F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

ANOTHER PLA

NET ENTERTAI

NMENT, L L C,

Plaintiff-Appellant
,

v.

VI GI L ANT I

NSURANCE COMPANY,

Defendant-Appellee

. No. 21-16093

D.C. No. 3:20-cv07476-VC

ORDER CERTI F YI

NG QUESTI ON TO THE
CAL I F ORNI A
SUPREME COURT

F iled December 28, 2022

B efore: Carlos T. B e a, Sandra S. Ikuta, and Morg an

Christen, Circuit J udg es.A

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SUMMARY *

Calif ornia Law The panel certified the following question to the California Supreme Court:

C a n the actual or potential presence of t h e COVI D-19 viru s o n an insured’s premises constitute “d irect phy sical loss or damag e to property” for purposes of co v erag e under a commercial property

insurance policy ?

COUNSEL

Kirk Pasich (arg

ued), Nathan M. Davi s , and Arianna M. Young
, Pasich L L P, L os Ang eles, California, for PlaintiffAppellant.

J onathan D. Hacker ( argued), J eny a Godina, and J eremy R. Girton, O’Melveny & My ers L L P, W a shing ton, D.C.; Susan Koehler Sullivan, Doug las J

. Collo d el, Gretchen S. Carner, and B rett C. Safford, Cly d e & Co US L L P, L o s A ng eles, California; for Defendant-Appellee.

* T h is su m m ary co n s titutes n o p art o f th e o p in io n o f th e co urt. It h as b een p rep ared b y

co urt staf

f f o r th e co nv en ien ce o f

th e read er.A

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ORDER

W e respectfully ask the California Supreme Court to

answer the c ertified question presented below, pursuant to California Rule of Court 8.548, b ecause we have concluded that resolution o f t his q uestion o f California law “could determ i n e t he outcome of a matter pending in [ this] court,” and “[ t] here is no c ontrolling precedent” in the d ecisions o f the California Supreme Court. Cal. R. Ct. 8.548(a).

This c ase involves an i n s u r ed who sued for b reach o f contract, b ad faith, and fraud when its insurer d en i e d
coverag e for business income losses that the insured incurred followin g g overnment closure orders issued during the COVI D-19 p andemic. The insured alleg ed that the COVI D19 virus was present on its prem i s e s b e f ore the orders were issued, or would have been present had the insured not closed its venues in compliance with the orders, and it soug ht
coverag e under several provisions of its commercial property insurance policy that require “direct phy sical loss or damag e to property” to trig g er coverag e. The district court dismissed the insured’s suit for failure to state a claim.

The issue here is whether the insur e d’s alleg ations, if taken as true, w ere sufficient to show “direct phy sical loss o r damag e to property

” as defined by

California law.

I

W e summari z e the material facts. See Cal. R. Ct. 8.548(b)(3). Another Planet is an event promoter and venue operator that owns event venues in California and Nevada. In 2019, Vig ilant I nsurance Company issued a commercialA

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property insurance policy to Another Planet for the period f r o m M a y 1
, 2019 to May 1, 2020. After the COVI D-1 9 pandemic beg an in e arly 2020, go v ernment closure orders for c e d Another Planet to suspend its operations, close its
venues, a nd cancel events, resulting in “substantial financial losses.” Another Planet soug ht a nd was d enie d c o v erag e from V ig ilant. I n r esponse, Another Planet filed an action in
t h e Northern District of California, alleg ing b reach of contract, bad faith, and fraud.

Another Planet seeks c overag e under s e v e r al provisions

o f its policy that require actual o r imminent “direct p hy sic al loss or damag e to p rope r t y ” : ( 1) a set of four “B usiness I n c ome” p rovisions stating that Vig ilant will cover cert a i n business income losses if they are caused by “direct phy sical loss or damag e” to property ; ( 2) a “Civil Authority ” provision stating that V ig ilant will cover loss es caused by a civil authority ’s prohibition of access to c overed or dependent business premises as “the d irect r esult of direct phy sical loss

or damag e to property” within one mile of the premises; a nd ( 3 ) a “ L o ss Prevention Ex penses” p rovision stating that Vig ilant will cover costs incurr e d t o protect a building o r personal property from “imminent direct p hy sical loss o r damag e” caused by a covered peril if the ins ured provides notice of “any

loss prevention action” within 48 hours.

I n its F irst Amended Complaint
, A nother Planet alleg ed that the COVI D-19 virus “was present at various times o n a nd in its insured properties, o r would have been pres e nt had it
not been for the closures of its properties directed to c urb the

s pread of SARS-CoV-2.” I t further alleg ed that aerosoliz e d droplets of the COVI D-19 virus can “stay sus p e n d e d in air and infective for at least 16 hours” and can remain active onA

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inert surfaces for at least 2 8 d a y s, meaning the d roplets “phy sically alter the a ir and airspace in which they are present and the surfaces of b oth the real and personal property to which they attach, constituting p h y sical loss or damag e.” Another Planet claimed that the presence of COVI D-19 droplets “can render both real and personal property unusable for its intended purpose and function, constitutin g phy sical loss o r damag e.” The c omplaint a lso noted that minimiz ing the spread of COVI D-19 “ requires steps to be taken,” including “phy sical distancing
, regula r disinfection, air filtration, and further phy sical a lterations, such as installation of ph y s i c al barriers restricting the movement of the aerosoliz ed droplets.” Vig ilant fi l ed a motion to dismiss under F ederal Rule o f Civil Procedure 12(b)(6), arguing that Another Planet had not sufficiently alleg ed direct phy sical l oss or damag e to property

. The district court ag reed and dismissed the case with prejudice after g iving Another Planet one opportunity to amend its compl ai n t

. As r elevant to this request for certification, the district court con c luded that it “ seem[ ed] unknowable” whethe r t he COVI D-19 virus was actually present on Another Planet’s premises.

II

B e cause California law g overns interpretation o f the policy and the Ca l i f

o r n ia Supreme Court h as not y et considered the issue, we “must determine what result [that ]
court would re a c h based on state appellate court o pinions,
statutes and treatis es.” Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am.
, 15 F .4th 885, 889 (9th Cir. 2021) ( qu o t i ng Diaz

v. Kubler Corp.
, 785 F .3d 1326, 1329 (9th Cir. 2 015)). “W eA

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will o rdinarily accept the decision of an in t er m e diate appellate court as the controlling interpretation of state law.” Id. (quoting Tomlin v. B o eing Co.
, 650 F .2d 1065, 1069 n.7 (9th Cir. 1981)). Here, however, two d ifferent divisions o f the Second D istrict of the Cal i f o r n ia Courts of Appeal have i s s ued conflicting decisions reg arding whether alleg ations like Another Planet’s suffice to state a v iable c laim for “ direct phy sical loss or damag e to property .”

Two months after the d i s t rict court dismissed Another Plane t ’ s suit, Division 4 of the Second District o f the California Courts of Appeal decided United Talent Agency v

. Vigilant Insurance Co.
, which involved claims for coverag e under insurance provisions identical to those in Another Planet’s policy

. 293 Cal. Rptr. 3d 6 5, 68 (Ct. App. 2022). In United Talent Agency
, the insured a lleg ed that the COVI D-19 virus h ad been present o n its insured premises or would have been present but for the g o vernment closure orders and the insured’s efforts to reduce and prevent the virus’s presence; that several of the insured’s employ ee s , t heir spouses, a nd their dependents had tested positive for COVI D-19; and that COVI D-19 droplets “land on and ad h e r e to surfaces a nd objects” a n d thus “phy sically chang e the property b y becoming part of its surface.” Id

. a t 69. T he insured in Uni t ed Talent Agency c ompared COVI D-19 to “mold, asbestos, mudslides, smoke, oil spills, and ot h e r similar elements t hat cause property damag e, althoug h they later mig ht be removed, cleaned, or remediated.” Id.

The Court of Appeal in United T a l en t Agency held that the superior court properly sustained the insurer’s demurrer, concluding that the insured did “not establi sh[ ] that the
presence of the virus constitutes phy sical damag e to insuredA

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property .” Id. a t 7 6

– 80. T he court acknowledg ed the

ex istence of cases concluding that the p resence of a “phy sical force” like “smoke, ammonia, odor, or asbestos” can constitute d i r ect phy sical damag e by “render[ ing ] real property uninhabitable o r unsuitable for its intended u se.” Id.
at 77 (quoting Inns-by-the-Sea v. Cal. Mut. Ins. Co.
, 286 Cal. Rptr. 3d 576, 589 (Ct. A p p

. 2 0 2 1 )). B ut the court reasoned that the pres ence of COVI D-19 is only “‘short lived’ contamination that can be addressed by simple cleaning ” a nd thus does not constitute direct p hy sical loss or damag e. Id. at 76–77 (quoting Inns-by-the -Se a , 286 Cal. Rptr. 3d at 588 n.17).

Thre e months after United Talent Agency
, D ivision 7 o f the Second District of the California Courts of Appeal came
to a different conclusion in Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund Insurance Co.
, a c a se involving the denial of coverag e under a policy that also contained the same “direct phy sical loss o r damag e” lang uag e at issue here. 296 Cal. Rptr. 3d 7 77, 780 (Ct. App. 2022)

. In Marina P a cific
, the insureds a lleg ed tha t the COVI D-19 virus causes a “distinct, demonstrable or phy si c a l a lteration to property” because it “actually bonds and/or a d h e r e s to

. . . objects throug h phy sico-chemical reactions involving, inter alia
, cells and surface proteins.” Id. at 781. The insureds claimed that the COVI D-19 virus had been present “ on a v a r i e ty o f phy sical objects in [ their] insured properties, i ncluding furniture, cou ntertops, walls, bedding
, appliances and food and other packag ed items, as well a s in the air,” and that they had disposed of p rop e r t y damag ed by the virus. Id. at 781–82. F urther, they a lleg ed that “public health authorities ha[ d] ordered that Hotel Erwin be evacua t e d
, d e c o nt aminated,A

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or disinfected” after several employ ees of t h e hotel tested positive for COVI D-19. Id. at 782.

The Court of Appeal held in Mar ina Pacific that “[ a] ssuming

. . . the tru t h o f those a lleg ations, even if improbable, absent judicially n oticed facts irrefutably
cont r a d icting them, the insureds ha[ d] unquestionably pleaded direct phy sical loss or damag e to covered property within the definition a r t iculated in MRI Healthcare

— a distinct, demonstrable, phy sical alteration of the p r o p erty

. ” Id. at 787–90 (ci t ing MRI H ealthcare Ctr. of Glendale v

. State Farm Gen. Ins. Co.
, 1 15 Cal. Rptr. 27, 37–38 (Ct. App. 2010)). The court acknowledg ed that United Talent Agency

was “[ n] ot disting u ishable” but ma i n t ai ned that the court there improperly disreg arded the insured’s factual alleg ations

as improbable when evaluating the insurer’s demurrer. Id. at 790.

On a ppeal, Another Planet h ig h l ig hts this split in authority and urg es u s to adopt Mar i n a P acific ’s holding because United Talent Agency “misapplied California law b y making factual conclusions c o n trary to those alleg ed in the operative complaint.” Vig il a n t disag rees, arguing that we should follow United Talent Agency because Marina Pacific “is an outlier d ecision at o dds with an o verwhelming body o f
p recedent.” Vig ilant contends that Marina Pacific “ga v e short shrift” to the court’s ability to “consider common-sense realities at the demurrer stag e.”

The a nswer to this question “could determine the outcome of [ this] mat ter,” Cal. R. Ct. 8.548(b)(4), because if the alleg ation of the presence or poten t i a l presence of the COVI D-19 virus is sufficient to show “direct phy sical loss o rA

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damag e to property ,” the district court err e d i n dismissing Another Planet’s complaint for failure to state a claim, a nd

we would remand to the district court for further proceeding s. Alternatively
, if the alleg ation is not sufficient, we would affirm the district court.

III

I n l ig ht of the f

o reg oing discussion, and because the

answer to this questio n “could d etermine the outcome of a matter pending in [ this ] court,” Cal. R. Ct. 8.548(a), we respectfull y certify to the California Supreme Court the following question:

Ca n t h e actual or potential p r esence of the COVI D-19 vi ru s o n an insured’s premises

c o n stitute “direct phy sical loss o r damag e to p r operty” for purposes o f coverag e under a commercial property

insurance policy ?

W e do n ot intend our framing of this question t o restrict the California Supreme Court’s consideration of a ny issues that it determines a

r e relevant. I f the California Suprem e Court decides to consider the certified question, it may in its discretion refo r mulate the question. Broad v. Mannesmann Anlagenbau AG
, 1 9 6 F.3d 1075, 1076 (9th Cir. 1999). W e will accept the California Supreme Court’s dec i s i o n on this question. S

ee Cal. R. Ct. 8.548(b)(2).

I f the California Supreme Court accepts review of the certified q

ue stion, we desig nate Appellant Another Planet Entertainment, L L C as the p e t i tioner p ursuant to California Rule of Court 8.548(b)(1).A

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The clerk of o ur c o urt is hereby o r d e r e d to transmit forthwith to the California Supreme Court, under official seal of the Uni t e d S t ates Court of Appeals for the Ninth Circuit,

a cop y o f this order and all relevant briefs and ex cerpts o f record, along with a certificate of service on the parties. Cal. R. Ct. 8.548(c), (d).

F urther proceeding s in our cou r t a re stay ed pending the California Supreme Court’s decision on whether it will accept review, a nd if so, receipt of t h e answer to the c ertified quest i o n

. This case is withdrawn from submission until further order from t h i s c o urt. The Clerk is directed to administratively

close this docket, pendingfurther order.

Th e panel will r esume control and jurisdiction on the certified question upon r eceiving a n answer to the cert i f

ied question or upon the California Supreme Court’s d ecision to decline to answer the certified question. W ithin 10 day s a fter the California Supreme Court decides whe t h e r o r not to accept the certified question, the p arti e s shall file a joint report informing this court of the decision. I f the California Supreme Court accepts the certified question, the parties shall file a joint status report every six months after the date of the acceptance, or more frequently if circumstances warrant.

I t is so ORDERED

.