Court Opinion

ID: 9363089
Source: CourtListenerOpinion
Date Created: 2023-01-13 18:57:04.043539+00
Date Added: 2024-06-11T17:15:28.415507
License: Public Domain

FOR PUBLICATION

 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

ANOTHER PLANET                         No. 21-16093
ENTERTAINMENT, LLC,
                                     D.C. No. 3:20-cv-
            Plaintiff-Appellant,        07476-VC

v.                                 ORDER CERTIFYING
                                    QUESTION TO THE
VIGILANT INSURANCE                    CALIFORNIA
COMPANY,                            SUPREME COURT

           Defendant-Appellee.

                 Filed December 28, 2022

     Before: Carlos T. Bea, Sandra S. Ikuta, and Morgan
                  Christen, Circuit Judges.
2   ANOTHER PLANET ENTERTAINMENT, LLC V. VIGILANT INS. CO.

                            SUMMARY*

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

         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?

                             COUNSEL

Kirk Pasich (argued), Nathan M. Davis, and Arianna M.
Young, Pasich LLP, Los Angeles, California, for Plaintiff-
Appellant.
Jonathan D. Hacker (argued), Jenya Godina, and Jeremy R.
Girton, O’Melveny & Myers LLP, Washington, D.C.; Susan
Koehler Sullivan, Douglas J. Collodel, Gretchen S. Carner,
and Brett C. Safford, Clyde & Co US LLP, Los Angeles,
California; for Defendant-Appellee.

*
 This summary constitutes no part of the opinion of the court. It has been
prepared by court staff for the convenience of the reader.
    ANOTHER PLANET ENTERTAINMENT, LLC V. VIGILANT INS. CO.   3

                          ORDER

    We respectfully ask the California Supreme Court to
answer the certified question presented below, pursuant to
California Rule of Court 8.548, because we have concluded
that resolution of this question of California law “could
determine the outcome of a matter pending in [this] court,”
and “[t]here is no controlling precedent” in the decisions of
the California Supreme Court. Cal. R. Ct. 8.548(a).
    This case involves an insured who sued for breach of
contract, bad faith, and fraud when its insurer denied
coverage for business income losses that the insured incurred
following government closure orders issued during the
COVID-19 pandemic. The insured alleged that the COVID-
19 virus was present on its premises before the orders were
issued, or would have been present had the insured not closed
its venues in compliance with the orders, and it sought
coverage under several provisions of its commercial property
insurance policy that require “direct physical loss or damage
to property” to trigger coverage. The district court dismissed
the insured’s suit for failure to state a claim.
    The issue here is whether the insured’s allegations, if
taken as true, were sufficient to show “direct physical loss or
damage to property” as defined by California law.
                               I
    We summarize 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, Vigilant Insurance Company issued a commercial
4   ANOTHER PLANET ENTERTAINMENT, LLC V. VIGILANT INS. CO.

property insurance policy to Another Planet for the period
from May 1, 2019 to May 1, 2020. After the COVID-19
pandemic began in early 2020, government closure orders
forced Another Planet to suspend its operations, close its
venues, and cancel events, resulting in “substantial financial
losses.” Another Planet sought and was denied coverage
from Vigilant. In response, Another Planet filed an action in
the Northern District of California, alleging breach of
contract, bad faith, and fraud.
    Another Planet seeks coverage under several provisions
of its policy that require actual or imminent “direct physical
loss or damage to property”: (1) a set of four “Business
Income” provisions stating that Vigilant will cover certain
business income losses if they are caused by “direct physical
loss or damage” to property; (2) a “Civil Authority” provision
stating that Vigilant will cover losses caused by a civil
authority’s prohibition of access to covered or dependent
business premises as “the direct result of direct physical loss
or damage to property” within one mile of the premises; and
(3) a “Loss Prevention Expenses” provision stating that
Vigilant will cover costs incurred to protect a building or
personal property from “imminent direct physical loss or
damage” caused by a covered peril if the insured provides
notice of “any loss prevention action” within 48 hours.
    In its First Amended Complaint, Another Planet alleged
that the COVID-19 virus “was present at various times on and
in its insured properties, or would have been present had it
not been for the closures of its properties directed to curb the
spread of SARS-CoV-2.” It further alleged that aerosolized
droplets of the COVID-19 virus can “stay suspended in air
and infective for at least 16 hours” and can remain active on
    ANOTHER PLANET ENTERTAINMENT, LLC V. VIGILANT INS. CO.      5

inert surfaces for at least 28 days, meaning the droplets
“physically alter the air and airspace in which they are present
and the surfaces of both the real and personal property to
which they attach, constituting physical loss or damage.”
Another Planet claimed that the presence of COVID-19
droplets “can render both real and personal property unusable
for its intended purpose and function, constituting physical
loss or damage.” The complaint also noted that minimizing
the spread of COVID-19 “requires steps to be taken,”
including “physical distancing, regular disinfection, air
filtration, and further physical alterations, such as installation
of physical barriers restricting the movement of the
aerosolized droplets.”
    Vigilant filed a motion to dismiss under Federal Rule of
Civil Procedure 12(b)(6), arguing that Another Planet had not
sufficiently alleged direct physical loss or damage to
property. The district court agreed and dismissed the case
with prejudice after giving Another Planet one opportunity to
amend its complaint. As relevant to this request for
certification, the district court concluded that it “seem[ed]
unknowable” whether the COVID-19 virus was actually
present on Another Planet’s premises.
                               II
    Because California law governs interpretation of the
policy and the California Supreme Court has not yet
considered the issue, we “must determine what result [that]
court would reach based on state appellate court opinions,
statutes and treatises.” Mudpie, Inc. v. Travelers Cas. Ins.
Co. of Am., 15 F.4th 885, 889 (9th Cir. 2021) (quoting Diaz
v. Kubler Corp., 785 F.3d 1326, 1329 (9th Cir. 2015)). “We
6   ANOTHER PLANET ENTERTAINMENT, LLC V. VIGILANT INS. CO.

will ordinarily accept the decision of an intermediate
appellate court as the controlling interpretation of state law.”
Id. (quoting Tomlin v. Boeing Co., 650 F.2d 1065, 1069 n.7
(9th Cir. 1981)). Here, however, two different divisions of
the Second District of the California Courts of Appeal have
issued conflicting decisions regarding whether allegations
like Another Planet’s suffice to state a viable claim for “direct
physical loss or damage to property.”
    Two months after the district court dismissed Another
Planet’s suit, Division 4 of the Second District of the
California Courts of Appeal decided United Talent Agency v.
Vigilant Insurance Co., which involved claims for coverage
under insurance provisions identical to those in Another
Planet’s policy. 293 Cal. Rptr. 3d 65, 68 (Ct. App. 2022). In
United Talent Agency, the insured alleged that the COVID-19
virus had been present on its insured premises or would have
been present but for the government closure orders and the
insured’s efforts to reduce and prevent the virus’s presence;
that several of the insured’s employees, their spouses, and
their dependents had tested positive for COVID-19; and that
COVID-19 droplets “land on and adhere to surfaces and
objects” and thus “physically change the property by
becoming part of its surface.” Id. at 69. The insured in
United Talent Agency compared COVID-19 to “mold,
asbestos, mudslides, smoke, oil spills, and other similar
elements that cause property damage, although they later
might be removed, cleaned, or remediated.” Id.
    The Court of Appeal in United Talent Agency held that
the superior court properly sustained the insurer’s demurrer,
concluding that the insured did “not establish[] that the
presence of the virus constitutes physical damage to insured
    ANOTHER PLANET ENTERTAINMENT, LLC V. VIGILANT INS. CO.   7

property.” Id. at 76–80. The court acknowledged the
existence of cases concluding that the presence of a “physical
force” like “smoke, ammonia, odor, or asbestos” can
constitute direct physical damage by “render[ing] real
property uninhabitable or unsuitable for its intended use.” Id.
at 77 (quoting Inns-by-the-Sea v. Cal. Mut. Ins. Co., 286 Cal.
Rptr. 3d 576, 589 (Ct. App. 2021)). But the court reasoned
that the presence of COVID-19 is only “‘short lived’
contamination that can be addressed by simple cleaning” and
thus does not constitute direct physical loss or damage. Id. at
76–77 (quoting Inns-by-the-Sea, 286 Cal. Rptr. 3d at 588
n.17).
    Three months after United Talent Agency, Division 7 of
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 case involving the
denial of coverage under a policy that also contained the same
“direct physical loss or damage” language at issue here. 296
Cal. Rptr. 3d 777, 780 (Ct. App. 2022). In Marina Pacific,
the insureds alleged that the COVID-19 virus causes a
“distinct, demonstrable or physical alteration to property”
because it “actually bonds and/or adheres to . . . objects
through physico-chemical reactions involving, inter alia,
cells and surface proteins.” Id. at 781. The insureds claimed
that the COVID-19 virus had been present “on a variety of
physical objects in [their] insured properties, including
furniture, countertops, walls, bedding, appliances and food
and other packaged items, as well as in the air,” and that they
had disposed of property damaged by the virus. Id. at
781–82. Further, they alleged that “public health authorities
ha[d] ordered that Hotel Erwin be evacuated, decontaminated,
8   ANOTHER PLANET ENTERTAINMENT, LLC V. VIGILANT INS. CO.

or disinfected” after several employees of the hotel tested
positive for COVID-19. Id. at 782.
    The Court of Appeal held in Marina Pacific that
“[a]ssuming . . . the truth of those allegations, even if
improbable, absent judicially noticed facts irrefutably
contradicting them, the insureds ha[d] unquestionably
pleaded direct physical loss or damage to covered property
within the definition articulated in MRI Healthcare—a
distinct, demonstrable, physical alteration of the property.”
Id. at 787–90 (citing MRI Healthcare Ctr. of Glendale v.
State Farm Gen. Ins. Co., 115 Cal. Rptr. 27, 37–38 (Ct. App.
2010)). The court acknowledged that United Talent Agency
was “[n]ot distinguishable” but maintained that the court
there improperly disregarded the insured’s factual allegations
as improbable when evaluating the insurer’s demurrer. Id. at
790.
    On appeal, Another Planet highlights this split in
authority and urges us to adopt Marina Pacific’s holding
because United Talent Agency “misapplied California law by
making factual conclusions contrary to those alleged in the
operative complaint.” Vigilant disagrees, arguing that we
should follow United Talent Agency because Marina Pacific
“is an outlier decision at odds with an overwhelming body of
precedent.” Vigilant contends that Marina Pacific “gave
short shrift” to the court’s ability to “consider common-sense
realities at the demurrer stage.”
    The answer to this question “could determine the outcome
of [this] matter,” Cal. R. Ct. 8.548(b)(4), because if the
allegation of the presence or potential presence of the
COVID-19 virus is sufficient to show “direct physical loss or
    ANOTHER PLANET ENTERTAINMENT, LLC V. VIGILANT INS. CO.   9

damage to property,” the district court erred in dismissing
Another Planet’s complaint for failure to state a claim, and
we would remand to the district court for further proceedings.
Alternatively, if the allegation is not sufficient, we would
affirm the district court.
                             III
    In light of the foregoing discussion, and because the
answer to this question “could determine the outcome of a
matter pending in [this] court,” Cal. R. Ct. 8.548(a), we
respectfully certify to the California Supreme Court the
following question:
       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?

    We do not intend our framing of this question to restrict
the California Supreme Court’s consideration of any issues
that it determines are relevant. If the California Supreme
Court decides to consider the certified question, it may in its
discretion reformulate the question. Broad v. Mannesmann
Anlagenbau AG, 196 F.3d 1075, 1076 (9th Cir. 1999). We
will accept the California Supreme Court’s decision on this
question. See Cal. R. Ct. 8.548(b)(2).
    If the California Supreme Court accepts review of the
certified question, we designate Appellant Another Planet
Entertainment, LLC as the petitioner pursuant to California
Rule of Court 8.548(b)(1).
10 ANOTHER PLANET ENTERTAINMENT, LLC V. VIGILANT INS. CO.

    The clerk of our court is hereby ordered to transmit
forthwith to the California Supreme Court, under official seal
of the United States Court of Appeals for the Ninth Circuit,
a copy of this order and all relevant briefs and excerpts of
record, along with a certificate of service on the parties. Cal.
R. Ct. 8.548(c), (d).
    Further proceedings in our court are stayed pending the
California Supreme Court’s decision on whether it will accept
review, and if so, receipt of the answer to the certified
question. This case is withdrawn from submission until
further order from this court. The Clerk is directed to
administratively close this docket, pending further order.
     The panel will resume control and jurisdiction on the
certified question upon receiving an answer to the certified
question or upon the California Supreme Court’s decision to
decline to answer the certified question. Within 10 days after
the California Supreme Court decides whether or not to
accept the certified question, the parties shall file a joint
report informing this court of the decision. If 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.
    It is so ORDERED.