Starlight Cinemas, Inc. v. Mass. Bay Ins. Co.
Facts: An owner of commercial property holds an all risk commercial property and general liability insurance policy issued by an insurer. The policy covers loss caused by the suspension of commercial operations resulting from direct physical loss or damage to the building. The policy excludes coverage for any losses resulting from a virus. The owner’s commercial operations are suspended as a result of government closure orders due to the COVID-19 pandemic. No COVID-19 infections are reported on the property. The owner files a claim with their insurer to recover money losses suffered during the closure orders. The insurer denies the claim.
Claim: The owner claims the insurer breached their contract to cover money losses due to loss of functional use of the property caused by government closure orders since no viral infections were present on the property.
Counterclaim: The insurer claims the owner is not entitled to coverage for losses due to the physical loss of the use of their property since pandemic-related closure orders do not qualify as a physical alteration to the property to recover money losses caused by viruses as they are excluded from coverage.
Holding: A California appeals court holds the insurer did not breach the policy’s contract and the owner cannot recover losses since no physical loss to the property occurred and pandemic-related closures are not a physical alteration to the property, but an interruption of the commercial function of the property caused by a virus which is excluded from coverage. [Starlight Cinema Inc. v. Massachusetts Bay Insurance Company (2023) 91 CA5th 24]
Starlight Cinemas, Inc. v. Mass. Bay Ins. Co.
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