Filed 4/22/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
UNITED TALENT AGENCY, B314242
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. 20STCV43745
v.
VIGILANT INSURANCE COMPANY
et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Christopher K. Lui, Judge. Affirmed.
Pasich, Michael S. Gehrt, Kirk Pasich, Nathan M. Davis
and Caitlin S. Oswald for Plaintiff and Appellant.
Clyde & Co, Susan Koehler Sullivan, Douglas J. Collodel,
Gretchen S. Carner, Brett C. Safford; O’Melveny & Myers,
Jonathan D. Hacker for Defendants and Respondents.
INTRODUCTION
Appellant United Talent Agency (UTA) sued Vigilant
Insurance Company and Federal Insurance Company, alleging
that the insurers wrongfully denied property insurance coverage
for economic losses related to the COVID-19 pandemic. The
insurance policies covered “direct physical loss or damage” to
insured property. UTA asserted that the policies covered its
losses under two theories: first, loss of use of its properties due to
civil closure orders and other limitations imposed to slow the
spread of the virus, such as cancelled events and productions; and
second, “damage” to its properties caused by the alleged presence
of the virus in the air and on surfaces. The trial court sustained
the insurers’ demurrer without leave to amend, and UTA
appealed.
We find that UTA has failed to allege facts sufficient to
demonstrate direct physical loss or damage under either theory,
and therefore affirm.
FACTUAL AND PROCEDURAL BACKGROUND1
A. UTA and the insurance policies
UTA is a large talent agency that represents actors,
directors, producers, recording artists, writers, and other
professionals in industries such as film, television, music, digital
media, and publishing. It purchased property insurance policies
1 The first amended complaint and demurrer to the first
amended complaint are at issue in this appeal, so we focus on the
facts alleged in that version of the complaint.
2
from Vigilant and Federal that covered UTA premises in several
states, including California, New York, Tennessee, and Florida.2
As relevant here, the policies included “business income
and extra expense” provisions and a “civil authority” provision.
The business income and extra expense provisions 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.” The “direct physical loss or damage must . . .
occur at, or within 1,000 feet of” a covered premises. The
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.” Covered premises
included “dependent business premises,” which were “premises
operated by others” upon which the insured depends to do things
such as “deliver materials or services” or “attract customers.”
The parties agree that “direct physical loss or damage” is not
defined in the policies.
The civil authority provision covered 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.” 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,
2The Vigilant policy was effective from March 18, 2019 to
March 18, 2020, and the Federal policy was effective from March
18, 2020 to March 18, 2021.
3
“provided such property is within one mile” of the covered
premises.
B. Complaint
In early 2020, the COVID-19 global pandemic, caused by
the SARS-CoV-2 virus, began to affect the United States. State
and local civil authorities issued “shelter in place” and “stay at
home” orders, requiring suspension of non-essential businesses.3
UTA filed a complaint against the insurers on November
13, 2020, and filed a first amended complaint (FAC) on April 7,
2021.4 UTA alleged that the closure orders and the virus itself
“impaired UTA’s ability to use . . . its insured locations . . . for
their intended uses and purposes. As a result, UTA has suffered,
and continues to suffer, substantial financial losses, including
lost profits, lost commissions, and lost business opportunities.
Additionally, UTA suffered losses as a result of cancelled live
events, as well as cancelled television and motion picture
productions.” UTA alleged that “[a]t least 13 UTA employees,
five spouses, and some of their dependents have tested positive
for COVID-19.” It asserted, “UTA currently estimates that its
financial losses, including lost profits, lost commissions, and lost
business opportunities, approximate $150,000,000, and are
continuing.”
3 The insurers filed an unopposed request for judicial notice
of four such closure orders: State of New York Executive Order
No. 202 (Mar. 7, 2020); State of California Executive Order N-25-
20 (Mar. 12, 2020); City of New York Emergency Executive Order
(Mar. 16, 2020); and City of Los Angeles “Safer at Home” Order
(Mar. 19, 2020, rev. Apr. 1, 2020). We granted the request.
4 The court sustained the insurers’ demurrer to the original
complaint and granted UTA leave to amend.
4
UTA alleged that it sought coverage from the insurers for
its losses, and the insurers wrongfully denied coverage. UTA
stated that Vigilant, Federal, and other insurers in the Chubb
group “adopted a universal practice of denying coverage for all
business interruption claims associated with SARS-CoV-2,
COVID-19, and subsequent events.” UTA asserted that there
was “no merit to Vigilant’s and Federal’s position that their
policies do not insure the losses that UTA has suffered and is
suffering.”
UTA asserted two theories for why the insurers’ denial was
erroneous. First, UTA alleged loss of use of its properties. It
alleged that “[t]he Closure Orders prohibited or limited the use
and operations of UTA’s insured locations and the premises upon
which it relies. This meant that UTA (and many other
businesses) could not use their insured locations and properties
for their intended purpose.” UTA also alleged that the closure
orders “prohibited access to venues and locations hosting live
events, all of which UTA depends on to deliver and/or accept
services.” UTA further asserted, “the presence or potential
presence of SARS-CoV-2 at, on, and in insured property prevents
or impairs the use of the property, thus constituting ‘direct
physical loss’ to property as that phrase is used in the Policies,
even if it did not constitute ‘damage’ to property as that term is
used in the Policies.”
Second, UTA asserted that the presence of the virus itself
could constitute physical damage. UTA alleged that it was
“informed and believes, and on that basis alleges, that SARS-
CoV-2 has been present in the vicinity of and on and in its
[insured] properties, or would have been present but for [UTA’s]
efforts to reduce, prevent, or otherwise mitigate its presence” and
5
“had the Closure Orders not been issued.” UTA alleged when “an
infected person breathes, speaks, coughs, or sneezes,” the virus
permeates the air, settles on surfaces, and also “remain[s]
airborne for a time sufficient to travel a considerable distance,
filling indoor and outdoor spaces, and lingering in, attaching to,
and spreading through heating, ventilation, and air conditioning
(‘HVAC’) systems.” In addition, “[s]tudies suggest that SARS-
CoV-2 can remain contagious on some surfaces for at least 28
days.” Thus, “respiratory droplets . . . expelled from infected
individuals land on and adhere to surfaces and objects. In doing
so, they physically change the property by becoming a part of its
surface. This physical alteration makes physical contact with
those previously safe, inert surfaces (e.g., handrails, doorknobs,
bathroom fixtures) unsafe. When SARS-CoV-2 attaches or binds
to surfaces and objects, it converts those surfaces and objects to
active fomites, which constitutes physical loss and damage.”5
UTA alleged, “Just like invisible smoke in air alters the air, the
presence of the SARS- CoV-2 virus alters the air and airspace in
which it is found and the property on which it lands. This
physical change constitutes physical loss and damage.” UTA
asserted that “SARS-CoV-2 is no different from mold, asbestos,
mudslides, smoke, oil spills, or other similar elements that cause
property damage, although they later might be removed, cleaned,
or remediated.”
5 Merriam-Webster defines “fomite” as “an object . . . that
may be contaminated with infectious agents (such as bacteria or
viruses) and serve in their transmission.” Merriam Webster
Dictionary [as of April 4, 2022] archived at .)
6
UTA alleged causes of action for breach of contract against
Vigilant, breach of the implied covenant of good faith and fair
dealing against Vigilant, and declaratory relief against both
insurers and Doe defendants.
C. Demurrer
The insurers demurred to the FAC, asserting that UTA
failed to state facts sufficient to constitute a viable cause of
action.6 (Code Civ. Proc., § 430.10, subd. (e).) The insurers
asserted that each of UTA’s causes of action was “premised on an
obligation to pay policy benefits due, but [UTA] has not alleged
and cannot allege a covered loss in the first instance, as a matter
of law.”
The insurers asserted that the relevant policies insured
impairment of operations “caused by or result[ing] from direct
physical loss or damage by a covered peril to property,” and “[t]he
Extra Expense[ ] and Building and Personal Property[ ]
coverages likewise require ‘direct physical loss or damage.’” They
argued that under California law, the phrase “direct physical
loss” required an “actual change in [the] insured property,” or a
“distinct, demonstrable, physical alteration” of the property. The
insurers asserted that neither the temporary limitations placed
on the use of properties by the closure orders nor the alleged
presence of the virus at UTA’s covered properties constituted
“direct physical loss or damage.” The insurers also argued that
“the FAC does not even contain factual allegations that [the
virus] was actually present,” and even if UTA could make such an
6 UTA did not include the demurrer, opposition, or reply in
its appellant’s appendix on appeal. The insurers included the
demurrer in their respondent’s appendix, but not the opposition
or reply. We summarize here the limited record presented to us.
7
allegation, “the virus harms human beings, not property.” The
insurers asserted that the presence of the virus could not
constitute a “direct physical loss or damage” as a matter of law.
The insurers further asserted that coverage was limited to
a “period of restoration” as property was being repaired or
replaced—a situation that did not apply here, because there was
no physical damage to the property. They also argued that
restrictions on use arising from the closure orders did not
constitute physical loss or damage, and civil orders to avoid
gathering in groups did not constitute property damage. In
addition, the “civil authority” coverage did not apply because
UTA “failed to identify physical loss or damage to a property
within one mile of an insured” premises. The insurers noted that
many cases throughout the country had rejected claims similar to
UTA’s.
D. Ruling
Following a hearing, the court issued a 19-page written
ruling sustaining the demurrer without leave to amend. The
court noted that UTA did not allege “that it knows for certain
that the SARS-CoV-2 virus was even present on its property.”
The court observed that the presence of contaminants such as
asbestos, mold, or oil spills typically would need to be confirmed
before coverage would be found. The court stated that UTA’s
“failure to allege that it affirmatively detected the presence of
active/viable SARS-CoV-2 in or on its property, or other property
away from the premises distinguishes SARS-CoV-2 from all of
the (mostly non-California) cases cited” in the FAC. Without
pleading that the alleged contaminant was actually on UTA’s
property, UTA’s claim was “inherently speculative.”
8
The court noted that “[a]lthough there [do] not appear to be
any state law decisions to date, recent federal district court
decisions[ ] have interpreted California law as requiring a
tangible, distinct, demonstrable, physical alteration of the
property, which is not accomplished by the presence of COVID-19
on insured property.” The court observed that “UTA’s Complaint
does not allege that the presence of coronavirus on or at [UTA’s]
(as yet unidentified) property so altered the property that it must
be repaired or replaced, nor that UTA lost the ability to control or
possess the property itself.” The court continued, “Nor does
[UTA] plead that remediation of the property is required, thereby
triggering the period of restoration referred to in the Business
Income With Extra Expense coverage. That period commences
with the ‘physical loss or damage’ and ‘continue[s] until your
operations are restored,’” including the time needed to “‘repair or
replace the property.’”
The court also found that the civil authority coverage was
not applicable because under the policies, “the civil authority
order cannot itself cause the ‘physical loss or damage to property,’
which is the theory underlying [UTC’s FAC]. Rather, the
‘physical loss or damage to property’ precedes and necessitates the
issuance of the civil authority [order].” The court stated that any
loss incurred as a result of the closure orders “was not a physical
deprivation of property, but rather an interruption of business
operations.”
The court therefore sustained the demurrer to each cause of
action without leave to amend, ordered the case dismissed with
prejudice, and entered judgment in favor of the insurers. UTA
timely appealed.
9
DISCUSSION
A. Legal standards
“Because the function of a demurrer is to test the
sufficiency of a pleading as a matter of law, we apply the de novo
standard of review in an appeal following the sustaining of a
demurrer without leave to amend. [Citation.] We assume the
truth of the allegations in the complaint, but do not assume the
truth of contentions, deductions, or conclusions of law.”
(California Logistics, Inc. v. State of California (2008) 161
Cal.App.4th 242, 247.) A judgment or order of the lower court is
presumed to be correct, and the appellant has the burden of
affirmatively showing error. (Jameson v. Desta (2018) 5 Cal.5th
594, 608-609; Denham v. Superior Court (1970) 2 Cal.3d 557,
564.)
This case calls for the interpretation of the Vigilant and
Federal insurance policies. “The principles governing the
interpretation of insurance policies in California are well settled.
‘Our goal in construing insurance contracts, as with contracts
generally, is to give effect to the parties’ mutual intentions.
(Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264;
see Civ. Code, § 1636.) “If contractual language is clear and
explicit, it governs.” (Bank of the West, at p. 1264; see Civ. Code,
§ 1638.) If the terms are ambiguous [i.e., susceptible of more
than one reasonable interpretation], we interpret them to protect
‘“the objectively reasonable expectations of the insured.’” (Bank
of the West, at p. 1265, quoting AIU Ins. Co. v. Superior Court
(1990) 51 Cal.3d 807, 822 [(AIU)].) “‘Only if these rules do not
resolve a claimed ambiguity do we resort to the rule that
ambiguities are to be resolved against the insurer.’” (Minkler v.
Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 321 (Minkler).)
10
“[I]n cases of ambiguity, basic coverage provisions are
construed broadly in favor of affording protection, but clauses
setting forth specific exclusions from coverage are interpreted
narrowly against the insurer. The insured has the burden of
establishing that a claim, unless specifically excluded, is within
basic coverage, while the insurer has the burden of establishing
that a specific exclusion applies.” (Minkler, supra, 49 Cal.4th at
p. 322.) “The policy must be examined as a whole, and in context,
to determine whether an ambiguity exists.” (Id. at p. 322.)
UTA asserts two theories for why its losses were covered
under the business expense provisions. 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 in or around UTA’s
insured locations caused “physical damage.” UTA further asserts
that it was entitled to coverage under the civil authority
provision. We consider each of these contentions.
B. Business income and extra expense provisions
1. Loss of use
UTA acknowledges that coverage under the business
expense provisions requires “direct physical loss or damage” to its
insured premises. It alleges that “the danger posed by SARS-
CoV-2 causes ‘physical loss.” UTA states that California law
recognizes that “‘physical loss’ can occur if a property is
inherently dangerous and cannot be used,” and “when a
dangerous condition renders property unusable, there is a
covered loss under ‘all-risks’ policies.” The insurers assert that a
11
“loss of economic use of property, absent tangible alteration to the
property, does not constitute ‘direct physical loss or damage.”
“[T]he threshold requirement for recovery under a contract
of property insurance is that the insured property has sustained
physical loss or damage.” (Simon Marketing, Inc. v. Gulf Ins. Co.
(2007) 149 Cal.App.4th 616, 623 (Simon Marketing).) “Case law
establishes that when an insurance policy uses the phrase ‘direct
physical loss of or damage to . . . [p]roperty,’ ‘the words “direct
physical” . . . modify both “loss of” and “damage to.”’ [Citation.]
Accordingly, [an insured] must establish that either ‘direct
physical . . . damage to’ property at the premises, or ‘direct
physical loss of’ property at the premises caused its suspension of
operations.” (Inns-by-the-Sea v. California Mutual Ins. Co. (2021)
71 Cal.App.5th 688, 699 (Inns-by-the-Sea).) “A direct physical
loss ‘contemplates an actual change in insured property then in a
satisfactory state, occasioned by accident or other fortuitous
event directly upon the property causing it to become
unsatisfactory for future use or requiring that repairs be made to
make it so.’” (MRI Healthcare Center of Glendale, Inc. v. State
Farm General Ins. Co. (2010) 187 Cal.App.4th 766, 779 (MRI
Healthcare).) Thus, “[f]or there to be a ‘loss’ within the meaning
of the policy, some external force must have acted upon the
insured property to cause a physical change in the condition of
the property, i.e., it must have been ‘damaged’ within the
common understanding of that term.” (Id. at p. 780.)
In the wake of the COVID-19 pandemic, many insureds
have asserted arguments similar to UTA’s, and the majority of
courts have rejected them. It is now widely established that
temporary loss of use of a property due to pandemic-related
closure orders, without more, does not constitute direct physical
12
loss or damage. Our colleagues in the Fourth District, Division
One addressed this issue in Inns-by-the-Sea, supra, 71
Cal.App.5th 688. There, the plaintiff, Inns, had property
insurance coverage with the defendant insurer. Inns alleged that
the presence of the COVID-19 virus on its premises “‘constitutes
the requisite “damage,” as that undefined term is reasonably
understood, because its physical presence transforms property,
specifically indoor air and surfaces, from a safe condition to a
dangerous and potentially deadly condition unsafe and unfit for
its intended purpose.’” (Inns-by-the-Sea, supra, 71 Cal.App.5th at
p. 699.) The trial court sustained the defendant’s demurrer, and
the Court of Appeal affirmed.7
The appellate court relied in part on the Couch on
Insurance treatise, noting that typically the “‘threshold’ of
establishing ‘physical loss or damage’ ‘has been met when an
item of tangible property has been physically altered by perils
like fire or water.’” (Inns-by-the-Sea, supra, 71 Cal.App.5th at p.
700, quoting 10A Couch on Insurance (3d ed. 2016) § 148:46, p.
148-95 (Couch).) “‘When the structure of the property itself is
unchanged to the naked eye, however, and the insured alleges
that its usefulness for its normal purposes has been destroyed or
reduced, there are serious questions whether the alleged loss
satisfies the policy trigger.’” (Inns-by-the-Sea, supra, 71
Cal.App.5th at p. 700, quoting Couch, supra, p. 148-95.) The
court noted, however, that in such cases, there may be “property
damage within the meaning of a property insurance policy
7 Following oral argument in this case, our colleagues in
Division One followed Inns-by-the-Sea in Musso & Frank Grill
Co. v. Mitsui Sumitomo Insurance USA, Inc. (Apr. 21, 2022
B310499) __ Cal.App.5th __.
13
despite the absence of physical alteration of a structure or object”
if the property becomes “uninhabitable and unavailable for its
intended use.” (Inns-by-the-Sea, supra, 71 Cal.App.5th at p. 701.)
In this way, the COVID-19 virus could be compared to situations
in which “smoke, ammonia, odor, or asbestos” constituted
physical loss or damage that rendered a property unusable. (Id.
at p. 703.)
However, the court found that Inns “cannot reasonably
allege that the presence of the COVID-19 virus on its premises is
what caused the premises to be uninhabitable or unsuitable for
their intended purpose.” (Inns-by-the-Sea, supra, 71 Cal.App.5th
at p. 703.) Rather, Inns “alleges that it ceased operations ‘as a
direct and proximate result of the Closure Orders [issued by civil
authorities].’ It does not make the proximate cause allegation
based on the particular presence of the virus on its premises.”
(Ibid.) Thus, “‘all that is required for Plaintiff to return to full
working order is for the [government orders and restrictions to be
lifted].’” (Id. at p. 704, quoting First & Stewart Hotel Owner, LLC
v. Fireman’s Fund Ins. Co. (W.D.Wash., July 22, 2021, No. 2:21-
cv-00344-BJR) 2021 WL 3109724, at p. *4 [alteration in Inns-by-
the-Sea].) The court noted that even if Inns had eradicated the
virus by thoroughly sterilizing its properties, “Inns would still
have continued to incur a suspension of operations because the
Orders would still have been in effect and the normal functioning
of society still would have been curtailed.” (Id. at p. 704.)
Inns-by-the-Sea also noted that “[t]he overwhelming
majority of federal district court cases find no possibility of
coverage under commercial property insurance policies for a
business’s pandemic-related loss of income [citations], along with
each federal appellate court to consider the issue.” (Inns-by-the-
14
Sea, supra, 71 Cal.App.5th at p. 692, fn. 1.) The Sixth Circuit
recently reached a similar conclusion, and noted that the
“Second, Fifth, Seventh, Eighth, Ninth, Tenth, and Eleventh
Circuits, examining the common meaning of the word ‘loss’ and
applying state law to similar insurance policies, have all ruled
similarly.” (Brown Jug, Inc. v. Cincinnati Ins. Co. (6th Cir. 2022)
27 F.4th 398, 402, (Brown Jug) collecting federal cases; see also
Uncork and Create LLC v. Cincinnati Ins. Co. (4th Cir., 2022) 27
F.4th 926, 933-934, collecting federal cases.)8
The Ninth Circuit, applying California law, rejected a
similar claim by an insured corporation and retail store, Mudpie.
(Mudpie, Inc. v. Travelers Casualty Ins. Co. of America (9th Cir.
2021) 15 F.4th 885, 887 (Mudpie).) Mudpie claimed coverage
under the defendant insurer’s business income and extra expense
coverage “after state and local authorities in California issued
several public health orders in response to the COVID-19
pandemic.” (Id. at p. 888.) The Ninth Circuit rejected Mudpie’s
assertion that it suffered ‘“direct physical loss of or damage”’ to
covered property as a result of its inability to operate its business
due to the closure orders. (Id. at p. 892.) The Ninth Circuit
determined that “California courts would construe the phrase
‘physical loss of or damage to’ as requiring an insured to allege
physical alteration of its property,” not simply economic loss.
(Ibid.)
8A website administered by the University of Pennsylvania
Law School titled “Covid Coverage Litigation Tracker” tracks
rulings in insurance coverage litigation arising from the
pandemic. ( [as of April 4, 2022]
archived at < https://perma.cc/KTJ7-Z2HJ>.)
15
UTA acknowledges the holdings of Inns-by-the-Sea and
similar cases that follow the Couch treatise in holding that
“physical loss” involves a “distinct, demonstrable, physical
alteration of the property.” However, UTA asserts these cases
and the Couch treatise are wrong in that Couch rejected the
majority position, adopted the minority position, and now, “[f]or
nearly a quarter of a century, Couch’s misstatement has
snowballed as a self-fulfilling prophesy.”
UTA further argues that in contrast to Couch, “California
courts have a long history of recognizing that ‘physical loss’ can
occur if a property is inherently dangerous and cannot be used.”
It cites Hughes v. Potomac Ins. Co. of District of Columbia (1962)
199 Cal.App.2d 239 (Hughes) and Strickland v. Federal Ins. Co.
(1988) 200 Cal.App.3d 792 (Strickland), which both considered
the extent to which homeowners’ insurance policies covered
homes that became unstable due to landslides. In Hughes, a
nearby creek washed out a portion of the ground supporting the
house, leaving it “standing on the edge of and partially
overhanging a newly-formed 30-foot cliff.” (Hughes, supra, 199
Cal.App.2d at p. 243.) In Strickland, the home was built on
unstable, shifting ground, which caused ongoing structural
issues, although the house was not uninhabitable. (Strickland,
supra, 200 Cal.App.3d at pp. 794-796.) However, the issue in
these cases was not loss of use of otherwise undamaged property.
To the contrary, the undermined ground beneath both houses
placed the structures at serious risk. Moreover, the risk was
inextricably linked to the insured property.
By contrast, the losses here arose from closures intended to
limit the spread of a virus that can carry great risk to people but
no risk at all to a physical structure. As the trial court observed
16
in sustaining the demurrer, UTA’s alleged loss “was not a
physical deprivation of property, but rather an interruption in
business operations.” The closure orders and other measures
imposed in an effort to reduce the spread of the virus among
people had little relationship to any particular location; rather,
they were intended to reduce people’s proximity to and
interaction with one another, thereby reducing the risk that an
infected person could infect others. We therefore decline UTA’s
invitation to depart from the Couch treatise and the case law that
relies upon it. (See, e.g., Simon Marketing, supra, 149
Cal.App.4th at p. 623; MRI Healthcare, supra, 187 Cal.App.4th at
p. 779; Doyle v. Fireman’s Fund Ins. Co. (2018) 21 Cal.App.5th
33, 38.)
In addition, the “period of restoration” language in the
policies demonstrates that coverage requires a physical loss
requiring repair or replacement, not simply loss of use. The
policies covered “actual or potential impairment of . . . operations”
“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.” Reviewing a similar policy, Inns-by-the-Sea stated,
“The Policy’s focus on repairing, rebuilding or replacing property
(or moving entirely to a new location) is significant because it
implies that the ‘loss’ or ‘damage’ that gives rise to Business
Income coverage has a physical nature that can be physically
fixed, or if incapable of being physically fixed because it is so
heavily destroyed, requires a complete move to a new location.”
(Inns-by-the-Sea, supra, 71 Cal.App.5th at p. 707.) Thus, “[t]he
definition of ‘period of restoration’ provides an indication that the
17
phrase ‘direct physical loss of’ property was not intended to
include the mere loss of use of physical property to generate
income, without any other physical impact to property that could
be repaired, rebuilt or replaced.” (Id. at p. 708.) Several other
courts have reached similar conclusions. (See, e.g., Mudpie,
supra, 15 F.4th at p. 892 [“To interpret the Policy to provide
coverage absent physical damage would render the ‘period of
restoration’ clause superfluous”]; Sandy Point Dental, P.C. v.
Cincinnati Ins. Co. (7th Cir. 2021) 20 F.4th 327, 333 (Sandy Point
Dental); Santo’s Italian Cafe LLC v. Acuity Ins. Co. (6th Cir.
2021) 15 F.4th 398, 403 (Santo’s); Goodwill Industries of Central
Oklahoma, Inc. v. Philadelphia Indemnity Ins. Co. (10th Cir.
2021) 21 F.4th 704, 711; Indiana Repertory Theatre v. Cincinnati
Casualty Co. (Ind. Ct. App. 2022) 180 N.E.3d 403, 410.)
We therefore follow the reasoning of Inns-by-the-Sea and
similar cases in acknowledging “the generally recognized
principle in the context of first party property insurance that
mere loss of use of physical property to generate business income,
without any other physical impact on the property, does not give
rise to coverage for direct physical loss.” (Inns-by-the-Sea, supra,
71 Cal.App.5th at pp. 705-706.) UTA’s allegations of loss of use of
insured premises and dependent premises due to the closure
orders and other pandemic-related limitations are insufficient to
establish “direct physical loss or damage” entitling UTA to
coverage under the relevant policies. We therefore turn to UTA’s
contention that the presence of the virus itself constituted
physical damage.
2. Presence of the virus as physical damage
UTA argues that its allegations are different than those in
Inns-by-the-Sea, Mudpie, and other cases in that UTA alleged not
18
only loss of use, but also that the physical presence of the virus
on UTA’s insured premises constituted “physical damage.” UTA
asserts that its allegations are therefore more akin to cases that
“have recognized that ‘direct physical loss or damage to property’
occurs” in the presence of contaminants such as bacteria, smoke,
asbestos, fumes, or mold. The insurers assert that the presence
of the virus cannot constitute physical damage as a matter of
law.9
The FAC includes extensive allegations about how the
virus spreads from one person to another, including in
“[a]erosolized droplets exhaled” by an infected person traveling
through the air, and “fomite transmission” from touching
surfaces contaminated with the virus. UTA alleged the virus
damages property by “physically permeating” and binding to” the
property, and “aerosolized droplet nuclei. . . , like toxic fumes,
make the premises unsafe.” It alleged that the presence of the
virus “causes physical loss and physical damage by requiring
remedial measures to reduce or eliminate the presence of SARS-
CoV-2, including extensive cleaning and disinfecting; installing,
modifying, or replacing air filtration systems; remodeling and
reconfiguring physical spaces; and other measures.” UTA has not
alleged that it was required to undertake any of these remedial
measures.
9 The insurers assert that UTA does not allege “concrete
facts” sufficient to show that the virus was actually present on
UTA property, echoing the finding by the superior court. We do
not address this contention, because even if UTA adequately
alleged the virus was present on its property, it has not
sufficiently alleged direct property loss or damage as a result.
19
Many courts have rejected the theory that the presence of
the virus constitutes physical loss or damage to property. As the
Seventh Circuit stated in rejecting a similar claim, “While the
impact of the virus on the world . . . can hardly be overstated, its
impact on physical property is inconsequential: deadly or not, it
may be wiped off surfaces using ordinary cleaning materials, and
it disintegrates on its own in a matter of days.” (Sandy Point
Dental, supra, 20 F.4th at p. 335.) Or as the United States
District Court, Southern District of California stated, “If, for
example, a sick person walked into one of Plaintiffs’ restaurants
and left behind COVID-19 particulates on a countertop, it would
strain credulity to say that the countertop was damaged or
physically altered as a result.” (Unmasked Management, Inc. v.
Century-National Ins. Co. (S.D. Cal. 2021) 514 F.Supp.3d 1217,
1226.) The majority of cases in California (and elsewhere) are in
accord.10
10 (See, e.g., Pappy’s Barber Shops, Inc. v. Farmers Group,
Inc. (S.D. Cal. 2020) 491 F.Supp.3d 738, 740 (Pappy’s Barber
Shops) [“the presence of the virus itself, or of individuals infected
the virus, at Plaintiffs’ business premises or elsewhere do not
constitute direct physical losses of or damage to property”];
Wellness Eatery La Jolla LLC v. Hanover Ins. Group (S.D. Cal.
2021) 517 F.Supp.3d 1096, 1106 [“the Court does not find that the
presence of COVID-19 qualifies as physical damage to property
because the virus harms human beings, not property”]; Kevin
Barry Fine Art Associates v. Sentinel Ins. Co., Ltd. (N.D. Cal.
2021) 513 F.Supp.3d 1163, 1171 [“Even if KBFA had included
allegations regarding the virus being present on and damaging
the property, they would not be plausible. [Citations.] . . . The
virus COVID-19 harms people, not property.”]; Barbizon School
of San Francisco, Inc. v. Sentinel Ins. Co. Ltd. (N.D. Cal. 2021)
20
As Inns-by-the-Sea noted, there are “some comparable
elements between” allegations that the virus physically altered
property and cases in which “a physical force rendered real
property uninhabitable or unsuitable for its intended use,
without any structural alteration,” because “the COVID-19
virus—like smoke, ammonia, odor, or asbestos—is a physical
force.” (Inns-by-the-Sea, supra, 71 Cal.App.5th at p. 703.)
However, Inns-by-the-Sea also stated that courts have rejected
claims that “short lived” contamination that can be addressed by
simple cleaning constitutes direct physical loss. (Inns-by-the-Sea,
supra, 71 Cal.App.5th at p. 703, fn. 17.) Inns-by-the-Sea
discussed Mama Jo’s Inc. v. Sparta Ins. Co. (11th Cir. 2020) 823
Fed.Appx. 868 (Mama Jo’s), a case involving construction-related
dust, which required only “cleaning and painting,” and “no need
for removal or replacement of items.” (Mama Jo’s, 823 Fed.Appx.
at p. 879.) The court stated that “under Florida law, an item or
structure that merely needs to be cleaned has not suffered a ‘loss’
which is both ‘direct’ and ‘physical.’” (Ibid.) Inns-by-the-Sea also
cited Kim-Chee LLC v. Philadelphia Indemnity Ins. Co.
(W.D.N.Y. 2021) 535 F.Supp.3d 152, 161, in which the court
noted that “contamination that is temporary . . . is unlikely to
530 F.Supp.3d 879, 890-891 (Barbizon School) [no physical loss or
damage to property for “a virus, which ‘can be disinfected and
cleaned’ from surfaces”]; but see Los Angeles Lakers, Inc. v.
Federal Ins. Co. (C.D. Cal., Mar. 17, 2022, No. CV 21-02281 TJH
(MRWx) -- F.Supp.3d --; 2022 WL 831549, at *3 [allegation “that
the Virus physically altered surfaces at the Covered Properties”
was sufficient to state a claim for “declaratory judgment and
breach of contract as to the Policy’s Property Damage Clause”].)
21
qualify as a direct physical loss to the insured premises.” The
Second Circuit has since affirmed that ruling, stating, “Even
assuming the virus’s presence at Kim-Chee’s tae-kwon-do studio,
the complaint does not allege that any part of its building or
anything within it was damaged—let alone to the point of repair,
replacement, or total loss. . . . [W]e agree with the district court
that the virus’s inability to physically alter or persistently
contaminate property differentiates it from radiation, chemical
dust, gas, asbestos, and other contaminants whose presence could
trigger coverage under Kim-Chee’s policy.” (Kim-Chee LLC v.
Philadelphia Indemnity Ins. Co. (2d Cir., Jan. 28, 2022, No. 21-
1082-CV) 2022 WL 258569, at *2.)
UTA compares this case to AIU, supra, 51 Cal.3d 807, and
Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co.
(1996) 45 Cal.App.4th 1 (Armstrong), asserting that “AIU and
Armstrong are controlling pronouncements of California
insurance law, holding that the presence of contaminants and
other hazardous materials cause physical damage to property.”
AIU and Armstrong both considered whether
comprehensive general liability (CGL) policies covered property
damage presumed to have been caused by the insured. In AIU,
the insured, FMC, was sued in an underlying action “for the
contamination of 79 different hazardous waste disposal sites,
groundwater beneath the sites, aquifers beneath adjoining
property, and surrounding surface waters.” (AIU, supra, 51
Cal.3d at p. 815.) FMC then sought “declaratory relief
establishing that the CGL policies cover costs it may become
obligated to pay as a result of injunctive relief and/or
reimbursement ordered in the third party suits.” (Id. at p. 816.)
When the declaratory relief action reached the Supreme Court,
22
the court considered in part whether FMC’s “costs will be
incurred because of ‘property damage.’” (Id. at p. 818.) The court
held that “[c]ontamination of the environment” constituted
property damage, and “reimbursement of response costs and the
costs of injunctive relief under CERCLA[11] and related statutes
are incurred ‘because of’ property damage.” (Id. at p. 842.) The
court noted that there would be no coverage for “prophylactic
costs—incurred to pay for measures taken in advance of any
release of hazardous waste,” but “because the agencies in this
suit allege that the waste sites themselves and water on and
surrounding the sites have already been contaminated by
hazardous waste . . . the reimbursement and the costs of
injunctive relief sought here at least in part constitute ‘damages
because of property damage.’” (Id. at p. 843.)
CGL coverage was also at issue in Armstrong, a declaratory
relief action brought by the insured, Armstrong, which
manufactured asbestos-containing building material (ACBM).
(Armstrong, supra, 45 Cal.App.4th at pp. 87-88.) The court
considered whether claims for damage caused by ACBM
constituted “property damage” under the relevant CGL policies,
which “obligate[d] the insurers to pay ‘all sums which the insured
shall become legally obligated to pay as damages because of . . .
property . . . damage caused by an occurrence.’” (Armstrong,
supra, 45 Cal.App.4th at p. 88.) The court held that if Armstrong
were “held liable for the release of asbestos fibers, whatever the
level of contamination, the injury is a physical injury covered by
the insurance policies.” (Id. at p. 91.) The court noted, “Once
installed, the ACBM, whether in the form of insulating pipe
CERCLA is the Comprehensive Environmental Response
11
and Compensation and Liability Act, 42 U.S.C. § 9601 et seq.
23
coverings, fireproof floor tile, accoustical [sic] ceiling finishes, or
the like, is physically linked with or physically incorporated into
the building and therefore physically affects tangible property.”
(Ibid.) The court also observed, “[B]ecause the potentially
hazardous material is physically touching and linked with the
building, and not merely contained within it, the injury is
physical even without a release of toxic substances into the
building’s air supply.” (Id. at p. 92.)
UTA asserts that according to AIU, “the presence of
environmental contaminants constitutes property damage,” and
“the asbestos fibers in Armstrong are directly analogous to the
presence of SARS-CoV-2 here.” UTA also argues that cases such
as Inns-by-the-Sea addressing only loss of use are not relevant
because by contrast, UTA has alleged that the virus’s presence
itself constituted a physical loss or damage, more like the
contaminants in AIU and Armstrong.
However, cases involving CGL coverage are of limited
benefit in determining the scope of property insurance coverage.
“[T]he cause of loss in the context of property insurance is wholly
different from that in a liability policy,” and a liability insurer
“agrees to cover the insured for a ‘broader spectrum of risks’ than
in property insurance.” (MRI Healthcare, supra, 187 Cal.App.4th
at p. 779 fn. 6.) Indeed, Inns-by-the-Sea observed that
“Armstrong is not a persuasive precedent (and we therefore do
not discuss it), as it dealt with insurance coverage under a third
party commercial general liability (CGL) policy with different
policy language and posing distinct coverage issues.” (Inns-by-
the-Sea, supra, 71 Cal.App.5th at p. 701, fn. 16.)
Moreover, we agree with the majority of the cases finding
that the presence or potential presence of the virus does not
24
constitute direct physical damage or loss. While the infiltration
of asbestos as in Armstrong or environmental contaminants as in
AIU constituted property damage in that they rendered a
property unfit for a certain use or required specialized
remediation, the comparison to a ubiquitous virus transmissible
among people and untethered to any property is not apt.
Asbestos in installed building materials as in Armstrong and
environmental contaminants as in AIU are necessarily tied to a
location, and require specific remediation or containment to
render them harmless. Here, by contrast, the virus exists
worldwide wherever infected people are present, it can be cleaned
from surfaces through general disinfection measures, and
transmission may be reduced or rendered less harmful through
practices unrelated to the property, such as social distancing,
vaccination, and the use of masks. Thus, the presence of the
virus does not render a property useless or uninhabitable, even
though it may affect how people interact with and within a
particular space.
UTA points to a hypothetical scenario mentioned in Inns-
by-the-Sea in which remediation measures could plausibly
constitute a loss: “[I]t could be possible, in a hypothetical
scenario, that an invisible airborne agent would cause a
policyholder to suspend operations because of direct physical
damage to property. . . . As one court explained, ‘It could be a
different story if a business—which could have otherwise been
operating—had to shut down because of the presence of the virus
within the facility. For example, a restaurant might need to close
for a week if someone in its kitchen tested positive for COVID-19,
requiring the entire facility to be thoroughly sanitized and
remain empty for a period. Perhaps the restaurant could
25
successfully allege that the virus created physical loss or damage
in the same way some chemical contaminant might have.’” (Inns-
by-the-Sea, supra, 71 Cal.App.5th at pp. 704-705, quoting Another
Planet Entertainment, LLC v. Vigilant Ins. Co. (N.D.Cal., Feb. 25,
2021, No. 20-cv-07476-VC) 2021 WL 774141, at p. *2.) UTA
asserts, “This is exactly what UTA has alleged: the presence of
the virus, confirmed by its employees testing positive for COVID-
19, and the resulting closure of facilities.”12
However, a discussion of a hypothetical scenario is not a
statement of California law, and UTA cites no other case
suggesting that such a scenario demonstrates “direct physical
loss or damage.”13 To the contrary, other courts have rejected
similar claims. In the Sixth Circuit case Brown Jug, supra, 27
12 This is a generous interpretation of UTA’s allegations.
Although UTA alleged that some employees and family members
tested positive for COVID-19, it did not allege that they were
infected at UTA property or present at UTA property while
infected, nor did UTA allege that any facilities were closed as a
direct result. UTA’s actual allegation is much less precise: “At
least 13 UTA employees, five spouses, and some of their
dependents have tested positive for COVID-19. As a result of the
threat presented by the actual or potential presence of SARS-
CoV-2 and the Closure Orders, UTA suffered losses from
cancelled live events . . . and cancelled television and motion
picture productions.”
13 The Northern District’s order quoted in Inns-by-the-Sea
granted the insurer’s motion to dismiss the insured’s claim with
leave to amend. (Another Planet Entertainment, LLC v. Vigilant
Ins. Co. (N.D.Cal., Feb. 25, 2021, No. 20-cv-07476-VC) 2021 WL
774141.) The court later dismissed the case with prejudice for
failure to state a claim. (Another Planet Entertainment, LLC v.
Vigilant Ins. Co. (N.D. Cal., June 21, 2021, No. 20-CV-07476-VC)
2021 WL 2670743, app. pending, No. 21-16093 (9th Cir.).)
26
F.4th 398, for example, a plaintiff restaurant, Dino Drop, “alleges
that several of its employees and customers tested positive for
COVID-19, likely after exposure to the virus by a live band that
played at one of its restaurants. This outbreak purportedly
‘damaged’ the property, because Dino Drop had to take
remediation measures, such as cleaning and reconfiguring
spaces, to reduce the threat of COVID-19.” (Id. at p. 404.) The
Sixth Circuit held that such a claim did not constitute property
damage: “These, however, are precisely the sorts of losses we
have previously determined are ‘not tangible, physical losses, but
economic losses.”” (Ibid., citing Universal Image Productions,
Inc. v. Federal Ins. Co. (6th Cir. 2012) 475 Fed.Appx. 569, 571,
573 [moving and cleanup costs arising from mold and bacteria
contamination constituted economic losses, not “physical loss”].)
Other courts have also held that cleaning or employing
minor remediation or preventive measures to help limit the
spread of the virus does not constitute direct property damage or
loss. (See, e.g., L&J Mattson’s Co. v. Cincinnati Ins. Co., Inc.
(N.D. Ill. 2021) 536 F.Supp.3d 307, 315, fn.3 [“additions such as
Plexiglas, hand sanitizer, air purifiers or improved HVAC
systems do not constitute repairs to damaged property where a
plaintiff has not alleged damage to property. Instead, those
additions constitute improvements to stop the spread of virus
from one person to another”]; Cafe La Trova LLC v. Aspen
Specialty Ins. Co. (S.D. Fla. 2021) 519 F.Supp.3d 1167, 1182
[“Plaintiff's rearranging of furniture and installation of partitions
cannot ‘reasonably be described as repairing, rebuilding, or
replacing’” and cannot constitute “the very ‘damage’ it now
asserts is sufficient to invoke coverage”]); Independence
Restaurant Group v. Certain Underwriters at Lloyd’s, London
27
(E.D. Pa. 2021) 513 F.Supp.3d 525, 534-535 [moving equipment
and adding plexiglass to make property “functional and
reasonably safe for patrons” cannot reasonably be described as
repairing, rebuilding, or replacing. “Neither can disinfecting or
cleaning property that is contaminated.”].) Moreover, UTA has
not alleged that its properties required unique abatement efforts
to eradicate the virus.
UTA has not established that the presence of the virus
constitutes physical damage to insured property. We therefore
turn to UTA’s contention that it was entitled to coverage under
the civil authority provision.
C. Civil authority provision
The policies’ civil authority provision covers business
income loss or extra expenses incurred “due to the actual
impairment of . . . operations, directly caused by the prohibition
of access to” covered premises “by a civil authority,” as long as the
prohibition of access is “the direct result of direct physical loss or
damage to property away from” a covered premises, “provided
such property is within one mile” of the covered premises.
UTA contends it was entitled to coverage under this
provision because the closure orders prohibited access to its
insured properties. It asserts that the virus “physically alters
tangible property,” the closure orders were issued “due to the
presence of SARS-CoV-2 throughout the country,” and therefore
the orders were issued “‘due to’ the direct physical loss and
damage caused by SARS-CoV-2.” UTA also points out that the
March 16, 2020 order issued by the mayor of New York City
stated, in part, that “this order is given because of the propensity
of the virus to spread person to person and also because the virus
physically is causing property loss and damage,” and the March
28
19, 2020 order issued by the mayor of Los Angeles stated that
“the COVID-19 virus can spread easily from person to person and
it is physically causing property loss or damage due to its
tendency to attach to surfaces for prolonged periods of time.” The
insurers respond that the closure orders were issued to curtail
the spread of the virus, not because of physical loss or damage to
property near UTA’s insured premises.
We agree with the insurers, as well as the trial court’s
finding that “the civil authority order cannot itself cause the
‘physical loss or damage to property,’ which is the theory
underlying [UTC’s FAC]. Rather, the ‘physical loss or damage to
property’ precedes and necessitates the issuance of the civil
authority [order].” Closure orders across the country were issued
in response to the public health crisis arising from the pandemic,
not as “the direct result of” damage to property near UTA’s. In
addition, just as the presence of the virus does not constitute
physical loss or damage to insured property, it also does not
constitute physical loss or damage to property “away from” or
within a mile of the covered property. Neither the closure orders
themselves nor UTA’s allegations suggest the orders related to
any property within one mile of UTA’s covered premises. Indeed,
UTA has not alleged the locations of its covered premises, other
than to say that its headquarters are in Beverly Hills (which,
incidentally, is neither New York City nor the City of Los
Angeles).
Inns-by-the-Sea rejected a similar argument, stating, “[T]he
Orders make clear that they were issued in an attempt to prevent
the spread of the COVID-19 virus. The Orders give no indication
that they were issued ‘due to direct physical loss of or damage to’
any property. Therefore, the Orders did not give rise to Civil
29
Authority coverage.” (Inns-by-the-Sea, supra, 71 Cal.App.5that
pp. 711-712.) Again, cases arising in California and elsewhere
are in accord. (See, e.g., Barbizon School, supra, 530 F.Supp.3d
at p. 891 [“the government orders were issued to prevent the
spread of COVID-19, not in response to property damage”];
Pappy’s Barber Shops, supra, 487 F.Supp.3d at p. 945 [“Just as
the complaint does not plausibly allege any direct physical loss of
Plaintiff’s property, it also does not allege any direct physical loss
or damage to property not at Plaintiffs’ places of business.”];
Brown Jug, supra, 27 F.4th 398, 404 [“Plaintiffs have also failed
to allege that COVID-19 caused loss or damage to properties
‘other than the covered property’ as required to plead a breach of
the Civil Authority provision”]; 10012 Holdings, Inc. v. Sentinel
Ins. Co., Ltd. (2d Cir. 2021) 21 F.4th 216, 223 [“the executive
orders were the result of the COVID-19 pandemic and the harm
it posed to human beings, not, as ‘risk of direct physical loss’
entails, risk of physical damage to property”.)
UTA therefore has not alleged facts sufficient to state a
cause of action for breach of the relevant insurance policies. In
addition, a plaintiff that cannot state a cause of action for breach
of contract cannot assert a claim for breach of the implied
covenant of good faith and fair dealing. (1231 Euclid
Homeowners Assn. v. State Farm Fire & Casualty Co. (2006) 135
Cal.App.4th 1008, 1021; Waller v. Truck Ins. Exchange, Inc.
(1995) 11 Cal.4th 1, 36.) UTA does not seek to amend its
complaint, or challenge the trial court’s denial of leave to amend.
UTA argues that in the pandemic, “those who insure risk
should suffer at least as much as everyone else,” and rather than
take responsibility for the losses suffered by insureds, insurers
have “created an alternate universe, in which they bear no
30
responsibility for the worst losses imaginable.” We are mindful
that the human and financial toll of the pandemic has been
staggering. However, insurance is not a general safety net for all
occurrences; “courts must honor the coverage the parties did—
and did not—provide for in their written contracts of insurance.”
(Santo’s, supra, 15 F.4th at p. 407.) Here, UTA’s property
insurance policies did not cover losses attributable to a worldwide
pandemic that did not cause physical loss or damage to any
insured premises, even as the need for reduced human
interaction affected UTA’s ability to conduct its business. We
therefore find no error in the court’s ruling sustaining the
insurers’ demurrer.
DISPOSITION
The judgment is affirmed. Respondents are entitled to
their costs on appeal.
CERTIFIED FOR PUBLICATION
COLLINS, J.
We concur:
MANELLA, P. J.
WILLHITE, J.
31