Temporary loss of a property’s use because of COVID-19-related closure orders does not amount to direct physical loss or damage under a property insurance policy, the California Court of Appeal for the Second District has said.

In United Talent Agency v. Vigilant Insurance Company, Vigilant Insurance Company and Federal Insurance Company issued property insurance policies covering direct physical loss or damage to insured property in United Talent Agency (UTA)’s premises in different states, including California, New York, Tennessee, and Florida. The policies included business income and extra expense provisions and a civil authority provision.

UTA filed a suit alleging that the insurers wrongfully denied property insurance coverage for economic losses relating to the pandemic. UTA made the following claims:

• The COVID-19 closure orders and the virus itself prevented UTA from using its insured locations for the intended purposes;
• UTA experienced substantial financial losses consisting of lost profits, lost commissions, and lost business opportunities, as well as losses due to cancelled live events and television and movie productions;
• At least 13 UTA employees, five spouses, and some dependents tested positive for COVID-19.

The insurers brought a demurrer. They argued that UTA failed to establish a viable cause of action under s. 410.30(e) of California’s Code of Civil Procedure and failed to allege a loss subject to insurance coverage.

The trial court, ruling favorably...

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