United Talent Agency v. Vigilant Insurance Company

• Published date: 21 July 2022
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Lewis Brisbois Bisgaard & Smith LLP
• Author: Mr Michael Velladao and Monica Kalunian

(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 of access by a civil authority must be the direct result of direct physical loss or damage to property away from" covered premises, "provided such property is within one mile" of the covered premises.

In support of its claim for coverage under the business income and extra expense provisions, UTA made the following arguments on appeal:

First, UTA contends that the "danger posed by" the virus, which gave rise to the closure orders and other restrictions, caused "physical loss" because it "limited UTA's use of and operations at its insured locations," including dependent business premises, such as concert venues, thus "rendering them unusable for their intended purposes." Second, UTA asserts that the virus itself...