COVID-19 insurance lawsuit in California courts

One of the emerging questions in COVID-19 insurance cases brought up across the country is whether the policyholder’s claims meet applicable pleading standards when it comes to the virus causing physical loss or damage. In many cases the courts have made a mistake and effectively imposed a higher standard on policyholders than required. But recently a California federal judge righted that wrong by acknowledging the correct plea standard in this case, which is whether the allegations contain a plausible plea for relief. Ashcroft vs. Iqbal, 556 US 662, 679 (2009). The court here correctly recognized that the policyholder, the Los Angeles Lakers, met that pleading standard when it asserted that the COVID-19 virus can cause physical loss or damage through physical alteration of property.

In their complaint, the Los Angeles Lakers alleged that the virus physically altered its property by altering its chemical and physical property conditions and creating viral vectors that required remedial action before the property was safe again. Los Angeles Lakers, Inc. vs. Fed. Into the. co, 591 F.Supp. 3d 672 (CD cal. 2022), adhered to upon reconsideration, 2022 WL 16571193 (CD Cal. 26 Oct 2022). The court agreed that these allegations by the Lakers adequately substantiated physical alteration to support a property damage claim. The insurer requested a reconsideration of the decision and the court strongly upheld its earlier decision, explaining its reasoning as follows:

The court lacks the scientific expertise needed to reach a conclusion based solely on the allegations in the FAC. . . that it is not plausible that Lakers property was physically altered by the virus, which the Lakers reasonably claimed. Consequently, in the March 17 order, the court concluded that the Lakers’ theory was plausible. Whether the Lakers can actually prove their theory will be decided at summary judgment or trial.

To support its reasoning, the court considered the development of California’s appellate law and ultimately focused on a more recent decision in which the California Circuit Court of Appeals for the Second Circuit reached the same conclusion as here Marina Pac. Hotel and Suites, LLC v Fireman’s Fund Ins. co., 81 Cal. apartment 5. 96 (2022). Similar to the Los Angeles Lakers, the policyholder is in Marina Pacific claimed that COVID-19 “not only lives on surfaces, but also attaches to surfaces through physicochemical reactions involving cells and surface proteins that alter the physical state of property.” The court ruled that the policyholder “has indubitably claimed direct physical loss or damage to insured property within the articulated definition [by California courts]–a clear, demonstrable physical change of ownership.” ID. at 109. To conclude, the Los Angeles Lakers recognized by the court Marina Pacific‘s criticism of a previous California appeal decision, United Talent Agency vs. Vigilant Ins. co., 77 cal. apartment 5.821 (2022). The court was critical United Talent Agencya finding “without evidence” that COVID-19 did not cause property damage, despite claims by the policyholder.

These decisions show why state law development continues to be important, even though the state plea standard is lower than the federal plea standard. California, unlike federal courts, does not have a standard for plausibility pleadings, but requires a court to consider the asserted facts in a pleading to be true, but “unlikely.” Marina Pac., 81 cal. apartment Ranked 5th out of 110. This is particularly important in the context of COVID-19 claims, as the lower threshold can offer policyholders the opportunity to deny a motion to dismiss and further prove their claims. In hindsight, this has proven prudent as scientific evidence, when it can be presented, has shown that it can support policyholders’ claims. See Baylor Coll. by Med. XL ins. Am., Inc.No. 2020-53316-A (Tex. Dist. Ct. Harris Cty. Aug. 31, 2022) (Jury finds COVID-19 caused physical loss or damage upon submission of expert opinion).[1]

These recent decisions should be encouraging for policyholders with COVID-19 insurance claims. This California decision follows other recent cases that have recognized the need for scientific evidence to validate these claims and that a motion to dismiss based solely on the briefs is invalid when alleging that the virus physically altered the property. See eg Huntington Ingalls Indus., Inc. vs. Ace Am. Into the. co., 2022 VT 45, ¶¶ 45-46 (Vt. 23 Sept. 2022) (presentation of scientific evidence is necessary to assess whether the virus can physically alter property).[2]

Although previous cases required policyholders to a higher pleading standard than was required in COVID-19 insurance cases, more recent decisions reflect a shift in policy and give cause for optimism. Now the ball is really in the courts to apply it properly and allow the discovery of medical and scientific evidence before making a decision on COVID-19’s ability to cause loss or damage.

The full statement in Los Angeles Lakers, Inc. vs. Fed. Into the. co2022 WL 16571193 (CD Cal. 10/26/2022). here.


[1] We have previously covered the Baylor College of Medicine verdict in a previous post.

[2] That Huntington Ingalls decision was also discussed in a previous post.

Copyright © 2022, Hunton Andrews Kurth LLP. All rights reserved.National Law Review, Volume XII, Number 325

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