. AIG Specialty Ins. Co., No. 21-15367 (9th Cir. Apr. 15, 2022).

Even though Nevada law governed the analysis, the court’s written opinion leaned heavily on appellate authorities that applied California law (in particular, the California Court of Appeal’s Inns-by-the-Sea decision and the Ninth Circuit’s Mudpie decision).  The Circus Circus court followed the Inns-by-the-Sea causation analysis in holding that, despite Circus Circus’ allegation that the coronavirus was present on its premises, it failed to identify any direct physical damage to its property caused by the virus which led to the Casino’s closure. “Rather,” the court observed, “the allegations surrounding Circus Circus’s closure are based on the local Stay at Home Orders.”  Citing Mudpie, the court also held that Circus Circus failed to allege it suffered a direct physical loss of its property, reasoning the loss must be due to a “distinct demonstrable, physical alteration of the property.”

The  Circus Circus decision adds to the line of appellate authorities that have adhered to the same reasoning articulated in the initial COVID-19 appellate decisions that came down last year.  In the cases that are still currently pending, the odds certainly seem to favor the carriers.

Ninth Circuit Applies Nevada Law and Finds No Coverage for COVID-19 Business Interruption Loss

By Max H. Stern and Holden Benon

Late last week, the United States Court of Appeals for the Ninth Circuit ruled there was no coverage for the policyholder’s COVID-19-related business interruption loss under the coverage provided by a commercial property policy.  See Levy Ad Group, Inc. v. Federal Ins. Co. et al., No. 21-15413 (9th Cir. Mar. 17 2022, applying Nevada law).  In reaching its decision that the insured’s economic losses did not constitute “direct physical loss or damage,” the Levy court simply stated it agreed with “the numerous published decisions interpreting nearly identical policy language . . . and unanimously concluding coverage does not exist.”

Levy represents the first appellate authority applying Nevada law ruling to these issues in the COVID-19 context, and we are confident it will not be the last to come down in favor of the insurers.  Earlier this month, the Ninth Circuit heard oral arguments in Circus Circus LV, LP v. AIG Specialty Insurance Co., another COVID-19 business interruption case that originates in the Silver State.  With Levy now decided, it seems unlikely that Circus Circus will break ranks for the “numerous published decisions” in the insurers’ favor.

If you have any questions regarding the Levy decision, or questions regarding business interruption insurance issues generally, please feel free to contact us.  Duane Morris has an extensive insurance coverage practice within the Ninth Circuit states and beyond.

California’s Highest Court Rejects Inns-by-the-Sea’s Petition for Review

By Max H. Stern and Holden Benon

This week, the California Supreme Court declined to hear the Policyholder’s appeal of the Court of Appeal’s decision in The Inns by the Sea v. California Mutual Ins. Co., which we previously reported on. For those tracking the COVID-19 business interruption appellate landscape, this should come as no surprise.  The Court of Appeal’s decision is well-reasoned, and it is aligned with many COVID-19 business interruption decisions across the nation that have reached very similar conclusions.  Policyholder attorneys expressed it is “hard to feel hopeful at this point.”  We can understand why.

Carriers Enjoy Unanimous Success in Recent Wave of COVID-19 Business Interruption Decisions in Federal Appeals (Update)

By: Max H. Stern & Holden Benon

Recently, we began to see real decisions being made by the appellate courts on COVID-19 Business Interruption issues.  The U.S. Circuit Courts of Appeals have established a uniformly favorable trend for insurance carriers – these courts have affirmed the district court decisions that have ruled in favor of the insurers, and in one case, the Sixth Circuit vacated a district court’s decision that ruled in favor of the policyholder. Since our original blog post on this issue in October, this trend continued in December with a Tenth Circuit decision.

Ninth Circuit

Starting with the Ninth Circuit (where Duane Morris’ insurance group maintains a strong presence), carriers have enjoyed successful outcomes in a trio of much-anticipated decisions.  In Mudpie, Inc. v. Travelers Casualty Insurance Company of America, Case No. 20-16858, 2021 WL 4486509, at *1 (9th Cir. Oct. 1, 2021) (applying California law), Mudpie, a San Francisco-based children’s store, brought a proposed class action asserting breach of contract and bad faith against its property insurance carrier.  As in many COVID-19 business interruption cases, the carrier had denied its insured “Business Income” and “Extra Expense” coverage in 2020, after government authorities issued public health orders in response to the COVID-19 pandemic.  Id. at *2.  (For more background on business interruption insurance, please refer to one of our earlier blog posts on this topic.)

Mudpie made the argument that its inability to use its premises amounted to “direct physical loss or damage to” its property, sufficient to bring its claim within the scope of the policy’s business interruption coverage.  Id.  The court rejected this argument, however, reasoning that the phrase “direct physical loss of or damage to” requires some kind of physical alteration to the property in question.  Id. at *5.  The court also held that the policy’s virus exclusion bars coverage for the insured’s claims.  Id. at *7.  As many policyholders have tried arguing, Mudpie claimed that its losses were not subject to the policy’s virus exclusion because its losses were caused not directly by the virus, but by stay-at-home orders that restricted the insured’s use of its property.  But the court didn’t buy this argument because Mudpie failed to meet the “efficient proximate cause” test.  Id. (“Mudpie does not plausibly allege that ‘the efficient cause,’ i.e., the one that set others in motion was anything other than the spread of the virus throughout California, or that the virus was merely a remote cause of its losses.”) (internal citation omitted). In the end, the court affirmed the district court’s decision ruling in favor of the insurer.  Id. at *7.

Continue reading “Carriers Enjoy Unanimous Success in Recent Wave of COVID-19 Business Interruption Decisions in Federal Appeals (Update)”

Yet Another Win for Insurers on COVID-19 Business Interruption Claims: The Inns by the Sea California Court of Appeal Decision


By Max H. Stern and Holden Benon

The first California state appellate decision on COVID-19 Business Interruption coverage is now in the books, and it’s one more victory for insurers.  In The Inns by the Sea v. California Mutual Ins. Co., Case No. D079036 (Cal. Ct. App. 4th Dist., Div. 1, Nov. 15, 2021), the California Court of Appeal for the Fourth District found there was no coverage, notwithstanding the absence of a virus exclusion in the relevant policy.  The court’s 36-page opinion provides a thorough and careful analysis of several important COVID-19-related business interruption issues, some highlights of which we summarize below.

Inns-by-the Sea operates lodges in the California coastal communities of Carmel and Half Moon Bay.  In March of 2020, Inns closed its facilities in response to shutdown orders issued by Monterey and San Mateo counties.  Then, Inns made a claim under its property insurance policy for its claimed loss of business income caused by the pandemic.  (For more background on business interruption insurance, refer to one of our earlier blog posts on this topic.)  Inns’ insurer denied coverage, and Inns filed suit in Monterey Superior Court.

Continue reading “Yet Another Win for Insurers on COVID-19 Business Interruption Claims: The Inns by the Sea California Court of Appeal Decision”

California Raises the Price of Survival Actions – Will Allow Recovery of Decedent’s Pain, Suffering, or Disfigurement

By: Kathryn K. Schultz

Long-standing California law explicitly precluded recovery of damages for a decedent’s pain, suffering, or disfigurement in a survival action (i.e. a cause of action that survives the death of a plaintiff and passes to decedent’s successor in interest per Cal. Code of Civil Procedure [“C.C.P.”] § 377.30). On October 1, 2021, California Governor Gavin Newsom approved Senate Bill Number 447 amending C.C.P. Section 337.34 to permit recovery of such damages.  The new law takes effect on January 1, 2022 and will increase the price to resolve survival actions in California.

The new law applies to (1) new cases filed on or after January 1, 2022, and before January 1, 2026, and (2) to an action or proceeding that was granted trial preference pursuant to C.C.P. Sec. 36 before January 1, 2022.  Plaintiffs who recover damages pursuant to this new law are required to report to the Judicial Council, who will in turn report to the Legislature for evaluation of whether to extend or further amend the law in 2026.

Senate Bill 447 was co-sponsored by the Consumer Attorneys of California and Consumer Federation of California.  The main three arguments in support of the bill were: (1) California was one of only five states that prohibits recovery of a decedent’s pain and suffering in a survival action; (2) the prior law provided a “death discount” to defendants – creating an incentive to act in bad faith and delay trials hoping the plaintiffs will die in order to receive this discount; and (3) the incentive to delay trials created a burden on the court system.

Continue reading “California Raises the Price of Survival Actions – Will Allow Recovery of Decedent’s Pain, Suffering, or Disfigurement”

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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